================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 20-F
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-26936
SMARTLOGIK GROUP PLC
(formerly known as Bright Station plc and The Dialog Corporation plc)
(Exact name of Registrant as specified in its charter)
ENGLAND
(Jurisdiction of incorporation or organization)
The Communications Building, 48 Leicester Square, London, WC2H 7DB
(Address of principal executive officer)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Title of each class Name of each exchange on which registered
American Depositary Shares, each representing
four Ordinary Shares of par value (Pounds)0.01 each NASDAQ National Market
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital of common stock as of the close of the period covered by the annual
report: 172,614,502 Ordinary Shares, par value (Pounds)0.01 each
___________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark which financial statement item the registrant has elected
to follow: Item 17 [_] Item 18 [X]
===============================================================================
Pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), information in answer, or partial answer, to
certain items herein is being incorporated by reference. Pursuant to Rule 12(b)-
23(a)(3) of the Exchange Act, copies of such information or the pertinent pages
of the document containing such information are attached hereto as exhibits.
References below to major headings include all information under such major
headings, including subheadings, unless such reference is part of a reference to
a subheading, in which case such reference includes only the information
contained under such subheading. Graphs are not included unless specifically
identified below.
Information in this Form 20-F, including exhibits, contains "forward-
looking" statements about the Company. All statements regarding the Company's
future financial condition, results of operations and businesses, strategy and
plans and objectives are forward-looking. Statements containing the words
"believes", "intends", "expects", and words of similar meaning are also forward-
looking. By their nature, forward-looking statements involve risks,
uncertainties and other factors that could cause actual results to differ
materially because they relate to events and depend on circumstances that will
occur in the future. There are a number of factors that could cause actual
results to differ materially from those expressed in such forward-looking
statements, including amongst other things, changes in demand for the Company's
products; fluctuations in quarterly results; dependence on key personnel; growth
of the Internet; investment risk; financial risk management; and the risk of
litigation. Additional factors that could cause actual results to differ
materially are discussed herein and in the Company's recent filings with the
Securities and Exchange Commission, including but not limited to, its Form 6-
K's. The most significant risks to the Company are described under "Risk
Factors". These factors and this cautionary statement expressly qualify all
forward-looking statements.
PART I
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 - KEY INFORMATION
A Selected Financial Data
The information set forth under the heading "Consolidated Balance Sheet for
the year ended 31 December 2000" on page 21, under the heading "Company Balance
Sheet for the year ended 31 December 2000" on page 22 and under the heading
"Five Year Financial Summary" on page 64 of the Company's Annual Report 2000,
attached as an exhibit to the Company's Report on Form 6-K dated June 21, 2001,
is incorporated herein by reference and attached as an exhibit hereto.
In addition, Selected Financial Data is presented for the five financial
years ending 31 December 2000 as follows:
The following tables have been calculated in accordance with UK GAAP.
<TABLE>
<CAPTION>
Restated
1996 1997 1998 1999 2000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Loss)/earnings per share (pence) (7.8) (20.5) 2.9 (3.9) (79.2)
Operating (loss)/earnings per share relating to
continuing activities (pence) - (0.02) 0.5 (1.0) (13.3)
Shares used to compute (loss)/earnings per share
(000s) 92,364 101,077 150,579 151,929 166,573
Equivalent (loss)/earnings per ADS (pence) (31.3) (82.1) 11.8 (15.5) (317.0)
Equivalent operating (loss)/earnings per ADS
relating to continuing activities (pence) - (0.1) 1.9 (4.0) (53.2)
----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Consolidated Balance Sheet Data
----------------------------------------------------------------------------------------------------------------------------------
Restated
Year ended 31 December 1996 1997 1998 1999 2000
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital 9,581 19,957 (10,357) (24,303) 12,290
Total assets 33,705 124,510 109,542 107,303 24,053
Long-term liabilities 938 170,264 144,438 138,800 (17)
Ordinary shareholders' equity 26,037 (90,955) (93,741) (103,071) 16,682
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dividends
The Company has never declared or paid any cash dividends on its Ordinary
shares. Any payment of dividends would be subject, under English law, to the
Companies Act 1985, which requires that all dividends must be approved by the
Company's Board of Directors and, in some cases, the shareholders, and may only
be paid from the Company's distributable profits and only to the extent that the
Company has retained earnings, both determined on an unconsolidated basis.
Exchange Rates
The following table sets forth, for the period and dates indicated, the average
Midmarket Rates for Pounds Sterling expressed in US Dollars per Pound Sterling.
These translations should not be construed as a representation that the Pounds
Sterling amounts actually represent such US Dollar amounts or could be converted
into US Dollars at such rates. Such rates are not used by the Company in the
preparation of its Financial Statements included elsewhere herein.
-------------------------------------------------------------------------------
Average/(1)/
Year ended 31 December $
-------------------------------------------------------------------------------
1996 1.562
1997 1.634
1998 1.658
1999 1.614
2000 1.514
2001 1.407/(2)/
--------------------------------------------------------------------------------
(1) Calculated by using the average of the Midmarket Rates on the last day of
each month during the relevant period.
(2) On July 10, 2001, the average Midmarket Rate for Pounds Sterling expressed
in US Dollars per Pound Sterling was $1.407
The following table sets forth, for the period and dates indicated, the high and
low Midmarket Rates for Pounds Sterling expressed in US Dollars per Pound
Sterling. As above, these translations should not be construed as a
representation that the Pounds Sterling amounts actually represent such US
Dollar amounts or could be converted into US Dollars at such rates. Such rates
are not used by the Company in the preparation of its Financial Statements
included elsewhere herein.
--------------------------------------------------------------------------------
High Low
Month ended $ $
--------------------------------------------------------------------------------
31 January 2001 1.510 1.446
28 February 2001 1.483 1.431
31 March 2001 1.476 1.415
30 April 2001 1.450 1.414
31 May 2001 1.445 1.407
30 June 2001 1.427 1.368
--------------------------------------------------------------------------------
Fluctuations in the exchange rate between the Pound Sterling and the US Dollar
will affect the US Dollar amounts received by holders of the Company's American
Depositary Shares("ADSs") upon conversion by the Depository of cash dividends
paid in Pounds Sterling on the Ordinary shares represented by the ADSs in the
event of dividends being declared and may affect the relative market prices of
the ADSs in the US and the Ordinary shares in the UK.
The Company does not currently have any distributable reserves and does not
expect to pay dividends for the foreseeable future.
The Company does not believe that changes in the exchange rates have had a
material effect on operating results from international operations.
B Capitalisation and indebtedness
Not applicable.
C Reasons for the offer and use of proceeds
Not applicable.
D Risk factors
i. Share price performance
The market price of the Company's Ordinary shares and ADSs may be subject to
significant fluctuations which may not reflect the value of the Company's
underlying assets.
The Company's quarterly operating results are likely to fluctuate. If the
Company fails to meet the expectations of public market analysts or investors,
the market price for its Ordinary shares and ADSs - which is subject to
volatility - may decrease significantly.
The Company's Ordinary shares are listed on the London Stock Exchange and are
publicly traded in the UK. The ADSs have been traded on the Nasdaq National
Market since November 1995. The trading price of the Ordinary shares on the
London Stock Exchange, and the ADSs on the NASDAQ National Market have been
subject to wide fluctuations.
On June 18, 2001, the Company received a letter from NASDAQ indicating that the
Company had failed to comply with the minimum bid price requirement for
continued listing set forth in NASDAQ Marketplace Rule 4310(c)(4) (the "NASDAQ
Rule"). The notice stated that the Company has 90 calendar days or until
September 17, 2001 to regain compliance with the NASDAQ Rule, after which if the
Company does not comply with the NASDAQ Rule, its ADSs could be delisted from
NASDAQ. The Company is currently exploring its options regarding the NASDAQ
listing of its ADSs, including potential delisting. Removal of the ADSs from
listing on NASDAQ could have a material adverse effect on the liquidity of the
ADSs.
In addition, in recent years the stock market in general, and the shares of
Internet and technology companies in particular, have experienced extreme price
and volume fluctuations. This volatility has had a substantial effect on the
market prices of securities issued by many companies for reasons unrelated to
their operating performance. These broad market fluctuations may adversely
affect the market price of the Ordinary shares and ADSs. The market price of the
Ordinary shares and ADSs are directly affected by economic and political
conditions in the UK, in part because the Ordinary shares are listed and traded
on the London Stock Exchange and are subject to local conditions and press
comment but also are a result of differences between operating results reported
under US and UK GAAP.
The share price may be volatile given the potential volatility of the Company's
operational results, and unpredictable market sentiment towards technology
stocks, which may be determined by reference to the performance of comparable
companies and other factors which may be outside the control of the Company.
ii. Operational performance
On April 30, 2001, the Company's Board announced that it was no longer feasible
to continue its rate of cash expenditure in support of all of its business
initiatives and it determined a radical restructuring of the Group to reposition
it as a "pure play" knowledge management business through its Smartlogik
subsidiary. Since then, a financing package has been secured through the placing
and open offer of new Ordinary shares (the "Placing and Open Offer"). The
Company's Sparza and OfficeShopper subsidiaries have been closed, and the
Company's WebTop business has been folded into Smartlogik. The Group's new
primary operating subsidiary, Smartlogik, has a limited, loss-making operational
history which provides little assistance to investors in, and gives no guarantee
of future performance for, assessing the Group's prospects. The Group is
expected to continue to make losses and remain cash flow negative, at least in
the short term, and there is no guarantee that the Group will ever achieve
profitability.
The Group's performance expectations are based on forecasts, estimates and
targets which, although believed to be reasonable, may not be achieved.
The nature of the Group's operations, and the rapidly evolving, immature market,
may result in fluctuating and unpredictable performance, leading to failure to
meet analysts' or investors' expectations. In particular, the Group's revenue
growth expectations rely heavily upon the continued growth of the Internet and
knowledge management markets, which are subject to a large number of
uncertainties many of which may not now even have been considered. In addition,
the Group may fail sufficiently to understand customer requirements, maintain
product quality, increase the value and profile of its brand, or achieve
anticipated price increases.
The nature of the Group's revenues makes performance susceptible to the loss of
key customers. The Group's ability to achieve revenue growth in the future will
depend on its success in continuing to develop new relationships and enhance
existing relationships with strategic partners and corporate customers. The loss
of any strategic partnership or key customer could significantly adversely
affect the financial results of the Company.
The Group's strategy for achieving revenue growth is highly dependent upon its
strategy of international, and particularly US, expansion. This strategy is
unpredictable and may fail as a result, inter alia, of the Group's limited
experience of international operations, established competitors, the potential
for different technical evolution and growth rates in foreign markets, foreign
exchange risk and multi-jurisdictional legal risks.
The Group's costs are also unpredictable, and there is a risk that the Group
will fail to control these, or that cost control may have an adverse impact upon
growth. Further, the restructuring which the Group is currently implementing may
not be successful, or future acquisitions may not be effectively integrated,
with adverse implications for costs, revenues and performance.
iii. Products and services
The knowledge management sector is influenced by rapidly changing technology,
changes in customer needs and frequent introduction of new or enhanced products
and services. Accordingly, the Company believes that its future success will
depend to a great extent upon its ability to meet these changes by enhancing its
existing products and services, increasing its market presence and the market's
awareness of the Company's brand names and developing and introducing new
products and services on a timely basis. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in development or introduction of new
products and services, could result in a loss of competitiveness or revenues and
thereby have a material adverse effect on the Company's results of operations.
Additionally, new products when first released by the Company, may contain
undetected errors or "bugs" that, despite testing by the Company, are discovered
only after a product has been installed and used by customers. There can be no
assurance that errors will not be discovered in the future, causing delays in
product introduction and resulting in negative market reactions to the new
product or service.
Broader brand recognition and a favourable public perception of the Company's
brands and domain names are essential to its future success. Accordingly, the
Company intends to pursue brand-enhancement strategies, which will include,
among others, promotional programmes and public relations activities. These
expenditures may not result in a sufficient increase in revenues to cover such
advertising and promotional expenses, or if this brand enhancement strategy is
unsuccessful, these expenses may never be recovered and it may be unable to
increase future revenues.
The Company's strategy in bringing the Smartlogik technology to market involves
pursuing strategic alliances with corporations wishing to integrate its
technology into their IT systems. Such relationships may involve customization
of the Smartlogik technology to suit the customer's needs. The customization of
the Company's products may be labour intensive and it may be difficult to
predict the length of the development cycle, realize revenue goals and manage
the Company's internal hiring needs to meet new projects. Factors affecting the
length of the development cycle include the overall size and complexity of the
customer's IT platform, the interaction with the customer and the dynamic nature
of the content.
iv. Competition and strategy
While the Directors and Proposed Directors believe that the Group currently
derives competitive advantage from product tailoring and differentiation, the
market in which the Group operates is characterised by intense competition and
rapidly changing technology. The Group's strategy may prove unsuccessful in the
face of new entrants or the unforeseen actions of existing competitors,
particularly those which are financially stronger than the Company. Moreover,
the Group's existing strategy may be negated, or required to change completely,
by currently unanticipated market, technological or other developments. The
Group's technology position may be surpassed by that of new or existing
competitors.
The Company may compete against companies such as Autonomy, Infoseek, Excalibur,
Verity and KMS. Some current and potential competitors have longer company
operating histories, larger customer bases and greater brand recognition than
the Company. Some competitors may also have significantly greater financial,
marketing, technical and other resources. Some may be able to devote more
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies and devote substantially more resources to product, services and
systems development than the Company is able to devote. These competitors may
also engage in more extensive research and development and make more attractive
offers to existing and potential corporate customers, advertisers, syndicators
and eCommerce merchants. There can be no assurance that any such competition,
on the basis of price, scope of products, services and strategic relationships
or other factors, would not have a material adverse effect on the Company's
results of operations.
The Group's distribution strategy relies in part on the achievement of
agreements with original equipment manufacturers ("OEMs") and strategic
partners, which may not be achieved or which may result in the Group taking on
unforeseen warranty, after-sales support or other liabilities. In addition, the
use of sales intermediaries exposes the Group's brand to damage caused by the
actions of any of the Group's partners or distributors.
v. Infrastructure
The performance of the Company's server and networking hardware and software
infrastructure, whether provided internally or by a third party, is critical to
its business, reputation and ability to attract users, advertisers and partners.
Fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect the
Company's services. The Company's insurance policies may not adequately
compensate it for any losses that may occur due to any failures or interruptions
in its systems.
The Group's systems ability to ensure the security and privacy of client
information within its computer hardware and software infrastructure is
extremely important to its continued success. Failure of the systems to ensure
such security or privacy, either as a result of system breakdown, or unforeseen
technical advances which render the Group's systems inadequate, would have a
materially adverse impact on the Group's brand and, consequently, future
performance.
vi. Employees
The Group's infrastructure or employees may not have the capacity to meet
current targets, or the Group may be unable to obtain sufficient additional
resources to meet its future needs, and this may act as a constraint on growth,
or cause permanent damage to the Group's brand and, consequently, performance.
The Company is particularly reliant upon its Chief Executive, Stephen Hill,
Chief Financial Officer, Simon Canham, and Development and Customer Service
Director, Yvonne Jacklin. The loss of any one or more of these individuals would
have a material adverse effect on the Company. While every effort has been made
to mitigate the potential damage caused by their departure by offering
appropriate incentive packages, there can be no guarantee that they will remain
with the Group. The Company intends to purchase keyman insurance on Stephen
Hill, Simon Canham and Yvonne Jacklin in the near future, but there can be no
guarantee that insurance would fully indemnify the Group against the impact of
their inability to continue working for the Company in the event of physical or
mental incapacity.
vii. Intellectual property rights
Smartlogik's key products are currently based on proprietary software which has
been developed in-house or purchased from external sources. The Company
considers its MuscatStructure indexing system, WebTop, and MuscatDiscovery to be
critical to its future success. The Company regards its MuscatStructure indexing
system and related software, Smartlogik suite, WebTop search engine and its
MuscatDiscovery intelligent search engine software as proprietary. It relies
primarily on a combination of statutory and common law copyright, trademark and
trade secret laws, customer licensing agreements, employee and third-party non-
disclosure agreements and other methods to protect its intellectual property and
proprietary rights. The Company has several patents pending, primarily relating
to its MuscatStructure technologies and has secured a patent for its Incremental
Viewer.
There can be no guarantee, however, that these will provide sufficient
protection either in domestic or overseas markets. In particular, there is a
risk that the Group's strategic partners, or employees, may use knowledge gained
from the Group to produce competing technologies, or that existing or future
competitors may achieve similar technologies by different development routes.
Certain of the Group's Muscat software is based on publicly available research,
much of which can be obtained on the Internet, including Bayesian Theory
Research done at Cambridge University.
It is also possible that the Group may be shown not to have good title to its
proprietary assets, either as a result of a previous owner not having good
title, or because of claims made by in-house developers for rights over software
in the development of which they were involved. Any diminution in the Group's
rights over its intellectual property may have severe adverse consequences on
performance and may prevent the Group from continuing in operation or cause
permanent damage to the Group's brands. Moreover, any lawsuits necessary to
protect the Group's intellectual property may prove highly expensive.
viii. Legislation and regulation
The Internet is being increasingly regulated. The Group's performance may in the
future be adversely affected by the introduction of, inter alia, new regulations
in areas of the Group's activities which are currently regulated, regulations in
areas which are not currently regulated and regulations in areas in which the
Group may participate at some time in the future, or on which the Group's
activities are contingent. It is also possible that the Group may have legal
liability for content accessed by its software.
ix. Additional funding requirements
The Company intends to use the proceeds of the Placing and Open Offer to meet
operational cash flow requirements until the achievement of positive cash flow.
There can be no guarantee, however, that the proceeds will prove sufficient to
achieve positive cash flow. Any of the factors listed above, including but not
restricted to unexpected cost increases, failure to meet revenue targets or the
wish to make corporate acquisitions, may result in additional funding being
required at some point in the future. Any such future funding may not be
available on commercially reasonable terms, if at all, may involve shareholders
suffering substantial dilution, and any newly issued securities may have rights
superior to those of the Ordinary shares and the ADSs. If the Company raises
additional funds by issuing debt, it may be subject to limitations on its
operations, including limitations on the payment of dividends.
Capital constraints imposed by lack of available funding may cause management to
scale back expenditure which is necessary to achieve growth and market share
targets, in particular on marketing and the development of new products. Any
such cut backs may have a material adverse, and permanent, effect on the
Company's performance.
ITEM 4 - INFORMATION ON THE COMPANY
A History and development of the company and B Business review
The Company was incorporated and registered in England and Wales in February
1985 as a private limited company and, in February 1994, reregistered as a
public limited company with the name M.A.I.D plc ("M.A.I.D"). On 14 March 1994,
the Company listed on the London Stock Exchange and in November 1995 the Company
was approved for trading on NASDAQ. On 14 November 1997, M.A.I.D acquired
Knight-Ridder Information, Inc. and Knight-Ridder Information AG (collectively,
"KRII") from Knight-Ridder, Inc. (the "Acquisition"), and M.A.I.D changed its
name to The Dialog Corporation plc ("The Dialog Corporation"). On 4 May 2000,
The Dialog Corporation completed a refinancing and restructuring through the
sale of its Information Services Division (the "ISD") to The Thomson Corporation
("Thomson") for $275 million (approximately (Pounds)173 million) in cash which
enabled the Company to repay in full all of its outstanding senior and high
yield debt which totaled approximately $275 million. The Dialog Corporation then
changed its name to Bright Station plc ("Bright Station") and refocused its
business on its eCommerce and Web Solutions Divisions. On 6 July 2001, Bright
Station completed a Placing and Open Offer for the purpose of raising funds to
restructure the business to focus on its Smartlogik knowledge management
business. To reflect this restructuring and refocusing of the business, Bright
Station was renamed Smartlogik Group plc (the "Company").
The information set forth under the subheading "Description of Business -
Background" on pages 3 to 4 of the Company's Annual Report 1999, attached as an
exhibit to its Report on Form 6-K dated July 17, 2000, is incorporated herein by
reference and attached as an exhibit hereto.
The year 2000 has witnessed the following highlights for the Company:
In March 2000, the Company launched WebTop.com (www.webtop.com), a new concept-
based search engine, revolutionizing the way in which people can search the
Internet. WebCheck, a concept-based search tool, featuring "drag and drop"
technology to enable the user to retrieve matches for an entire sentence,
paragraph, document or email, was subsequently introduced as a complementary
desktop application of WebTop.com. WebTop and its technology assets have since
been folded into Smartlogik.
In April 2000, the Company announced that it was going to complete a
restructuring involving the sale of the Information Services Division ("ISD") to
Thomson Corporation ("Thomson"), the repayment of its corporate debt, the
receipt of equity stakes from Thomson Finance S.A. and Jiyu Holdings, and the
change of the Company's name to Bright Station plc. Also in April, British
Airport Authority, the world's leading airport company, selected the Company's
Smartlogik knowledge management software suite for deployment to over 5,500
employees/desktops throughout its global Intranet.
In May 2000, the Company acquired the underlying technology of boo.com from its
liquidators, KPMG. The Company also retained the services of a significant
number of the technical personnel from boo.com to assist in the development of
the technology and its integration with the Company's Sparza technology. Also in
May, Yellow Pages Group selected Smartlogik for its core search and structure
technologies provider.
On 4 May 2000, the Company completed the disposal of its Information Services
Division (ISD) to Thomson for $274 million ((Pounds)176 million) and raised a
further (Pounds)27.9 million through equity subscription. The proceeds from the
disposal and the equity subscription were used to repay the Company's
indebtedness in its entirety. Following the disposal of ISD, the Company was
restructured as a technology infrastructure business focused on the remaining
eCommerce and Web Solutions Divisions. In addition, the Company established a
new investment business, Bright Station Ventures Ltd., later re-named Smartlogik
Ventures Ltd. ("Bright Station Ventures"), to invest in and assist promising
Internet and eCommerce start-ups.
In June 2000, the Company disclosed that its WebTop.com Internet search engine
had reached a milestone of having indexed over 500 million documents on the Web,
making it one of the four largest Internet search engines. WebTop.com also
announced new strategic agreements with beenz.com and Netscape (Netherlands).
Also in June, Stephen Hill was appointed CEO of Smartlogik Ltd ("Smartlogik").
Stephen's prior position was Managing Director of Europe for Inktomi (NASDAQ:
INKT). While there, he established Inktomi as the market leading Internet-
infrastructure company in Europe, in all major markets. Prior to this, Stephen
held international management roles within Gentia Software (as VP International
1997-1998), Interleaf (as VP International and a member of their Executive Board
1993-1997), and Oracle Corporation (as General Manager 1987-1993).
In December 2000, David Jefferies was appointed Chairman of Smartlogik. Former
Chairman of National Grid Group plc (LSE: NGG) and Viridian Group plc (LSE:
VRD), David led the expansion of the National Grid Group in the USA and in South
America and was responsible for the foundation of Energis Telecommunications
(LSE: EGS) in 1992. He had previously been Chairman of London Electricity, from
1981 to 1986. David Jefferies is currently Chairman of 24/Seven, the utility
service provider, a member of the Board of the Strategic Rail Authority,
Chairman of the Indo-British partnership, designed to promote bilateral trade
with India and Chairman of Costain Group PLC.
In January 2001, the Company announced a series of technology and marketing
agreements with Intel Corporation, the world's largest chip-maker and a leading
manufacturer of computer, networking and communications products. Highlights of
the relationship include, Smartlogik's knowledge management solution to be
piloted in Intel's Northern European operations; Smartlogik was selected to be
demonstrated in Intel Solution Centers as an example of a leading edge knowledge
management solution; and Intel committed engineering resources to optimize the
Smartlogik application suite for current and future 32 bit processors and the
Intel(R) Itanium(TM) processor.
On April 30, 2001, the Company's Board announced that it was no longer feasible
to continue its rate of cash expenditure in support of all of its business
initiatives and it determined a radical restructuring of the Group to reposition
it as a "pure play" knowledge management business
through its Smartlogik subsidiary. This restructuring involved the closure of
the eCommerce division of the Group, and the reduction of corporate overhead.
Since then, a financing package has been secured through the Placing of
270,000,000 new Ordinary shares at 5 pence per share, incorporating an Open
Offer of up to 138,661,969 new Ordinary shares on the basis of 4 new Ordinary
shares for every 5 existing Ordinary shares held. The Sparza and OfficeShopper
subsidiaries have been closed, the WebTop business has been folded into
Smartlogik and corporate overhead has been reduced.
The Placing and Open Offer received shareholder approval at an Extraordinary
General Meeting in London on 6 July 2001 whereupon the Company's Directors Allen
Thomas, Daniel Wagner, David Mattey, Ian Barton and Patrick Sommers stepped down
to be replaced by the Board of Smartlogik Ltd, and the name of the Company was
changed to Smartlogik Group plc.
Smartlogik is a leading provider of customized information retrieval solutions;
a core technology for a variety of knowledge management applications including
intranets, corporate portals, content management, document management, Customer
Relationship Management (CRM), and personalization. Smartlogik has over 100
corporate customers including Ananova, the Bank of England, British Broadcasting
Corporation (BBC), the British Library, the Daily Telegraph, Dialog, Thomson,
the Department of Trade and Industry (DTI), Fortune City, Hansard, the Lafferty
Group, Legal and General, Yellow Pages, the Danish Foreign Ministry and the
World Conservation Monitoring Centre.
The Company's registered office is The Communications Building, 48 Leicester
Square, London WC2H 7DB, England, and its telephone number is +44-20-7930-6900.
The Company's web site is www.smartlogik.com (formerly www.brightstation.com).
Competitive Strengths
Smartlogik, a provider of customized information retrieval solutions, has a
number of competitive strengths:
Proprietary Technologies. Developed over the last 15 years, MuscatStructure
(previously InfoSort) is the Company's proprietary categorization technology. It
is a powerful information management system for the indexing and categorization
of unstructured data. MuscatStructure can be deployed across any number of
different information sources including relational databases, Lotus Notes files,
email systems, corporate intranets, voice recordings and film libraries, using
terminology unique to their organization. The Company also owns 100% of Muscat,
re-branded MuscatDiscovery, which offers sophisticated natural language search
and retrieval software, and uses linguistic inference to search unstructured
data. This technology matches 'concepts', instead of the simple key-word
matching used by most search engines today.
Customized Solutions. Unlike many competitive offerings, Smartlogik's search and
categorization solutions are tailored to meet the unique requirements of each
customer, thus providing organizations with search results that are far more
accurate and precise. Smartlogik firmly believes that every customer's
information management requirements are different and thus each customer
requires a unique solution.
Human approach. Computers lack the insight, lateral thought and inspiration
that can only be found in a human brain. Smartlogik believes that by far the
best results are obtained when human experts are able to enhance the information
processing power of today's technology. Smartlogik's Information Scientists
understand our clients' businesses and understand the business of information
management. They play a crucial role in designing our client's knowledge
management systems and ensuring that their categorization systems are enhanced
with the insight required to build an information retrieval solution that
understands the way each client's business speaks, thinks and acts.
Multi-channel. Smartlogik provides its products and services through a multi-
channel network consisting of a direct sales force, `sell with' strategic
partners, OEM partners and an experienced in-house consulting arm.
Scalability and performance. Smartlogik's solutions are both high performance
and scalable. Yell.com chose Smartlogik to power its online yellow pages
directory service after an exhaustive competitive testing process, in which
Smartlogik faced many competitors.
Strategy
The Company's strategy is to focus on the provision of world-class customized
information retrieval solutions. Smartlogik aims to be perceived as the `Partner
of Choice' for Professional Service firms, System Integrators, Application
Vendors and Hardware Manufacturers; and the `first port of call' for Knowledge
Management solutions and advice for special niche groups of organizations.
Products and Services
Smartlogik offers a suite of products, including MuscatStructure,
MuscatDiscovery, Alert, and MuscatToolbox (a developer's kit), which addresses
the processes of information categorization, retrieval, and alerting to new
information. Smartlogik solutions leverage these technologies for the knowledge
management, corporate intranet and Internet markets. Smartlogik tools can
collect data from external feeds, internal databases, internal documentation on
corporate intranets, or data from the Web. This information may then be filtered
through its indexing, categorization and search tools to deliver the right
information to the right employee at the right time. In addition, Smartlogik
offers a range of applications as well as consulting and implementation
services to ensure that its clients can make full use of the technology. An
organization may adopt the full Smartlogik suite, or opt to utilize a selection
of the tools available, depending upon its requirements.
Since the WebTop business was rolled into Smartlogik, the WebTop technology is
being applied to improve the Smartlogik offering. The WebTop downloadable
Windows-based search tool will be re-branded Smartcheck for use in the Discovery
Search product. The WebTop Zone builder will allow customers to aggregate
content from the Web, extract key terms and automatically build vertical indexes
by topics or categories. Distributed search technology will enable distributed
searching over a "cluster" of machines holding an index of the Web.
Intellectual Property and Proprietary Rights
The Company considers its MuscatStructure indexing system, WebTop, and
MuscatDiscovery to be critical to its future success. The Company regards its
MuscatStructure indexing system and related software, Smartlogik suite,
WebTop search engine and its MuscatDiscovery intelligent search engine software
as proprietary. It relies primarily on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party non-disclosure agreements and other methods to protect
its intellectual property and proprietary rights. The Company has several
patents pending, primarily relating to its MuscatStructure technologies and has
secured a patent for its Incremental Viewer.
In addition, the Company may license data from third party providers. The
Company's right to use and distribute information depends almost entirely on the
rights of its third party providers to license such information.
Sales and Marketing
Smartlogik delivers its products through two distinct channels; the Solutions
channel and the Technology channel. The Solutions channel is a relatively high
value business providing a combination of software, applications and services to
deliver a precise solution to specific customers. The sales model of the
Solutions channel is predominantly direct, with fulfilment normally being
provided by Smartlogik in conjunction with selected strategic service partners.
Smartlogik is in the process of shifting the sales focus of the Solution channel
from delivery of a pure technology product to the provision of integrated
solutions, and in doing so, increase the average value of implementations.
Through its Technology channel, Smartlogik provides the technology (Muscat
software platform) to OEMs and to systems integrators to build their own
applications and solutions. Current signed agreements include:
. Norcontrol (announced March 2001) - A value added reseller for the Spanish,
Portuguese and Latin American markets; and
. Valid Information Systems (signed March 2001) - An OEM partner which provides
Smartlogik with access to numerous blue-chip clients including predominantly
governmental organisations such as The Inland Revenue, HM Treasury, The
Department of the Environment, The Royal Air Force and The Serious Fraud
Office.
Smartlogik has also allied with IBM to market Smartlogik solutions as an
approved IBM Independent Software Vendor. Other channel partners include
Fujitsu, Germinus, Horizon and Thomson.
Competition
Smartlogik operates within the knowledge management market, which the Board
believes has substantial growth potential, a view generally supported by
independent industry observers and analysts. This market growth potential is
driven by the expansion of information available on the Internet and corporate
intranets. The largest market is the United States, where Smartlogik has opened
offices on both the East and West coasts. Joint ventures are also being pursued
in continental Europe.
Smartlogik's core products are established and scalable and provide the business
with a competitive offering in the knowledge management market. Management has
begun to supplement these core products with applications and templates geared
to the needs of specific vertical markets, focusing initially on the media,
financial services and pharmaceutical industries. With the release of a Java
version of Muscat Discovery and with the imminent release of a Com+ version of
Muscat Discovery, Smartlogik has also implemented the early phases of a
programme of product development and enhancement aimed at ensuring that the
Group remains at the forefront of technology in the knowledge management market.
Smartlogik's breadth of product offerings, together with the probabilistic
modelling techniques and their proven scalability to handle effectively large
quantities of information and large numbers of users, provide considerable
differentiation from competitors.
Smartlogik technologies may compete against advanced information retrieval
technology companies such as Autonomy, Infoseek, Dataware, Excalibur, and
Verity.
The information set forth under the heading "Segmental Analysis" on page 28 of
the Company's Annual Report 2000, attached as an exhibit to the Company's Report
on Form 6-K dated June 21, 2001, is incorporated herein by reference and
attached as an exhibit hereto. This information sets out a breakdown of total
revenues by category of activity and geographic market for each of the last
three fiscal years.
C Organisational structure
The information concerning principal subsidiary undertakings set forth under the
subheading "Notes to the Financial Statements - Note 15 - Fixed Asset
Investments" on page 41 of the Company's Annual Report 2000, attached as an
exhibit to the Company's Report on Form 6-K dated June 21, 2001, is incorporated
herein by reference and attached as an exhibit hereto.
D Property, plant and equipment
Property
The Company's head office and principal place of business in the UK is located
at The Communications Building, 48 Leicester Square, London WC2H 7DB where it
leases 14,332 square feet of office space. Smartlogik and WebTop jointly lease
5,620 square feet of office space in Cambridge. Smartlogik also leases 3,874
square feet of office space in Alexandria, Virginia and 2,910 square feet of
office space in San Francisco, California. The Company leases approximately
4,600 square feet of office space in Wembley, Middlesex to support the Trade UK
service operated in conjunction with the UK Government's Department of Trade and
Industry. OfficeShopper leases approximately 6,300 square feet of office space
in Chertsey, having relocated their operations from Oxford during the year.
Following the sale of OfficeShopper assets to Inkwell Direct on 9 May 2001, the
Chertsey premises are being marketed with a view to disposal of the lease. The
Company's field sales operations lease facilities in various other locations in
Europe and the United States. The Company believes that its existing facilities
are adequate for its current needs and that additional space will be available
as needed.
Prior to the sale of the ISD to Thomson, completed on 4 May 2000, the Company's
US operations were based in Cary, North Carolina and in Mountain View,
California. The Company leased approximately 63,743 square feet of office space
in Cary, which served as the sales and administrative headquarters for the
United States. Approximately 133,500 square feet of office space was leased in
Mountain View (of which 88,532 square feet was leased to sub-tenants) for the
United States product development group. Until 4 May 2000, the Company's
principal data centre was in Palo Alto, California, where it leased
approximately 35,500 square feet of space. The Company also leased approximately
20,900 square feet in Bern, Switzerland, which was both a data centre and a
technical support facility for the Datastar service. The Company's UK mainframe
computers were located in Slough, Berkshire and were managed by a third party
specialist company. On completion of the sale of the ISD to Thomson in May 2000,
the leases in Cary, Mountain View, Palo Alto and Bern, together with all sales
and support leased facilities in the United States and Europe, were transferred
to Thomson under the terms of the sale agreement.
Equipment
The Company purchased Sun equipment from leasing companies to boo.com in June
2000 at a cost of (Pounds)900,000. The majority of this equipment was sold in
June 2001 for (Pounds)330,000, a sum commensurate with its net book value at
that date.
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A Operating results
The information set forth under the heading "Operating and Financial Review" on
pages 4 to 7 of the Company's Annual Report 2000, attached as an exhibit to the
Company's Report on Form 6-K dated June 21, 2001, is incorporated herein by
reference and attached as an exhibit hereto.
The information set forth under the heading "Operating and Financial Review" on
pages 14 to 17 of the Company's Annual Report 1999 attached as an exhibit to the
Company's Report on Form 6-K dated July 17, 2000 is incorporated herein by
reference and attached as an exhibit hereto.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101),
which provides guidance on revenue recognition. SAB 101 is effective for fiscal
years beginning after December 15, 1999. During 2000, the Company adopted SAB
101, which did not have a material impact on the Company's results of operations
or financial condition.
Statement of Financial Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No.
138, became effective for the Company on 1 April 2001. SFAS No. 133, which
requires the recordings of all derivatives on the balance sheet at fair value,
introduces new rules in respect of hedge accounting and the recognition of
movements in fair value through the income statement. The Company did not have
any derivative financial instruments at 31 December 2001, therefore, the
standard did not have any impact on the results of operations for 2000.
B Liquidity and capital resources
The information set forth under the subheading "Notes to the Financial
Statements - Note 20 - Financial Instruments" on pages 44 to 45 and under the
subheading "Notes to the Financial Statements - Note 31 - Capital Commitments"
on page 62 of the Company's Annual Report 2000, attached as an exhibit to the
Company's Report on Form 6-K dated June 21, 2001, is incorporated herein by
reference and attached as an exhibit hereto.
C Research and development, patents and licenses, etc.
The information set forth under the subheading "Report of the Directors -
Research and Development" on page 13 and under the subheading "Notes to the
Financial Statements - Note 1 - Accounting Policies - Intangible Fixed Assets"
on pages 26 to 27 of the Company's Annual Report 2000, attached as an exhibit to
the Company's Report on Form 6-K dated June 21, 2001, is incorporated herein by
reference and attached as an exhibit hereto.
D Trend information
On 30 April 2001 the Group announced its intention to refocus its business
operations with the resultant sale or closure of its eCommerce activities,
comprising Officeshopper and Sparza, and the curtailment of head office
activities. As of 6 July 2001, the Group's primary operating business is that of
Smartlogik. The products and services of Smartlogik are described in detail in
Item 4 of this Form 20-F. On 9 May 2001, the Board announced that it had entered
into a legally binding agreement regarding the sale of the name, customer list
and debtor book of Officeshopper to Inkwell Direct.
On 31 May 2001, the Group announced its proposed Placing and Open Offer of
270,000,000 new 1 pence shares at 5 pence each. This was approved by the
shareholders at an Extraordinary General Meeting, held on 6 July 2001. The
proceeds of the Placing and Open Offer were approximately (Pounds)12 million net
of expenses. The shareholders also approved the change of name of the Company
from Bright Station plc to Smartlogik Group plc to reflect the refocusing of the
Company's operating business.
The unaudited results for the quarter ended 31 March 2001 were published on 31
May 2001. Overall Group revenues for continuing operations for the first
quarter of 2000 were (Pounds)2.3 million, reflecting an 18 percent increase
over the quarter ended 31 December 2000 and a 108 percent increase over the
quarter ended 31 March 2000. The increase primarily was due to increased
revenues from Smartlogik which continued to leverage the sales and marketing
infrastructure put in place towards the end of 2000.
Although Smartlogik continues to perform satisfactorily, the recent Group
restructurings have inevitably caused some disruption. As a result of the
recent uncertainties over the financial position of the Group, finalisation of
certain new sales contracts has been deferred, but the Board believes that
growth in revenues will now resume following the shareholder approval of the
Placing and Open Offer at the Extraordinary General Meeting on 6 July 2001.
The Company's continuing businesses as a whole have not yet achieved the level
of revenues necessary to provide the Group with operating profits. The Group
will look to invest in building the profile and sales pipeline of its Smartlogik
business. Although the Board anticipates revenue growth in the future, this
investment in its Smartlogik business will have a consequential impact on
earnings for the year. Although there can be no assurance that the Group will
achieve overall profitability in the near term, if ever, following the recent
share issue the Board believes the Company has sufficient working capital for
its present requirements.
The Board will actively manage the Group's net expenditure and will, in
particular, review carefully the pattern of revenues and overall expenditures in
the coming months in order to maximize its available capital.
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A Directors and senior management
The information set forth under the subheading "Report of the Directors" on
pages 13 to 14 of the Company's Annual Report 2000, attached as an exhibit to
the Company's Report on Form 6-K dated June 21, 2001, is incorporated herein by
reference and attached as an exhibit hereto.
The information set forth under the subheading "Part VII, 9. Directors' and
other interests - (c) Directors' and Proposed Directors' other interests" on
pages 77 to 78 and under the subheading "Part VII, 9. Directors' and other
interests - (e) Directors' and Proposed Directors' Service Agreements and
Emoluments' on pages 78 to 81 of the Company's Circular proposing the Placing
and Open Offer, attached as an exhibit to the Company's Report on Form 6-K dated
June 21, 2001, is incorporated herein by reference and attached as an exhibit
hereto.
The senior management of the Group for the year ended 31 December 2000 were the
members of the Board of Smartlogik Limited (the "Smartlogik Directors"). Four
Smartlogik Directors served during the fiscal year 2000, one of which was Robert
Lomnitz, whose details have been disclosed in the Company's Annual Report for
2000 in the sections referenced above and are incorporated herein by reference
and attached as an exhibit hereto. The other three Smartlogik Directors who
served during the year were:
<TABLE>
<CAPTION>
Name Age Position Position held since
<S> <C> <C> <C>
Simon Canham 35 Smartlogik Chief Financial Officer 2000 (appointed 17 October 2000)
Stephen Hill 45 Smartlogik Chief Executive Officer 2000 (appointed 8 June 2000)
David Jefferies 67 Smartlogik Non-executive Chairman 2000 (appointed 18 December 2000)
</TABLE>
On 20 March 2001, James Bair was also appointed to the Smartlogik Board, as a
Non-executive Director.
With the exception of Robert Lomnitz, none of the Smartlogik Directors, or their
immediate families had an interest in the Company's share capital at 31 December
2000. Robert Lomnitz had an interest in 100,000 Ordinary shares at 31 December
2000. As of 10 July, 2001, the Smartlogik Directors' interests in the Company's
share capital were as follows:
Number of shares as % of issued shares as
Director of 10 July 2001 of 10 July 2001
James Bair - -
Simon Canham 100,000 0.02
Stephen Hill - -
David Jefferies 250,000 0.05
Robert Lomnitz 594,500 0.13
The percentage of issued share capital held by the Smartlogik Directors has been
calculated on the basis of the issued share capital of 467,233,196 Ordinary
shares at 10 July, 2001.
Brief biographies of the Company's Directors at 31 December 2000 and of the
Smartlogik Directors are given below:
The Company's Directors
Allen Thomas
Non-executive Chairman
Allen Thomas joined the Board as a Non-executive Director in September 1997. A
qualified solicitor, Allen Thomas is Chairman of Ockham Holdings plc, a Director
of Penna Consulting plc and a Non-executive Director of EIDOS plc. From 1972
through 1992 he was a partner in Paul, Weiss, Rifkind, Wharton & Garrison, a
leading New York law firm, where he was the founding managing partner of the
Hong Kong office and acted as General Counsel to Municipal Assistance
Corporation in the refinancing of New York City. Additionally he was a Non-
executive Director of Mitsubishi Bank & Trust Company of New York. Upon his
retirement from Paul, Weiss in 1992, he became Vice President and General
Counsel at General Atlantic Group.
Daniel Wagner
Chief Executive
Daniel Wagner founded the Company in 1985 and has been the driving force behind
its growth and development, including listings on both the London Stock Exchange
and NASDAQ. Throughout his career, he has engineered numerous acquisitions and
has been responsible for forging a wide array of strategic alliances. In
addition, he has driven the company's move into the Internet technology market.
As one of the key individuals behind the development of the online business
information sector, Daniel Wagner has won various awards for entrepreneurial
achievement and is in frequent demand for high level speaking engagements both
in the United Kingdom and overseas.
David Mattey
Chief Financial Officer
David Mattey joined the Company as Financial Controller in 1991 and was
appointed Finance Director in December 1992. David Mattey was key to the
Company's flotation on the London Stock Exchange and NASDAQ. During 2000, David
Mattey led negotiations with the Company's lending banks and bondholders to
eliminate the Company's debt and has been responsible for the recent Group
restructuring and fundraising. He is also a Non-executive Director of Easynet
Group plc, a leading European Internet service provider. David Mattey is a
qualified chartered accountant and was previously a tax consultant with the
accountancy firm BDO Stoy Hayward.
Robert Lomnitz
Director
Prior to joining Smartlogik in an executive capacity, Robert Lomnitz was
responsible for Corporate Venturing for the Company, focusing particularly on
business development and investment opportunities synergistic to Smartlogik's
operational activities and growth strategy. Before joining the Company, Robert
Lomnitz was Director of Internet Investments at Baltic Asset Management, part of
the Luxembourg-based investment group. Previously, Robert Lomnitz had founded a
number of his own successful, entrepreneurial businesses, as well as managing
his own and third party funds to take advantage of both technology and non-
technology investment opportunities in the United States, Europe and Asia. From
1991 to 1993 he worked as Business Development Manager and General Counsel at
Societe Anonyme des Minerais, having qualified as an attorney at White & Case in
New York. Robert Lomnitz received an MBA at INSEAD, a law degree from Boston
University School of Law, and his undergraduate degree from Brown University.
Patrick Sommers
Non-executive Director
Patrick Sommers joined The Dialog Corporation as Chief Operating Officer and the
Board of Directors in October 1998, and was a key figure in the sale of the ISD
to Thomson. Upon the closure of the deal, Patrick Sommers resigned his executive
responsibilities with the Company and his employment was transferred to Thomson.
He remains on the Board as a Non-executive Director. Prior to joining the
Company, Patrick Sommers was Chairman and Chief Executive of Medicus Systems
Corporation. Between 1986 and 1995, he was President of Ceridian Corporation,
GTE Industry Services and D&B Information Resources Inc. He is presently a
Director of SIRSI Inc.
Ian Barton
Non-executive Director
Ian Barton joined the Board as a Non-executive Director in 1986. During his
career, be has held a number of executive management and other senior positions
in the information, technology and investment industries. Most recently, he was
Managing Director of Octagon Investment Management. Prior to this, he held
senior posts in organizations including the Post Office Telecommunications
Headquarters' Long Range Intelligence Division and CADCentre Ltd. Ian Barton
currently holds a Non-executive directorship with the high-technology company
Distributed Information Processing Ltd.
Smartlogik Directors
David Jefferies
Non-executive Chairman
From 1989 to 1999 David Jefferies was Chairman of National Grid Group plc and
from 1992 to 1999 he was both Director and Chairman of Viridian Group plc
(formerly Northern Ireland Electricity). He led the expansion of the National
Grid Group in the United States and in South America and was responsible for the
foundation of Energis Telecommunications in 1992. Both Viridian Group plc and
National Grid Group plc listed on the London Stock Exchange during his
directorship and chairmanship, respectively. David Jefferies had previously been
Chairman of London Electricity, from 1981 to 1986. He is currently Chairman of
24/Seven, the utility service provider, Chairman of Costain Group plc, a member
of the Board of the Strategic Rail Authority, and Chairman of the Indo-British
partnership, designed to promote bilateral trade with India.
Stephen Hill
Chief Executive Officer
Prior to joining Smartlogik in June 2000, Stephen was Managing Director (Europe)
for Inktomi Corporation. He helped to establish Inktomi as a market-leading
Internet-infrastructure software company in Europe. Previously, Stephen Hill
held a number of international management roles including Gentia Software (VP
International), Interleaf Inc (VP International and a member of the Executive
Board) and Oracle Corporation (General Manager).
Simon Canham
Chief Financial Officer
Prior to joining Smartlogik in October 2000, Simon Canham was Finance Director
for Ridgeway Systems and Software, where he helped secure multi-million pound
financing from venture capitalists. Prior to that, Simon Canham has held
positions with Cadence Design Systems (European Services Financial Director),
Gibb International (Group Accountant) and PricewaterhouseCoopers (Management
Consultant).
James Bair
Non-executive Director
James Bair is Senior Vice-President of Strategy Partners International, one of
Europe's leading information technology consultancies. He is a world-renowned
expert in the fields of knowledge management and content management with over 30
years of experience in the software industry. He also serves on the advisory
boards for WebMap, Inc., CompreCorp, Inc. and the Syracuse University School of
Information Studies. Prior to joining Strategy Partners in 1999, James Bair was
Research Director, Gartner Group, where he funded and led the knowledge
management technology practice. He founded Cooperative Systems Consultancy and
co-founded Knowledgen, Inc. He was a senior manager at Xerox Corporation, and
has held management positions at Hewlett-Packard and Bell-Northern Research. In
the 1970s, he was a Senior Scientist at Stanford Research Institute, serving on
the team that invented the mouse, hypertext and windows. James Bair has
consulted to over 100 major enterprises including Microsoft, Bank of America and
AT&T.
B Compensation
The information set forth under the heading "Report of the Remuneration
Committee" on pages 11 to 12, under the subheading "Report of the Directors -
Directors and their Interests" on page 14 and under the subheading "Notes to the
Financial Statements - Note 9 - Directors' Emoluments and Interests in Ordinary
Shares" on pages 33 to 36 of the Company's Annual Report 2000, attached as an
exhibit to the Company's Report on Form 6-K dated June 21, 2001, is incorporated
herein by reference and attached as an exhibit hereto.
Details of the compensation paid to Simon Canham, Stephen Hill and David
Jefferies during the year ended 31 December 2000 follow:
<TABLE>
<CAPTION>
Fees Salary Benefits Bonus Pension 2000 1999 1998
(Pounds) (Pounds) (Pounds) (Pounds) contributions Total Total Total
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S Canham (1)(4) - 25,057 1,732 - 1,200 27,989 - -
S Hill (2)(4) - 85,962 579 43,750 4,500 134,791 - -
D Jefferies (3) - - - - - - - -
-------------------------------------------------------------------------------------------------------------
Total - 111,019 2,311 43,750 5,700 162,780 - -
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Bonuses disclosed in the table are those paid during 2000. Simon Canham
received a bonus of (Pounds)6,346 in 2001, which related to 2000.
(2) Stephen Hill received a guaranteed bonus of (Pounds)43,750 in 2000.
(3) David Jefferies was appointed to the Smartlogik Board on 18 December 2000,
but received no fees during the year.
(4) Members of the Smartlogik defined contribution pension scheme in the UK.
Benefits include P11D benefits (non-cash compensation) for the Smartlogik
Directors, as discussed in the Remuneration Committee Report of the Company's
Annual Report for 2000.
C Board practices
The information set forth under the heading "Corporate Governance and Internal
Financial Control" on pages 8 to 10 of the Company's Annual Report 2000 attached
as an exhibit to the Company's Report on Form 6-K dated June 21, 2001 is
incorporated herein by reference.
D Employees
The information set forth under the subheading "Notes to the Financial
Statements - Note 3 - Staff Number and Costs" on page 30 of the Company's Annual
Report 2000, attached as an exhibit to the Company's Report on Form 6-K dated
June 21, 2001, is incorporated herein by reference and attached as an exhibit
hereto.
As of 31 December 2000, the Company had a total of 295 full-time employees, of
which 285 were based in the United Kingdom, 8 were based in the United States
and 2 were based throughout the rest of the world. As of 9 July 2001, the
Company has a total of 160 employees. The decline in the number of employees has
primarily been a result of the closure of the Company's eCommerce division.
E Share ownership
The information set forth under the heading "Directors' Emoluments and Interests
in Ordinary Shares" on pages 34 to 36 of the Company's Annual Report 2000,
attached as an exhibit to the Company's Report on Form 6-K dated June 21, 2001,
is incorporated herein by reference and attached as an exhibit hereto.
Neither Simon Canham, Stephen Hill nor David Jefferies had options over the
Company's shares during the year ended 31 December 2000. However, Simon Canham
and Stephen Hill had interests in subsidiary share options under the subsidiary
share option schemes as shown below:
<TABLE>
<CAPTION>
Scheme On Granted Exercised At 31 Exercise Exercisable Exercisable
appointment December price from to
2000 (Pounds) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S Canham Smartlogik - 450,000 - 450,000 2.67 13/01/2001 13/10/2010
Unapproved
S Hill Smartlogik - 1,200,000 - 1,200,000 2.67 13/01/2001 13/10/2010
Unapproved
Webtop - 20,000 - 20,000 0.84 13/01/2001 13/10/2010
Unapproved
-----------------------------------------------------------------------------------------------------------------------------
Grand Total - 1,670,000 - 1,670,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Subsidiary share options begin vesting at three-monthly intervals following
the date of grant. Options may not be exercised unless pre-determined
performance criteria are met.
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A Major shareholders
The information set forth under the subheading "Report of the Directors -
Substantial Shareholdings" on page 14 of the Company's Annual Report 2000
attached as an exhibit to the Company's Report on Form 6-K dated June 21, 2001
and the information set forth as Exhibit 99.1 "Schedule 10 - Notification of
Major Interests in Shares", attached as an exhibit to the Company's Report on
Form 6-K dated July 9, 2001, is incorporated herein by reference and attached
as an exhibit hereto.
On 9 July 2001, the issued share capital of the Company increased from
173,327,461 Ordinary shares to 467,233,196 Ordinary shares. As of 10 July 2001,
the latest practicable date for disclosing major shareholders, the following two
notifications had been received by the Company:
Electra Quoted Management Limited acquired 24,436,993 Ordinary shares on 9 July
2001, taking their total holding to 27,136,993. This represents 5.81% of the
enlarged issued share capital of the Company.
Daniel Wagner was allotted 10,320,020 Ordinary shares in accordance with his
application under the Open Offer. On 10 July 2001, he received an additional
4,402,000 Ordinary shares in lieu of a contractual payment due on cessation of
his directorship of the Company. This took his total interests from 17,434,780
Ordinary shares to 32,156,780 Ordinary shares, representing 6.88% of the
enlarged issued share capital of the Company.
In addition, significant changes in the percentage ownership held by any
major shareholders during the past three years are as follows:
Under the Companies Act 1985 (as amended), holders of 3% or more of the
Company's issued share capital are required to notify the Company of their
interest. In turn, these "major shareholders" are disclosed in the Company's
Annual Report each year. Major shareholders disclosed in the Company's Annual
Reports for 1997, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
Ordinary shares % of issued Ordinary % of issued Ordinary % of issued
held at 5 May share capital shares held share capital shares held share capital
1998 held at 5 May at 21 May held at 21 May at 30 June held at 30
1998 (1) 1999 1999 (2) 2000 June 2000 (3)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended 31 December 1997
Prudential plc 6,594,698 4.39 - - - -
Shell Pensions Trust Ltd 10,348,100 6.88 - - - -
Abbey Life Investment
Services Ltd 7,175,000 4.77 - - - -
Newton Investment
Management Ltd 4,930,252 3.28 - - - -
-------------------------------------------------------------------------------------------------------------------------------
Year ended 31 December 1998
Prudential plc - - 9,652,175 6.37 - -
-------------------------------------------------------------------------------------------------------------------------------
Year ended 31 December 1999
Prudential plc (4) - - - - 9,585,498 5.55
Thomson Finance SA - - - - 9,297,290 5.39
JIYU Holdings Ltd - - - - 7,038,123 4.08
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on total issued share capital of 150,376,254 at 5 May 1998.
(2) Based on total issued share capital of 151,571,363 at 21 May 1999.
(3) Based on total issued share capital of 172,598,331 at 30 June 2000.
(4) On 11 March 1999, Prudential plc announced the acquisition of M&G Group plc,
resulting in the amalgamation of their shareholdings.
In addition to the above notifications, the following transactions took
place in the interim periods between Annual Report disclosures:
On 24 October 2000, HSBC Investment Bank plc notified the Company of an interest
in 8,466,050 Ordinary shares (4.90%). One day later, on 25 October 2000, HSBC
Investment Bank plc gave notification of the disposal of its entire holding.
On 4 September 2000, Barclays plc notified the Company of an interest in
5,186,055 Ordinary shares (3.00%). On 17 November 2000, Barclays plc notified
the Company that it no longer had a substantial interest.
On 8 August 2000, T Rowe Price Associates, Inc notified the Company of an
interest in 6,040,000 Ordinary shares (3.50%). On 24 January 2001, T Rowe Price
Associates, Inc notified the Company that their interest had fallen below the 3%
threshold.
On 5 April 2000, Robert Fleming Holdings Ltd notified the Company of an interest
in 4,975,500 Ordinary shares (3.20%). Following the allotments of shares to
Thomson Finance SA and JIYU Holdings Ltd on 5 May 2000, the post-dilution
interest of Robert Fleming Holdings Ltd was less than 3%.
On 9 February 2000, Lazard Freres & Co LLC notified the Company of an interest
in 8,446,900 Ordinary shares (5.45%). On 5 May 2000, Lazard Freres & Co LLC
reported that their holding had been reduced to 2,355,000 Ordinary shares
(1.37%).
B Related Party Transactions
David Mattey and Daniel Wagner have entered into termination agreements with the
Company dated 13 June 2001 under which, following shareholder approval at the
EGM of the proposed restructuring, refinancing and change of name ("Proposals"),
David Mattey is entitled to a payment of (Pounds)274,337 for loss of office
(representing what remains of 12 months' notice in respect of salary, car
allowance, payments in respect of his pension scheme and permanent health
insurance and medical expenses schemes and a payment of (Pounds)85,000 for
effecting the restructuring and assisting with the fund raising) and Daniel
Wagner is entitled to a payment of (Pounds)220,100 for loss of office,
representing what remains of 12 months' notice in respect of salary, car
allowance and payments in respect of his pension scheme and permanent health
insurance and medical expenses schemes. At the request of the Board and the New
Directors and as part of the Proposals, the agreements provide for both David
Mattey and Daniel Wagner to receive Ordinary shares at the Issue Price valued at
these amounts, in lieu of cash payments, in order to reduce the cash expenses of
the Company in relation to the Proposals. Under the agreements, Messrs Mattey
and Wagner also agree to surrender all options under the Share Option Schemes.
C Interests of experts and counsel
Not applicable.
ITEM 8 - FINANCIAL INFORMATION
A Consolidated Statements and Other Financial Information
See Item 17 for a full list of financial statements included as part of this
document.
B Significant changes
The information set forth under the subheading "Notes to the Financial
Statements - 32 Contingent Liabilities" on page 69 of the Company's Annual
Report 1999, attached as an exhibit to the Company's Report on Form 6-K dated
July 17, 2000, is incorporated herein by reference and attached as an exhibit
hereto.
In 1997, immediately prior to the Company's acquisition of KRII, a class action
was instituted against KRII and its subsidiary, The UnCover Company, in the
United States District Court for the Northern District of California. The
plaintiffs were the authors of certain written material which was being
distributed by defendants pursuant to licenses obtained from the publishers of
such material. The plaintiffs alleged copyright infringement. During 2000, the
Company agreed to settlement terms with the representative plaintiffs. The
settlement was submitted to class members for objection and was subsequently
approved by the district court. Under the terms of the settlement, the
Company's monetary contribution was not material.
On 30 April 2001, the Group announced its intention to refocus the activities on
the Web Services Division, with the resultant closure of its e-commerce
activities, comprising Office Shopper and Sparza, and and curtailment of head
office activities. Bright Station Ventures has ceased assessing new investment
opportunities, although it retains some minority investments in Internet related
businesses.
The Group has since completed a Placing and Open Offer of 270,000,000 new shares
of one pence each that was approved by the shareholders at an Extraordinary
General Meeting of the Company, held on 6 July 2001. The proceeds of the Placing
and Open Offer of approximately (Pounds)12.0 million, net of expenses, are
required for the Group to be able to continue in operational existence.
ITEM 9 - THE OFFER AND LISTING
A Offer and listing details
The Company's Ordinary shares are traded on the London Stock Exchange, under the
symbol "BSN". American Depositary Shares (ADSs), each representing four Ordinary
shares, are listed for trading in the NASDAQ National Market System under the
symbol "BSTN". The ADSs are evidenced by ADRs issued by The Bank of New York as
Depositary, under a Deposit Agreement dated as of 21 November 1995 among
M.A.I.D., the Depositary and the holders from time to time of ADRs. The ADSs are
registered under the Securities Exchange Act of 1934, as amended.
On June 18, 2001, the Company received a letter from NASDAQ indicating that the
Company had failed to comply with the minimum bid price requirement for
continued listing set forth in the NASDAQ Rule. The notice stated that the
Company has 90 calendar days or until September 17, 2001 to regain compliance
with the NASDAQ Rule, after which if the Company does not comply with the NASDAQ
Rule, its ADSs could be delisted from NASDAQ. The Company currently is exploring
its options regarding the NASDAQ listing of its ADSs, including potential
delisting. Removal of the ADSs from listing on NASDAQ could have a material
adverse effect on the liquidity of the ADSs.
The following tables set forth, for the periods indicated, (1) the reported high
and low closing sale prices for the Ordinary shares based on the Daily Official
List of the London Stock Exchange and (2) the reported high and low closing sale
prices of ADSs on NASDAQ since the commencement of trading of ADSs on 22
November 1995. The tables do not reflect trading after the official close of
the London Stock Exchange or NASDAQ.
<TABLE>
<CAPTION>
The London Stock
Exchange NASDAQ
Pounds per share US Dollars per ADS
--------------------------------------------------------------------------------
High Low High Low
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
June 2001 0.09 0.06 0.59 0.31
--------------------------------------------------------------------------------
May 2001 0.14 0.08 0.87 0.45
--------------------------------------------------------------------------------
April 2001 0.21 0.15 1.31 0.84
--------------------------------------------------------------------------------
March 2001 0.32 0.21 1.81 1.06
--------------------------------------------------------------------------------
February 2001 0.49 0.31 2.94 1.75
--------------------------------------------------------------------------------
January 2001 0.53 0.22 3.38 1.00
--------------------------------------------------------------------------------
2000
--------------------------------------------------------------------------------
4th Quarter 0.60 0.24 3.63 1.13
--------------------------------------------------------------------------------
3rd Quarter 0.87 0.54 5.25 3.13
--------------------------------------------------------------------------------
2nd Quarter 1.44 0.59 8.94 3.75
--------------------------------------------------------------------------------
1st Quarter 2.33 0.90 15.00 5.75
--------------------------------------------------------------------------------
1999
--------------------------------------------------------------------------------
4th Quarter 1.06 0.63 6.88 4.00
--------------------------------------------------------------------------------
3rd Quarter 0.95 0.61 5.94 3.50
--------------------------------------------------------------------------------
2nd Quarter 1.48 0.85 9.75 5.38
--------------------------------------------------------------------------------
1st Quarter 1.22 0.57 8.06 4.25
--------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------
4th Quarter 1.83 0.47 12.13 3.00
--------------------------------------------------------------------------------
3rd Quarter 2.36 1.48 16.25 9.63
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The London Stock
Exchange NASDAQ
Pounds per share US Dollars per ADS
--------------------------------------------------------------------------------
High Low High Low
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2nd Quarter 1.95 1.41 14.00 9.13
--------------------------------------------------------------------------------
1st Quarter 1.88 1.32 12.31 8.88
--------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------
4th Quarter 2.37 1.39 14.00 8.75
--------------------------------------------------------------------------------
3rd Quarter 2.37 1.52 15.13 10.25
--------------------------------------------------------------------------------
2nd Quarter 2.46 1.50 16.38 10.25
--------------------------------------------------------------------------------
1st Quarter 2.05 1.50 13.38 10.00
--------------------------------------------------------------------------------
1996
--------------------------------------------------------------------------------
4th Quarter 3.14 1.86 20.38 12.50
--------------------------------------------------------------------------------
3rd Quarter 3.28 2.59 20.50 15.75
--------------------------------------------------------------------------------
2nd Quarter 3.41 1.96 20.50 11.75
--------------------------------------------------------------------------------
1st Quarter 2.49 1.53 14.88 9.38
--------------------------------------------------------------------------------
</TABLE>
On July 10,2001 the closing market price of the Company's Ordinary shares was
5.75 pence per share and the ADS price was $0.45 per ADS. On this date, 471,018
Ordinary shares were held of record in the United States. In addition, ADRs
evidencing 2,273,963 ADSs (representing 9,095,852 Ordinary shares) were held of
record in the United States. The Ordinary shares were held by 27 record holders
and the ADRs by 36 record holders. The Ordinary shares represented 0.1% and the
ADRs represented 1.95% respectively of the total number of Ordinary shares
outstanding. Since certain of these Ordinary shares and ADRs were held by
brokers or other nominees, the number of record holders in the United States may
not be representative of the number of beneficial owners, nor of where those
beneficial owners are resident.
B Plan of distribution
Not applicable
C Markets
See the information described herein under "Item 9-The Offer and Listing -A
Offer and listing details".
D Selling shareholders
Not applicable
E Dilution
Not applicable
F Expenses of the issue
Not applicable
ITEM 10 - ADDITIONAL INFORMATION
A Share capital
Not applicable
B Memorandum and articles of association
The information set forth in the Memorandum of Association of the Company
attached as an exhibit to the Company's Registration Statement on Form F-1
dated October 4, 1995, is incorporated herein by reference.
The information set forth in the Articles of Association of the Company,
attached as an exhibit to the Company's Form S-8 dated June 24, 1999, is
incorporated herein by reference and attached as an exhibit hereto.
The Memorandum of Association of the Company provides that the Company's
principal objects are to carry on business as a holding and co-ordinating
company of the group of companies of which the Company is for the time being the
holding company and to carry on the business of an investment company. The
objects of the Company are set out in full in clause 4 of the Memorandum of
Association.
C Material contracts
Save as disclosed in this paragraph, no contracts have been entered into by
companies comprised within the Group other than in the ordinary course of
business which (a) have been entered into in the two years immediately preceding
the date of this Form 20-F and which are or may be material and/or (b) contain
provisions under which any such company has any obligation or entitlement which
is material to the Group as of the date of this document:
(i) On 10 November 1999, the Company entered into an agreement with
International Computers Limited ("ICL") to outsource the operations of its data
centre in Palo Alto, California for a period of seven years.
In connection with this transaction, the Company sold certain assets in the Palo
Alto data centre with a net book value of (Pounds)3,475,000 in return for cash
of (Pounds)3,058,000 and a reduction in outsourcing charges of
(Pounds)1,451,000. As part of the agreement referred to in paragraph (v) below,
Thomson Holdings Inc assumed full responsibility for all obligations under this
agreement. The agreement is due to be novated from the Company to Thomson
Holdings Inc;
(ii) On 24 March 2000, the Company launched a cash tender offer and consent
solicitation relating to its $180,000,000 11 per cent. Senior Subordinated Notes
due 2007. Details concerning the Notes were published in the listing particulars
issued by the Company on 3 April 2000. This information was contained on page 45
of the Company's listing particulars issued by the Company on 3 April 2000,
and incorporated herein by reference to the Company's Report on Form 6-K dated
April 10, 2000, a copy of which is attached as an exhibit hereto;
(iii) an agreement dated 13 October 1999 between the Company and the holders of
the shares in Muscat Limited, details of which were published in the listing
particulars issued by the Company on 3 April 2000. This information was
contained on page 75 and page 82 of the listing particulars issued by the
Company on 3 April 2000, and incorporated herein by reference to the Company's
Report on Form 6-K dated April 10, 2000, a copy of which is attached as an
exhibit hereto;
(iv) the instruments creating the 2002 Warrants, 2004 Warrants and 2009
Warrants summarized on page 56 of the Company's Annual Report 2000, attached as
an exhibit to the Company's Report on Form 6-K dated June 21, 2001, which is
incorporated by reference and attached as an exhibit hereto;
(v) an Agreement dated 23 March 2000 for the Sale of Information Services
Division, details of which were published on pages 82 to 84 of the Company's
listing particulars issued by the Company on 3 April 2000, and incorporated
herein by reference to the Company's Report on Form 6-K dated April 10, 2000, a
copy of which is attached as an exhibit hereto;
(vi) a Software Licence and Maintenance Agreement between the Company and
Thomson Holdings Inc., details of which were published on page 83 of the
Company's listing particulars issued by the Company on 3 April 2000, and
incorporated herein by reference to the Company's Report on Form 6-K dated April
10, 2000, a copy of which is attached as an exhibit hereto;
(vii) a subscription agreement dated 23 March 2000 between the Company and Jiyu
Holdings, details of which were published on page 84 of the Company's listing
particulars issued by the Company on 3 April 2000, and incorporated herein by
reference to the Company's Report on Form 6-K dated April 10, 2000, a copy of
which is attached as an exhibit hereto;
(viii) On 15 December 2000 Sparza and the Company entered into an agreement
with Spicers Limited whereby Sparza sold computer hardware and other equipment
necessary for the support or development of the Oscarnet Software System
("Oscarnet") (an online purchasing and control system for office products). The
consideration comprised:
- (Pounds)75,070 for the assets; and
- (Pounds)25,000 bonus for the seamless transition of the Oscarnet software
(paid)
Upon completion of the sale on 18 December 2000, the Company granted Spicers
Limited an exclusive perpetual licence to use the Oscarnet software in
consideration of (Pounds)150,000. The agreement contained standard warranties in
connection with the sale, from Sparza and Bright Station in favour of Spicers
Limited;
On 5 June 2001, a further agreement was entered into with Spicers Limited, which
has been a material supplier to the Company trading as OfficeShopper, whereby
the Company agreed to transfer all Oscarnet products and intellectual property
to Spicers and to make a payment (following Admission) to Spicers of
(Pounds)300,000 in full and final settlement of existing trade debts and all
present liabilities and future claims.
(ix) On 27 December 2000 the Company obtained, in connection with a licence
agreement between Oridean and Sparza Holdings Ltd, warrants, exercisable at the
Company's option, issued by Oridean Inc, a Delaware Corporation, ("Oridean") to
purchase:
- 20 per cent. of the outstanding capital stock of Oridean at a purchase price
per share obtained by dividing (1) the sum of $10,000,000 and (2) cash proceeds
received from additional investment in Oridean, by the company's outstanding
capital stock. The additional investment related to further funding yet to be
obtained by Oridean. The price of the warrants is dependant upon the amount of
additional funding obtained by Oridean. The price of the Company's warrants will
be calculated as a percentage of the valuation of Oridean based upon the amount
of Oridean dilution against funds received; and
- 35 per cent. of the outstanding capital stock of Oridean at a purchase price
per share obtained by dividing the Company's valuation by the outstanding
capital stock. The Company's Valuation is to be set at the lesser of (a)
$18,000,000 and (b) the cash proceeds received from additional investment or the
aggregate valuation determined by multiplying the outstanding capital stock by
the lowest price per share paid for outstanding capital stock. The warrant is
able to be exercised at any time prior to 31 December 2003. The warrant
agreements contain certain warranties and an indemnity from Oridean in favour of
the Company.
On 28 December 2000, Sparza Holdings Limited entered into a value added reseller
licence agreement with Oridean, whereby Oridean granted to Sparza Holdings a
licence to develop, resell and sub-licence Oridean's software and hardware
products. The agreement contained warranties in connection with the licence from
Oridean in favour of Sparza Holdings, together with an indemnity from Sparza
Holdings in favour of Oridean (other than in respect of intellectual property
infringement claims by third parties regarding the Oridean products);
(x) On 23 May 2001, Hoare Govett entered into an engagement letter with the
Company (the "HG Engagement Letter"), pursuant to which Hoare Govett has agreed
to act as broker to the Company in connection with the Placing. The Company has
agreed to pay Hoare Govett a commission of 7 per cent. of gross funds raised
under the Placing. Hoare Govett has agreed that (Pounds)700,849.75 of this
commission will be used to subscribe for 14,016,995 New Ordinary Shares at the
Issue Price. In the event that commitments from investors to subscribe the
Placing Shares are secured but the Placing does not complete, the Company has
agreed to pay Hoare Govett a fee of (Pounds)300,000. The Placing and Open Offer
has not been underwritten;
(xi) Hoare Govett has entered into, as agent for the Company, letters dated 29
May 2001 with institutional investors, pursuant to which the investors have
conditionally agreed to subscribe the Placing Shares ("Placing Letters").
The Placing Letters provide that the Placing is conditional upon, among other
things:
- commitments for at least (Pounds)13.5 million (gross) of funds being received
by the Company under the Placing;
- the Circular, in Hoare Govett's reasonable opinion, being and remaining until
Admission accurate and not misleading in any material respect;
- in Hoare Govett's reasonable opinion, there being no information in or
omissions from the Circular which are materially inconsistent with the
information in the presentation made by the Company to investors;
- the Resolutions being passed at the EGM without material amendment;
- prior to Admission, certain insolvency events not having occurred; and
- Admission becoming effective by no later than 31 August 2001.
No commission will be paid to investors under the Placing Letters in respect of
their participation in the Placing. The Placing Letters contain certain
representations from the investors regarding compliance with laws and other
matters. The total placing commitment in each Placing Letter is divided into
Ordinary Shares, which are placed firm, and Ordinary Shares which are subject to
clawback under the Open Offer. The commitments made by investors under the
Placing Letters are irrevocable, subject only to the conditions being satisfied
or waived;
(xii) A bridge facility agreement dated 12 June 2001 between the Company and
antfactory Investments BV ("antfactory") under which antfactory agreed to make
available to the Company a bridge facility of up to (Pounds)1,500,000. Drawdown
could be made in three equal tranches of (Pounds)500,000 no later than 13 July
2001. Only (Pounds)500,000 of the facility was drawn down by the Company and
this was fully repaid, with the associated interest, on 11 July 2001.
D Exchange controls
There are currently no United Kingdom foreign exchange control restrictions on
remittances of dividends on Ordinary shares or on the conduct of the Group's
operations.
Under English Law and the Company's Memorandum and Articles of Association,
persons who are neither residents nor nationals of the United Kingdom may freely
hold, vote and transfer their Ordinary shares in the same manner as United
Kingdom residents or nationals.
E Taxation
The following is a summary of certain US Federal income and UK tax consequences
generally applicable to ownership by a beneficial owner of ADSs representing
Ordinary shares and of Ordinary shares not in ADS form that is not resident in
the United Kingdom and is (i) a citizen or resident of the United States, for
the purpose of the current double taxation convention between the United States
and the United Kingdom (the "Convention"), (ii) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any state, (iii) an estate, the income of which is included in gross
income for United States federal income tax purposes regardless of its source
("US Holder"), or (iv) a trust subject to the control of a US person and the
primary supervision of a US court. The summary is based on tax laws in effect in
the United Kingdom, the provisions of the US Internal Revenue Code of 1986, as
amended (the "Code"), the final, temporary and proposed US Treasury regulations
under the Code and the administrative and judicial interpretations thereof, and
the Convention, all as in effect as of the date of this report, and all of which
are subject to change (possibly on a retroactive basis) and to differing
interpretations. There can be no assurance that the taxing authority of the
United Kingdom or the US Internal Revenue Service (the "IRS") will not take a
contrary view, and no ruling from such taxing authorities has been or will be
sought.
This summary assumes a US holder holds ADSs as a capital asset, and elects to
credit, rather than deduct, foreign income taxes against the US tax liability.
The following discussion does not consider all aspects of United States Federal
income taxation that may be relevant to holders in light of their personal
circumstances. Further, it does not consider holders in special tax situations,
(including dealers in securities, financial institutions, insurance companies,
tax exempt organizations, holders of securities held as part of a "straddle",
"hedge" or "conversion transaction" with other investments, US holders liable to
Alternative Minimum Tax, US holders who actually or constructively own 10% or
more of the voting shares of the Company, or situations in which the "functional
currency" within the meaning of Section 985(b) of the Code of an investor is not
the US dollar). This summary also does not discuss the source of gain or loss
from the disposition of ADSs for purposes of foreign tax credit limitations.
The following discussion does not discuss the United States estate or gift tax
consequences or state and local tax consequences of holding or disposing of ADSs
representing Ordinary Shares or Ordinary Shares not in ADS form, or tax
consequences in countries other than the United Kingdom or the United States.
This summary does not address aspects of US taxation other than US Federal
income taxation that may be relevant to a US holder, such as state and local
taxation. Therefore holders of ADSs should consult their own tax advisers as to
the particular tax consequences to them of ownership of the ADSs or the Ordinary
Shares.
United Kingdom Taxation
Taxation of Dividends Under UK Law and Refunds of Tax Credits
The Company does not expect to pay dividends for the foreseeable future.
Should the Company begin paying dividends, under current UK taxation
legislation, no tax will be withheld from dividend payments by the Company. It
should be noted that, due to a change in UK tax legislation, dividends paid
after April 5, 1999 no longer carry a requirement to account for advance
corporation tax.
There is a tax credit in respect of any dividend paid by the Company at a rate
of 10% of the sum of the dividend and the tax credit on it (equivalent to 11.11%
of the cash dividend).
US residents may in certain circumstances be able to recover part of the tax
credit ("tax credit refund") under The Convention, as follows:
(a) Under the Convention, a US Holder which is a US corporation which, alone
or together with one or more associated corporations, controls, directly or
indirectly, at least 10% of the voting shares of the Company, and whose holding
is not effectively connected with a permanent establishment in the UK through
which it carries on business, will generally be entitled to receive a tax credit
refund equal to one half of the tax credit to which a UK resident individual
would be entitled, subject to a withholding tax equal to 5% of the aggregate of
the dividend and the refunded half of the tax credit. Thus on a dividend of
(Pounds)100 (chosen for illustrative purposes only), the US Holder will be
entitled to receive a tax credit refund of (Pounds)0.28. The procedure for
obtaining the repayment will be by completion of "US Corporation Credit" Form
(FD13).
(b) Under the Convention, a US Holder who is an individual or corporation
(other than a corporation falling within paragraph (a) above) will generally not
be entitled to receive a tax credit refund.
Special rules also apply to a US Holder which is a US corporation and (a) is a
resident of the UK, or (b) at least 25% of the capital of which is held,
directly or indirectly, by persons that are not individual residents or citizens
of the United States, and (i) which has imposed on it by the United States in
respect of a dividend a tax substantially less than the tax generally imposed by
the United States on corporate profits, or (ii) which receives more than 80% of
its gross income from sources outside the United States as determined in
accordance with the Convention. Additional special rules apply if the US Holder
is exempt from US Federal income tax on the dividend received or if the US
Holder owns 10% or more of the class of shares in respect of which the dividend
is paid. All such US Holders should consult their own tax advisors with respect
to such rules.
Under Section 812 of the Income and Corporation Taxes Act of 1988, the UK
Treasury has power to deny the payment of tax credit refunds under the UK's
income tax conventions to certain corporations if they or an associated company
(as described in Section 812) have qualifying presence in a state which operates
a unitary system of corporation taxation. These provisions come into force only
if the UK Treasury so determines by statutory instrument. No determination has
been made to date.
UK Taxation of Capital Gains
All US Holders, who are not resident or ordinarily resident in the United
Kingdom for UK tax purposes, provided that they have not recently left the UK
and intend to return within five years of departure and that they were not
resident in the UK for four out of the seven years prior to their departure from
the UK, will not be liable for UK tax on capital gains realized on the disposal
of their ADSs or Ordinary Shares unless the ADSs or Ordinary Shares are held in
connection with a trade, profession or vocation carried on in the United Kingdom
through a UK branch or agency. Generally, gains realized in the course of
dealing in securities will be regarded as arising in the course of carrying on a
trade. In this case, a different UK treatment applies.
United States Federal Income Taxation
Holders of ADSs will generally be treated as the beneficial owners of the
underlying Ordinary shares for US Federal income tax purposes.
US Federal Income Taxation of Dividends
US Holders generally must include dividends paid on ADSs or Ordinary Shares in
gross income as ordinary income from foreign sources. The dividends will not be
eligible for the dividends-received deduction available to corporations.
Dividends paid to a US Holder in foreign currency will be includible in a US
dollar amount based on the exchange rate in effect on the date of receipt
whether or not the payment is converted into dollars at that time. Any gain or
loss that a US Holder recognizes on a subsequent conversion of such foreign
currency generally will be US source ordinary income or loss.
A US Holder entitled to the benefits of the Convention is entitled to receive
from UK Inland Revenue a payment equal to the amount of the tax credit that UK
resident individuals can claim against UK tax imposed on the dividend. The
dividend and the tax credit payment are subject to a UK withholding tax equal to
the lesser of 15% of the sum of those payments or the amount of the UK tax
credit payment. See "United Kingdom Taxation - Taxation of Dividends under
UK law and Refunds of Tax Credits". The UK withholding tax will exactly equal
the UK tax credit payment due to qualified US Holders, and the offsetting
payments will not actually be made. Under the Convention, a US Holder may elect
to include the UK tax credit payment in income and claim a foreign tax credit,
subject to generally applicable limitations, for the UK withholding tax imposed
on the tax credit payment. A US Holder making that election must file a
completed IRS Form 8833 with its US federal income tax return for the relevant
year.
US Federal Income Taxation of Gains from Sale
A US Holder will, upon the sale or exchange of an ADS or an Ordinary share,
recognize the gain or loss for US Federal income tax purposes in an amount equal
to the difference between the amount realized on the sale or exchange and its
tax basis in the ADS or the Ordinary share. Except as described below under "US
Passive Foreign Investment Company Status" and "US Foreign Investment Company
Status", the gain or loss will be a capital gain or loss if the ADS or the
Ordinary share is a capital asset in the hands of the US Holder and will be
long-term if the ADS or the Ordinary share is held for more than 12 months
before the sale or exchange. Any gain or loss will be treated as arising from
US sources.
If a US Holder receives any foreign currency on the sale of ADSs or Ordinary
shares, the US Holder may recognize an ordinary gain or loss as a result of
currency fluctuations between the date of the sale and the date the sale
proceeds are converted into US dollars. Any such gain or loss will be treated
as arising from US sources.
Neither the surrender of ADSs in exchange for the deposited Ordinary shares
represented by the surrendered ADSs nor the deposit of Ordinary shares for ADSs
representing the Ordinary shares will be a taxable event for purposes of US
Federal income tax, UK income and corporation tax or UK capital gains tax.
Accordingly, US Holders will not recognize any gain or loss upon the surrender
of ADSs for Ordinary shares or the deposit of Ordinary shares for ADSs. See "UK
Stamp Duty and Stamp Duty Reserve Tax".
US Passive Foreign Investment Company Status
A non-US company will be treated as a passive foreign investment company, or
PFIC, for US federal income tax purposes in any taxable year in which, after
taking into account the income and assets of certain subsidiaries, either (i) at
least 75% of its gross income is passive income or (ii) at least 50% of the
average value of its assets is attributable to assets that produce or are held
to produce passive income.
The Company may receive substantial amounts of royalty income, which may be
treated as passive income for purposes of determining whether the Company is a
PFIC even when such income is derived from active licensing operations.
Accordingly, it is possible that the Company could be treated as a PFIC.
If the Company were a PFIC in any year during which a US Holder owned ADSs or
Ordinary shares, the US Holder would be subject to additional taxes on any
excess distributions received from the company and any gain realized from sale
or other disposition of the ADSs or Ordinary shares, regardless of whether the
company continued to be a PFIC. A US Holder has an excess distribution to the
extent that distributions on ADSs or Ordinary shares during a taxable year
exceed 125% of the average amount received during the three preceding taxable
years or, if shorter, the US Holder's holding period. To compute the tax on
excess distributions or any gain, (i) the excess distribution or the gain is
allocated ratably over the US Holder's holding period, (ii) the amount allocated
to the current year and any year before the company became a PFIC is
taxed as ordinary income in the current year, and (iii) the amount allocated to
other taxable years is taxed at the highest applicable marginal rate in effect
for each year and an interest charge is imposed to recover the deemed benefit
from the deferred payment of the tax attributable to each year.
If the Company were a PFIC, a US Holder of ADSs or Ordinary shares could avoid
most of the tax consequences just described by electing to mark the ADSs or
Ordinary shares to market annually. Any gain from marking the ADSs or Ordinary
Shares to market or from disposing of them will be ordinary income. A US Holder
will recognize loss from marking the ADSs or Ordinary shares to market, but only
to the extent of previous mark-to-market gains included in income reduced by
previously recognized mark-to-market losses ("unreversed gains"). Losses from
marking ADSs or Ordinary shares to market will be ordinary, but losses on
disposing of them will be capital losses except to the extent of unreversed
gains.
A US Holder of ADSs or Ordinary shares could also elect to treat the Company as
a qualified electing fund ("QEF"). If a US Holder made a QEF election, the US
Holder would not be subject to the taxes on excess distributions and
dispositions of ADSs or Ordinary shares described above, but would be required
to include in gross income each year (i) as ordinary income, its pro rata share
of the Company's earnings and profits in excess of net capital gain and (ii) as
long term capital gain, its pro rata share of the Company's net capital gain, in
each case, whether or not we actually make a distribution. There is no
assurance, however, that the Company will prepare the information that US
Holders would need to make a QEF election.
US Foreign Investment Company Status
If 50% or more of the combined voting power or total value of the Company's
outstanding shares are held, directly or indirectly, by citizens or residents of
the United States, domestic partnerships, corporations, estates or trusts and
the Company is found to be engaged primarily in the business of investing,
reinvesting, or trading in securities, commodities, or any interest in
securities or commodities the Company might be treated as a "foreign investment
company" for US Federal Income Tax purposes. If the Company were treated as a
foreign investment company, all or part of any gain realized by a US Holder
selling or exchanging shares of the Company would be treated as ordinary income
rather than capital gain.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to dividend payments
(or other taxable distributions) in respect of ADSs made within the US to a non-
corporate US Holder, and "backup withholding" at a rate of 31% will apply to
such payments if the holder or beneficial owner fails to provide an accurate
taxpayer identification number in the manner required by US law and applicable
regulations, if there has been notification from the Internal Revenue Service of
a failure by the holder or beneficial owner to report all interest or dividends
required to be shown on its federal income tax returns or, in certain
circumstances, if the holder or beneficial owner fails to comply with applicable
certification requirements.
The payment of the proceeds from the sale or other disposition of ADSs or
Ordinary shares to or through the United States office of any broker, United
States or foreign, or to or through a non-United States office of a broker that
is either a US person or US related person will be subject to information
reporting and possible backup withholding unless the recipient of the payment
certifies to the broker that it is a Non-US Holder under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a US Holder or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the sale or other disposition of ADSs or Ordinary shares to or through a non-
United States office of a broker that is not a US person or a US related person
will not be subject to information reporting or backup withholding. For this
purpose, a "US person" includes United States citizens and residents and
domestic corporations, partnerships, estates and trusts, and a "US related
person" is (i) a "controlled foreign corporation" for US federal income tax
purposes, (ii) a foreign person 50% or more of whose gross income of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a US trade or business, or (iii) a foreign
partnership with certain US connections.
Amounts withheld under the backup withholding rules may be credited against a
holder's tax liability, and a holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the US Internal Revenue Service.
UK Estate and Gift Tax
UK Inheritance ("IHT") is a tax levied at death on the value of an individual's
estate. IHT is also levied in respect of any gifts made within seven years
before an individual's death. It may also apply to certain lifetime transfers or
to property comprised in a trust or settlement. An American domiciliary need
only be concerned about liability for IHT to the extent he is or is deemed to be
also a UK domiciliary (or was a UK domiciliary at the time he created any trust
or settlement) or otherwise to the limited extent of his UK assets. Under the
Convention between the US and the UK relating to estate and gift taxes, ADSs or
Ordinary shares held by an individual who is domiciled for the purpose of the
Convention in the United States and is not for the purposes of the Convention a
national of the United Kingdom will not, provided any applicable US tax is paid,
be subject to IHT on the individual's death or on a gift of the ADSs or the
Ordinary shares within seven years of his death unless the ADSs or the Ordinary
shares form part of the business property of a permanent establishment of the
individual in the United Kingdom or, in the case of a holder who performed
independent personal services, pertain to a fixed base in the United Kingdom
used for the performance of independent personal services. In the exceptional
case where the ADSs or Ordinary shares are subject both to IHT and to US Federal
gift or estate tax, the Convention generally provides for tax paid in the United
Kingdom to be credited against tax payable in the United States or for tax paid
in the United States to be credited against tax payable in the United Kingdom
based on priority rules set forth in the Convention.
UK Stamp Duty and Stamp Duty Reserve Tax
UK stamp duty is payable in respect of certain documents and UK Stamp Duty
Reserve Tax ("SDRT") is imposed in respect of certain transactions in
securities. Transfers of the Ordinary shares will be subject to ad valorem
stamp duty at the rate of (Pounds)0.50 per (Pounds)100 (or part of (Pounds)100)
of the full consideration given irrespective of the identity of the parties to
the transfer and the place of execution of any instrument of transfer.
There is generally no ad valorem stamp duty on a gift or on an instrument of
transfer which is neither a sale nor made in contemplation of sale. In those
cases, the instrument of transfer will either be exempt from stamp duty or a
fixed stamp duty of (Pounds)0.50 ((Pounds)5.00 on or after 1 October 1999) per
instrument of transfer will be payable.
An agreement to transfer the Ordinary shares or any interest therein (but not an
agreement to transfer an interest in an ADS) for money or money's worth will
normally give rise to a charge to SDRT at the rate of 0.5% of the amount or
value of the consideration given. The charge will generally not arise, however,
if an instrument transferring the Ordinary shares is executed in pursuance of
the agreement and is duly stamped.
Charges to stamp duty at the rate of (Pounds)1.50 per (Pounds)100 (or part of
(Pounds)100) or SDRT at the rate of 1.5% of the transfer price or value or of
the issue price will generally arise on the transfer or issue of Ordinary shares
to, or a deposit of Ordinary shares with, the Depositary or certain persons
providing clearance services (or their nominees or agents). In accordance with
the terms of the Deposit Agreement, any tax or duty payable by the Depositary on
deposits of the Ordinary shares will be charged by the Depositary to the party
to whom ADRs are delivered against the deposits.
No UK stamp duty will be payable on the transfer of, or agreement to transfer,
an ADS or beneficial ownership of an ADS, so long as the instrument of transfer
and/or written agreement to transfer remains at all times outside the United
Kingdom, and so long as any instrument of transfer an/or written agreement to
transfer is not executed in the United Kingdom and the transfer does not relate
to any matter or thing done or to be done in the United Kingdom In any other
case, the transfer of, or agreement to transfer, an ADS or beneficial ownership
of an ADS could, depending on all the circumstances of the transfer, give rise
to a charge to ad valorem stamp duty. The current rate of ad valorem stamp duty
on a transfer of stock or marketable securities, which would include the
Ordinary shares and ADSs, is (Pounds)0.50 per (Pounds)100 (or part of
(Pounds)100) of the value of the consideration (a transfer in contemplation of
sale being stampable by reference to the value of the property transferred).
A transfer of Ordinary shares underlying ADSs by the Depositary at the direction
of the ADS seller directly to a purchaser may give rise to a liability to ad
valorem stamp duty. A transfer of Ordinary shares from the Depositary to a US
Holder or registered holder of an ADS upon cancellation of the ADS is subject to
a fixed UK stamp duty of (Pounds)0.50 per instrument of transfer.
F Dividends and paying agents
Not applicable
G Statement by experts
Not applicable
H Documents on display
Not applicable
I Subsidiary information
Not applicable
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The information set forth under the subheading "Notes to the Financial
Statements - Note 20 - Financial Instruments" on pages 44 to 45 of the Company's
Annual Report 2000, attached as an exhibit to the Company's Report on Form 6-K
dated June 21, 2001, is incorporated herein by reference and attached as an
exhibit hereto.
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
Not applicable.
PART II
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS
Not applicable.
PART III
ITEM 17 - FINANCIAL STATEMENTS
Report of Independent Auditors
To the Members of Smartlogik Group plc [formerly Bright Station plc]
In our opinion, the consolidated accompanying balance sheet and the related
consolidated profit and loss account, statement of cash flows, and statement of
total recognised gains and losses, present fairly, in all material respects, the
financial position of Smartlogik Group plc (formerly Bright Station plc) and its
subsidiaries ("the Company") at 31 December 2000 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended 31 December 2000 in conformity with accounting principles generally
accepted in the United Kingdom. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income expressed in sterling for each of the three years in the
period ended December 31, 2000, and the determination of consolidated
shareholders' equity and consolidated financial position also expressed in
sterling at December 31, 2000 and 1999 to the extent summarized in note 33 to
the consolidated financial statements.
PricewaterhouseCoopers
12 June 2001, except for Note 33 as
to which the date is 12 July 2001
Consolidated Profit And Loss Account For The Year Ended 31 December
<TABLE>
<CAPTION>
Restated
Notes Continuing Discont'd Continuing Discont'd
Operations Operations Total Operations Operations Total
2000 2000 2000 1999 1999 1999
----------------------------------------------------------------------------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover 2 8,498 49,144 57,642 9,319 165,133 174,452
Cost of sales (2,044) (22,100) (24,144) (1,389) (66,785) (68,174)
---------------------------------------------------------------------------------------------------------------
Gross profit 6,454 27,044 33,498 7,930 98,348 106,278
Distribution
costs (2,646) (7,613) (10,259) (1,144) (20,974) (22,118)
Administrative
expenses
----------------------------------------------------------------------------------
Recurring | (21,875) (15,789) (37,664) (8,290) (47,483) (55,773)|
| |
Exceptional | |
provision for | |
diminution in | |
value of | |
goodwill 4 | (4,084) - (4,084) - - - |
| |
Amortisation of | |
development | |
costs | - (3,656) (3,656) - (9,142) (9,142)|
----------------------------------------------------------------------------------
Total
administrative
expenses (25,959) (19,445) (45,404) (8,290) (56,625) (64,915)
---------------------------------------------------------------------------------------------------------------
Operating
(loss)/profit
----------------------------------------------------------------------------------
Before | |
exceptional | |
item | (18,067) (14) (18,081) (1,504) 20,749 19,245|
Exceptional | |
item | (4,084) - (4,084) - - -|
----------------------------------------------------------------------------------
Operating 2
(loss)/profit 4 (22,151) (14) (22,165) (1,504) 20,749 19,245
Loss on disposal 5
of ISD 6 - (101,688) (101,688) - - -
Loss on
termination of
subsidiary 5 - - - - (911) (911)
Gain on sale of
fixed asset
investment 5 - - - - - -
===============================================================================================================
(Loss)/profit on
ordinary
activities (22,151) (101,702) (123,853) (1,504) 19,838 18,334
</TABLE>
<TABLE>
<CAPTION>
Notes Continuing Discont'd
Operations Operations Total
1998 1998 1998
------------ ---------------------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Turnover 2 3,331 167,431 170,762
Cost of sales (82) (71,536) (71,618)
---------------------------------------------------------------------------
Gross profit 3.249 95,895 99,144
Distribution
costs - (21,560) (21,560)
Administrative
expenses
-----------------------------------------------
Recurring | (2,444) (44,354) (46,798)|
| |
Exceptional | |
provision for | |
diminution in | |
value of | |
goodwill 4 | - - - |
| |
Amortisation of | |
development | |
costs | (90) (7,670) (7,760)|
-----------------------------------------------
Total
administrative
expenses (2,534) (52,024) (54,558)
---------------------------------------------------------------------------
Operating
(loss)/profit
----------------------------------------------------------------------------
Before | |
exceptional | |
item | 715 22,311 23,026 |
Exceptional | |
item | - - - |
-----------------------------------------------
Operating 2
(loss)/profit 4 715 22,311 23,026
Loss on disposal 5
of ISD 6 - - -
Loss on
termination of
subsidiary 5 - - -
Gain on sale of
fixed asset
investment 5 - 2,069 2,069
============================================================================
(Loss)/profit on
ordinary 715 24,380 25,095
activities
</TABLE>
<TABLE>
<CAPTION>
Restated
Notes Continuing Discont'd Continuing Discont'd
Operations Operations Total Operations Operations Total
2000 2000 2000 1999 1999 1999
----------------------------------------------------------------------------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C> <C>
(Loss)/profit on
ordinary
activities (22,151) (101,702) (123,853) (1,504) 19,838 18,334
========================= ==========================
Interest
receivable 762 305
Amounts written
off investments 7 (1,944) (4,619)
Interest payable
and similar
charges 8 (6,659) (18,366)
---------------------------------------------------------------------------------------------------------------
(Loss)/profit on
ordinary
activities
before taxation (131,694) (4,346)
Taxation on
(loss)/profit
on ordinary
activities 10 (271) (1,478)
---------------------------------------------------------------------------------------------------------------
(Loss)/profit on
ordinary
activities
after taxation (131,965) (5,824)
Minority equity
interests (37) (50)
---------------------------------------------------------------------------------------------------------------
Retained
(deficit)/income (132,002) (5,874)
===============================================================================================================
Loss/(profit)
per share
(pence) 11 (79.2) (3.9)
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Continuing Discont'd
Operations Operations Total
1998 1998 1998
-------------------------------------------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
(Loss)/profit on
ordinary
activities 715 24,380 25,095
=========================
Interest
receivable 205
Amounts written
off investments (2,300)
Interest payable
and similar
charges (17,436)
---------------------------------------------------------------------------
(Loss)/profit on
ordinary
activities
before taxation 5,564
Taxation on
(loss)/profit
on ordinary
activities (769)
---------------------------------------------------------------------------
(Loss)/profit on
ordinary
activities
after taxation 4,795
Minority equity
interests (356)
---------------------------------------------------------------------------
Retained
(deficit)/income 4,439
===========================================================================
Loss/(profit)
per share
(pence) 2.9
===========================================================================
</TABLE>
Consolidated Statement Of Total Recognised Gains and Losses
<TABLE>
<CAPTION>
Restated
2000 1999 1998
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
(Loss)/profit for the financial year (132,002) (5,874) 4,439
Consolidated translation differences on foreign currency net (4,008) (5,491) 680
investments
----------------------------------------------------------------------------------------------------------------------------
Total recognised (losses)/gains for the financial year (136,010) (11,365) 5,119
================================
Prior year adjustments (776)
-----------------------------------------------------------------------------------
Total losses since last annual report (136,786)
===================================================================================
</TABLE>
The prior year adjustment results from the change in accounting policy relating
to development costs (see note 1).
The profit and loss accounts shown above have been prepared on a historical cost
basis.
Bright Station plc
CONSOLIDATED BALANCE SHEET
For the year ended 31 December 2000
<TABLE>
<CAPTION>
Restated
2000 1999
Notes (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Fixed assets
Intangible assets 12 - 26,254
Goodwill 13 2,364 9,805
Tangible assets 14 1,445 14,338
Investments 15 600 9,635
----------------------------------------------------------------------------------------------------
4,409 60,032
----------------------------------------------------------------------------------------------------
Current assets
Stock - 60
Debtors 16 3,310 36,690
Cash and bank deposits 16,334 10,521
----------------------------------------------------------------------------------------------------
19,644 47,271
Creditors (amounts falling due within one year) 17 (7,354) (71,574)
----------------------------------------------------------------------------------------------------
Net current assets/(liabilities) 12,290 (24,303)
----------------------------------------------------------------------------------------------------
Total assets less current liabilities 16,699 35,729
Creditors (amounts falling due after more than one year) 18 (17) (137,370)
Provisions for liabilities and charges 19 - (1,430)
----------------------------------------------------------------------------------------------------
Net assets/(liabilities) 16,682 (103,071)
----------------------------------------------------------------------------------------------------
Capital and reserves - equity
Called up share capital 21 1,726 1,549
Share premium account 23 184,057 154,949
Shares to be issued 24 134 967
Profit and loss account 25 (169,235) (261,079)
----------------------------------------------------------------------------------------------------
Equity shareholders' funds 26 16,682 (103,614)
Minority equity interest 27 - 543
----------------------------------------------------------------------------------------------------
Total equity shareholders' funds 16,682 (103,071)
----------------------------------------------------------------------------------------------------
</TABLE>
The financial statements were approved by the Board of Directors on 12 June 2001
and signed on its behalf by:
/s/ D Wagner /s/ D Mattey
D Wagner D Mattey
Chief Executive Chief Financial Officer
The following notes numbered 1 to 32 form part of these financial statements
Bright Station plc
COMPANY BALANCE SHEET
For the year ended 31 December 2000
<TABLE>
<CAPTION>
Restated
2000 1999
Notes (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Fixed assets
Intangible assets 12 - 4,340
Tangible assets 14 1,073 2,183
Investments 15 8,746 186,522
----------------------------------------------------------------------------------------------------------------------
9,819 193,045
----------------------------------------------------------------------------------------------------------------------
Current assets
Stock - 27
Debtors 16 4,253 35,258
Cash at bank and in hand 15,751 1,634
----------------------------------------------------------------------------------------------------------------------
20,004 36,919
Creditors (amounts falling due within one year) 17 (5,450) (57,935)
----------------------------------------------------------------------------------------------------------------------
Net current assets/(liabilities) 14,554 (21,016)
----------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 24,373 172,029
Creditors (amounts falling due after more than one year) 18 (17) (135,745)
----------------------------------------------------------------------------------------------------------------------
Net assets 24,356 36,284
----------------------------------------------------------------------------------------------------------------------
Capital and reserves - equity
Called up share capital 21 1,726 1,549
Share premium account 23 184,057 154,949
Shares to be issued 24 134 967
Profit and loss account 25 (161,561) (121,181)
----------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 26 24,356 36,284
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements were approved by the Board of Directors on 12 June 2001
and signed on its behalf by:
/s/ D. Wagner /s/ D. Mattey
D Wagner D Mattey
Chief Executive Chief Financial Officer
The following notes numbered 1 to 32 form part of these financial statements
Consolidated Cash Flow Statement For The Year Ended 31 December
<TABLE>
<CAPTION>
Restated
2000 1999 1998
Notes (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Net cash (outflow)/inflow from operating activities 29 (11,229) 32,807 34.151
-------------------------------------------------------------------------------------------------------------------------------
Returns on investments and servicing of finance
Interest received 782 303 205
Interest paid on bank loans and overdrafts (7,798) (16,945) (15,251)
Interest paid on finance leases (25) (106) (46)
------------------------------------------------------------------------------------------------------------------------------
(7,041) (16,748) (15,092)
------------------------------------------------------------------------------------------------------------------------------
Taxation paid (248) (911) (349)
------------------------------------------------------------------------------------------------------------------------------
Capital expenditure
Payments to acquire and develop intangible assets (2,896) (11,402) (11,762)
Payments to acquire tangible fixed assets (2,747) (4,536) (7,223)
Payments to acquire fixed asset investments (1,824) - -
Receipts from sale of tangible fixed assets 99 78 211
------------------------------------------------------------------------------------------------------------------------------
(7,368) (15,860) (18,774)
------------------------------------------------------------------------------------------------------------------------------
Acquisitions and disposals
Purchase of subsidiary undertakings (257) - (965)
Cash impact of revisions to fair values - - (2,284)
Payments to acquire minority interests in a subsidiary undertaking - (428) (1,720)
Net cash acquired with subsidiary undertakings - - (33)
Investment in joint venture - (1,235) (1,086)
Expenses in connection with purchase of subsidiary undertakings - - (471)
Proceeds from sale of assets held for resale/investments 2,537 777 7,123
Expenses in connection with the sale of assets held for resale - (303) -
Payment of deferred consideration (1,430) - -
Cash transferred with sale of ISD 6 (4,813) - -
Expenses in relation to sale of ISD 6 (4,910) - -
Proceeds from sale of ISD 6 185,474 - -
------------------------------------------------------------------------------------------------------------------------------
176,601 (1,189) 564
------------------------------------------------------------------------------------------------------------------------------
Cash inflow/(outflow) before the use of liquid resources and financing 150,715 (1,901) 500
------------------------------------------------------------------------------------------------------------------------------
Management of liquid resources
Cash withdrawn from deposit - - 620
Financing
Net proceeds on issue of Ordinary Share Capital 28,299 142 458
Debt due within one year - Increase in borrowings - 13,187 -
Debt due within one year - Increase in finance leases - 1,549 -
Debt due within one year - Repayment of loans (172,559) (22,004) (9,551)
Debt due after one year - New secured loan - 15,593 -
Debt due after one year - Increase in finance leases - 1,509 -
Expenses on raising of Senior Credit Facility and Senior Subordinated Notes - (1,246) (29)
Repayment of capital element of finance leases (642) (525) (549)
------------------------------------------------------------------------------------------------------------------------------
(144,902) 8,205 (9,671)
------------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash 5,813 6,304 (8,551)
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Restated
2000 1999 1998
Notes (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Reconciliation of Net Cash Flow to Movement in Net Funds/(Debt) For The
Year Ended 31 December
Increase/(decrease) in cash in the period 5,813 6,304 (8,551)
Cash used to decrease lease financing 642 525 549
Cash acquired from issue of debt (net of expenses) - (27,533) 29
Cash used to repay loans 172,559 22,004 9,551
Cash acquired from sale and leaseback - (3,058) -
Decrease in liquid resources and cash deposits with original maturity - - (620)
dates of more than one year
------------------------------------------------------------------------------------------------------------------------------
Change in net funds/(debt) from cash flows 179,014 (1,758) 958
Other non-cash changes (6,125) (1,274) (946)
New finance leases (37) (3,614) -
Finance lease obligations transferred to ISD 5,724 - -
Effect of foreign exchange rate changes (5,300) (5,242) 1,695
------------------------------------------------------------------------------------------------------------------------------
Movement in net funds/(debts) in period 173,276 (11,888) 1,707
Net debt at beginning of period (156,979) (145,091) (145,904)
------------------------------------------------------------------------------------------------------------------------------
Net funds/(debt) at end of period 30 16,297 (156,979) (144,197)
==============================================================================================================================
</TABLE>
1. Accounting Policies
The financial statements have been prepared under the historical cost convention
and in accordance with accounting standards applicable in the United Kingdom.
Going Concern
The financial statements have been prepared on the going concern basis in
anticipation of the receipt of the estimated proceeds of approximately
(Pounds)12.0 million, net of expenses, from the proposed placing and open offer
which was formally approved by the Directors on 7 June 2001. Further details are
contained in note 32.
The placing and open offer is conditional, inter alia, on approval by
shareholders at an Extraordinary General Meeting to be held on 6 July 2001.
Without the above injection of capital the Group would be unable to continue in
operational existence for the foreseeable future and the going concern basis
would be inappropriate. Adjustments would then have to be made to reduce the
balance sheet amounts of assets to their recoverable amounts, to provide for
further liabilities that might arise and to reclassify fixed assets and long-
term liabilities as current assets and liabilities.
Whilst there is uncertainty at present as to the outcome of the matter mentioned
above, the Directors believe that it is appropriate for the financial statements
to be prepared on the going concern basis.
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Group accounts
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries (the "Group"). All intercompany transactions
and balances have been eliminated. The accounts include the results of
subsidiaries acquired during the year from the relevant date of acquisition
other than those subsidiaries acquired with a view to resale. They also include
the results of subsidiaries disposed of during the year up to the relevant date
of disposal.
Goodwill
Prior to 1 January 1998, goodwill arising as the difference between the cost of
acquisition of a subsidiary and the fair value of its net assets at the date of
acquisition was written off to reserves in the year of acquisition. Goodwill
arising on acquisitions since 1 January 1998 is capitalised and subsequently
written off over its estimated useful life, which currently ranges from 10-20
years. Where necessary, adjustments to provisional fair values of net assets
acquired are adjusted to goodwill in the first full year following the
acquisition. Impairment reviews on the
carrying amount of goodwill are performed on an annual basis and any permanent
diminutions in value identified is charged to the profit and loss account.
Turnover and revenue recognition
Turnover includes licence fees for technology sales, ongoing maintenance fees
and consultancy work. Revenues on such items are recognised when the Company
has fulfilled all of its significant performance obligations.
Turnover also arises on the provision of long term government contracts and the
sale of office goods and supplies.
Turnover relating to discontinued activities represents database subscription
sales, online and usage charges and design and implementation fees at invoiced
amounts, exclusive of value added and other sales taxes. Subscription revenues
are recognised when contractually due and invoiced. The costs of fulfilling
obligations under the terms of the subscription contract are accrued at the time
the income is recognised. Online and usage charges are recognised as the service
is provided. Most subscriptions are due and invoiced either annually or semi-
annually in advance and recognised in full at the commencement of the
subscription term. Some of the Group's US operations billed monthly under their
'modular pricing' scheme, whereby subscriptions for access to the Group's
services were raised on a monthly basis and accounted for accordingly. Annual
CD-ROM usage fees are deferred and amortised over the life of the contract.
Fixed assets
Fixed assets are stated at cost. Depreciation is provided to write off the cost,
less estimated residual value, of all tangible fixed assets over their expected
useful lives. It is calculated at the following rates:
Equipment including personal computers - 33% straight line
Motor vehicles - 25% straight line
Fixtures and fittings - 20% straight line
Leasehold improvements - shorter of remaining lease period and
20% straight line
Mainframe computers - 20% straight line
Leasehold improvements relate to the cost of refurbishment of the Group's short
leasehold properties.
Stocks
Stocks, which comprise consumable items, are stated at the lower of cost and net
realisable value.
Foreign currency
Transactions denominated in foreign currencies are recorded at the exchange rate
prevailing at the date of the transaction. Transactions to be settled at a
contract rate are recorded at that rate. Any gains or losses from the
translation of transactions denominated in foreign currencies are included in
the results of the operation. Assets and liabilities denominated in foreign
currencies
are translated at the exchange rate ruling at the year end. Profit and losses of
overseas companies are translated at average rates of exchange for the period.
Exchange differences arising out of the translation of accounts of foreign
subsidiaries, net of associated borrowings, are taken to reserves.
Financial Instruments
Changes in the value of forward foreign exchange contracts are recognised in the
results in the same period as changes in the values of the assets and
liabilities they are intended to hedge. Any interest receipts arising from the
interest rate cap are matched to those arising from the underlying debt
position.
Intangible fixed assets
Historically it has been the Group's policy to capitalise costs associated with
the development of the host computer systems and the development of new
products. In the year 2000, following the disposal of ISD, the Group's business
comprised the eCommerce, Web Solutions and Ventures divisions. In recognition
of the fact that these divisions are not mature and in light of changing
industry practice, the Group decided to change its accounting policy such that
development costs associated with these divisions are expensed to the profit and
loss account as incurred.
The results for 2000 have been prepared on this revised basis, while the results
for 1999 have been restated to reflect this change in policy. The impact of the
restatement on the comparative profit and loss account for 1999 is an increase
to the loss of (Pounds)489,000 and the cumulative effect on the Group's reserves
as at 1 January 2000 amounts to a decrease of (Pounds)776,000. No such costs
were capitalised during the year ended 31 December 2000 and it would therefore
be inappropriate to estimate the effect of the restatement on the profit and
loss account for this period.
Fixed asset investments
Investments in subsidiaries and other fixed asset investments are stated in the
balance sheet at cost. Provision is made in full for diminution in value if
considered permanent.
Deferred taxation
Provision is made for timing differences between the treatment of certain items
for taxation and accounting purposes, to the extent that it is probable that a
liability or asset will crystallise.
Leased assets
Where assets are financed by leasing agreements that give rights approximating
to ownership ('finance leases'), the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable over the term of the lease. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account, except for that
proportion relating to assets wholly used for ISD product development.
Lease payments are analysed between capital and interest using the actuarial
method. The interest is charged to the profit and loss account, except for that
proportion relating to assets
wholly used for ISD product development. The capital part reduces the amounts
payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the lease
term except where the costs are capitalised as development costs.
Pension costs
For the year ended 31 December 2000, the Group operated defined contribution
pension schemes in the UK, US and Switzerland. The amount of contributions
payable to the pension schemes are charged to the profit and loss account as
incurred.
Finance costs
Borrowings are stated net of the associated costs of raising the finance. Such
finance costs are charged to the profit and loss account over the term of the
related borrowing, increasing the outstanding borrowing to the amount of the
debt at the maturity date.
Warrants
Net proceeds from the issue of warrants are credited to equity upon issue.
Where warrants are issued in conjunction with debt, the net proceeds are
allocated between equity and debt based upon their respective fair values at the
time of issue.
2. Segmental Analysis
Analyses by class of business of turnover, operating (loss)/profit and net
assets/(liabilities) are stated below.
The Information Services Division (ISD) was sold to Thomson Corporation in May
2000 and all segmental information disclosed below in respect of Information
Services is discontinued.
The composition of turnover is analysed as follows:
<TABLE>
<CAPTION>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Information Services:
- Usage sales 41,604 132,631 136,992
- Subscription sales 2,605 8,891 10,561
- CD-ROM sales 2,005 7,465 8,737
- Other sales (1) 2,930 16,146 9,021
------------------------------------------------------------------------------------------------------------
49,144 165,133 165,311
Web Solutions 5,947 7,917 4,010
eCommerce 2,496 1,402 77
Corporate 55 - -
Other - - 1,364
------------------------------------------------------------------------------------------------------------
57,642 174,452 170,762
============================================================================================================
</TABLE>
(1) Includes (Pounds)12.6 million in respect of the sale of exclusive
distribution rights in 1999.
The composition of operating (loss)/profit is analysed as follows:
<TABLE>
<CAPTION>
Restated
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Information Services (14) 18,258 21,422
Web Solutions (6,217) 2,220 953
eCommerce (9,509) (1,233) (59)
Corporate (6,425) - -
Other - - 601
--------------------------------------------------------------------------------------------------------------
(22,165) 19,245 22,917
==============================================================================================================
</TABLE>
In 2000 the 'Corporate' category relates to the Ventures division and corporate
overheads. Following the disposal of ISD, corporate overheads, including those
of the Ventures division, have been reported separately from the other
divisions.
In 1998 the `Other' category relates to royalties earned from the provision of
hotel Internet access.
The composition of net assets/(liabilities) is analysed as follows:
<TABLE>
<CAPTION>
Restated
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Information Services - 57,632 52,532
Web Solutions (5,501) 1,294 2,209
eCommerce (7,526) (318) (23)
Corporate 13,180 - -
---------------------------------------------------------------------------------------------------------------
153 58,608 54,718
Unallocated net assets/(liabilities) 16,529 (161,679) (148,459)
---------------------------------------------------------------------------------------------------------------
16,682 (103,071) (93,741)
==============================================================================================================
</TABLE>
Unallocated net assets/(liabilities) comprise cash deposits and borrowings.
The geographical composition of turnover by source is analysed as follows:
<TABLE>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
United Kingdom 11,414 22,764 17,243
North America 38,697 131,997 129,478
Continental Europe 7,531 15,271 17,231
Rest of the World - 4,420 6,810
--------------------------------------------------------------------------------------------------------------
57,642 174,452 170,762
==============================================================================================================
</TABLE>
The geographical composition of turnover by destination is analysed as follows:
<TABLE>
<CAPTION>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
United Kingdom 11,892 21,661 24,374
North America 30,289 80,626 91,845
Continental Europe 9,390 26,234 24,547
Rest of the World 6,071 45,931 29,996
--------------------------------------------------------------------------------------------------------------
57,642 174,452 170,762
==============================================================================================================
</TABLE>
The geographical composition of operating (loss)/profit is analysed as follows:
<TABLE>
<CAPTION>
Restated
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
United Kingdom (24,279) (9,859) (12,639)
North America 882 31,559 31,111
Continental Europe 1,325 (2,088) 1,508
Rest of the World (93) (367) 746
--------------------------------------------------------------------------------------------------------------
(22,165) 19,245 20,726
==============================================================================================================
</TABLE>
The operating (loss)/profit for the United Kingdom for the periods under review
includes the central costs associated with the Group's worldwide head office
functions.
The composition of net assets/(liabilities) by location is presented on a basis
consistent with the segmental analysis of operating profit/(loss). The assets
in any location are not necessarily matched with the turnover in that location.
The net assets and total assets for the United Kingdom for the periods under
review include those associated with the Group's worldwide head office
functions.
The geographical composition of net assets/(liabilities) is analysed as follows:
<TABLE>
<CAPTION>
Restated
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
United Kingdom (127) 14,971 13,003
North America 293 40,756 37,720
Continental Europe (13) 2,460 2,481
Rest of the World - 421 1,514
--------------------------------------------------------------------------------------------------------------
Net operating assets 153 58,608 54,718
Unallocated net liabilities 16,529 (161,679) (148,459)
--------------------------------------------------------------------------------------------------------------
16,682 (103,071) (93,741)
==============================================================================================================
</TABLE>
3. Staff Number and Costs
Staff costs (including Directors) consist of:
<TABLE>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Wages and salaries 18,024 34,091 32,529
Social security costs 1,887 3,878 2,997
Other pension costs 499 945 910
------------------------------------------------------------------------------------------------------------
20,410 38,914 36,436
============================================================================================================
</TABLE>
The average number of full-time employees during the year was:
<TABLE>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
United Kingdom 250 308 275
North America 178 560 573
Continental Europe 37 110 99
Rest of the World 11 74 78
------------------------------------------------------------------------------------------------------------
476 1,052 1,025
============================================================================================================
</TABLE>
Pension arrangements
The Group operates defined contribution pension schemes in the UK. The pension
cost charge represents contributions payable by the Group to the funds and
amounted to (Pounds)499,000 (1999: (Pounds)945,000; 1998: (Pounds)910,000). The
assets of all the schemes are held by independent custodians and kept entirely
separate from the assets of the Group.
4. Operating (Loss)/Profit
This is arrived at after charging/(crediting):
<TABLE>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Hire of plant and machinery - operating leases 1,163 60 -
Hire of other assets - operating leases 1,990 4,613 5,160
Depreciation:
- on owned assets 2,707 6,964 7,069
- on leased assets 2 518 893
- impairment of tangible fixed assets 953 - -
Amortisation/write-off:
- of development costs 3,918 9,047 7,699
- of goodwill 617 415 61
- impairment of intangible fixed assets 295 - -
Auditors' remuneration 110 252 257
Exceptional provision for diminution of goodwill 4,084 - -
Gain on foreign currency translations 48 (119) (290)
Loss on disposal of fixed assets 195 631 17
============================================================================================================
</TABLE>
The auditors' remuneration includes amounts in respect of the parent company for
the year ended 31 December 2000 of (Pounds)60,000 (1999: (Pounds)100,000; 1998:
(Pounds)100,000)
Additional fees paid to PricewaterhouseCoopers for non-audit services amounted
to (Pounds)978,000 in 2000 (1999: (Pounds)52,000; 1998: (Pounds)8,000)
The exceptional provision of (Pounds)4.1 million is against the carrying value
of goodwill in the eCommerce division, arising principally as a result of the
Write Works acquisition.
The loss for the year attributable to shareholders, dealt with in the accounts
of the Company, is:
Restated
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
(35,027) (103,843) (9,016)
--------------------------------------------------------------------------------
As permitted by Section 230 of the Companies Act 1985, the unconsolidated profit
and loss account of the Company, is not presented.
5. Exceptional Items charged after Operating (Loss)/Profit
2000
The Information Services Division was disposed of on 4 May 2000. The loss on
disposal of this division was (Pounds)101.7 million. Further information on
this loss is provided in note 6.
It is estimated that this disposal gives rise to a tax capital loss of
approximately (Pounds)51.0 million.
1999
The provision for closure of business of (Pounds)911,000 booked during the year
ended 31 December 1999 relates to the closure of the Company's former subsidiary
distributor in Japan, KMK Digitex Company Limited.
1998
On 6 May 1998, the group disposed of its investment in NewsEdge Corporation, an
online service provider, for net proceeds of (Pounds)3.9 million. This resulted
in a book profit on the disposal of (Pounds)1.0 million.
On 13 May 1998, the Company disposed of its investment in Easynet Group plc, an
Internet and telecommunications company, for net proceeds, after associated
expenses, of (Pounds)3.2 million. This resulted in a book profit on the
disposal of (Pounds)1.1 million.
6. Loss On Disposal Of Information Services Division
On 4 May 2000, the Company disposed of its Information Services Division to
Thomson and
realised a loss on disposal of (Pounds)101.7 million. The loss arose as follows:
2000
(Pounds)000
Net proceeds 175,428
Less: Net assets disposed of (see below) (43,637)
Goodwill previously written off to reserves (227,854)
Unamortised finance costs (5,625)
--------------------------------------------------------------------------------
(101,688)
--------------------------------------------------------------------------------
Net assets disposed of:
Fixed assets 45,569
Current assets 41,302
Current liabilities (34,567)
Long-term liabilities (8,087)
Minority interests (580)
--------------------------------------------------------------------------------
43,637
--------------------------------------------------------------------------------
7. Amounts Written off Investments
2000
For the year ended 31 December 2000, the Company has reviewed the carrying
amount of its investments, and has provided (Pounds)1.9 million against the
carrying value of its portfolio of minority investments.
1999
The amounts written off investments during the year ended 31 December 1999
comprised (Pounds)3.2 million in respect of the Company's remaining investment
in eHotel (formerly 4th Network), reflecting further delays in its proposed
initial public offering. In addition, a provision of (Pounds)1.4 million was
made against the Company's investment in Frost and Sullivan Electronic
Distribution LLC reflecting concerns over the value of certain of its exclusive
online distribution rights.
1998
During the year ended 31 December 1998, a write-down of (Pounds)2.3 million was
charged to the profit and loss account relating to the Company's investment in
eHotel.
8. Interest Payable And Similar Charges
<TABLE>
<CAPTION>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Bank loans and overdrafts:
- on Senior Subordinated Notes 4,151 12,268 12,013
- on Senior Credit Facility 1,769 4,585 4,399
- amortisation of debt fees 500 1,274 946
- on bank overdrafts 46 78 33
- other 168 59 -
-------------------------------------------------------------------------------------------------------------------------------
6,634 18,264 17,391
Finance leases 25 105 45
Exchange gains on foreign currency deposits - (3) -
-------------------------------------------------------------------------------------------------------------------------------
6,659 18,366 17,436
===============================================================================================================================
9. Directors' Emoluments and Interests in Ordinary Shares
</TABLE>
<TABLE>
<CAPTION>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Aggregate emoluments 2,248 1,233 1,326
Compensation to past Directors for loss of office /(1)/ - 154 -
Amounts paid to third parties /(2)/ - 33 51
Amounts paid to former Directors for consultancy work /(3)/ 22 11 50
Contributions to defined contribution pension schemes 14 25 12
-----------------------------------------------------------------------------------------------------------------------------
2,284 1,456 1,439
=============================================================================================================================
</TABLE>
(1) Derek Smith resigned on 2 February 1999 and received (Pounds)153,600 in
respect of the termination of his service contract.
(2) The amounts disclosed as paid to third parties were fees for the Non-
executive services of Michael Mander, paid to his primary employer, Close
Brothers Corporate Finance Ltd.
(3) Michael Mander resigned as a Non-executive Director on 1 July 1999. He was
paid (Pounds)22,000 during 2000 for services provided under a consultancy
agreement (1999: (Pounds)11,000, 1998: nil).
Details of the full cost of the remuneration package of each of the Director's
for the year ended 31 December 2000 are as follows:
<TABLE>
<CAPTION>
Emoluments Fees Salary Benefits Bonus Pension 2000 1999 1998
(Pounds) (Pounds) (Pounds) (Pounds) /(3)/ contributions Total Total Total
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I Barton 25,000 - - - - 25,000 25,000 20,000
M Hussey 16,955 - - - - 16,955 25,000 20,000
(to 5 September 2000)
R Lomnitz /(1)/ - 3,000 140 - 157 3,297 - -
(from 22 December 2000)
S Maller (to 4 May 2000) - 40,000 2,333 50,000 - 92,333 127,026 98,841
D Mattey /(1)/ - 166,666 17,676 236,500 6,892 427,734 183,262 144,380
J Molle (to 4 May 2000) - 62,285 2,304 96,000 - 160,589 176,296 128,514
C Morton /(1)/ - 50,000 3,688 100,000 2,000 155,688 161,705 124,880
(to 4 May 2000)
P Sommers /(2) (3) (4)/ 27,072 76,651 4,460 673,120 2,044 783,347 228,868 39,677
R Swank (to 4 December 2000) 27,670 - - - - 27,670 20,233 -
A Thomas 65,000 - - - - 65,000 51,664 20,000
D Wagner /(1) (5)/ - 196,666 25,096 280,000 2,500 504,262 214,407 168,078
----------------------------------------------------------------------------------------------------------------------------------
161,697 595,268 55,697 1,435,620 13,593 2,261,875 1,213,461 764,370
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Member of the Company's defined contribution pension scheme in the UK. The
Company made contributions totalling (Pounds)11,549 to the UK scheme on
behalf of Directors in 2000.
(2) Member of the Company's defined contribution pension scheme in the US. The
Company made contributions totalling (Pounds)2,044 to the US scheme on
behalf of Directors in 2000.
(3) Patrick Sommers' bonus includes a sum of (Pounds)480,800 paid on completion
of the ISD sale. In addition, he was issued 71,361 ADSs, credited as fully
paid at a price of $10.51 per ADS. This is equivalent to 285,444 Ordinary
shares. Patrick Sommers was restricted from disposing of these shares for
a period of 12 months from the date of issue.
(4) Patrick Sommers was the highest paid Director on the Board during the year
ended 31 December 2000.
(5) On 4 May 2000 the Company completed the sale of the ISD to Thomson
Corporation. On this date, Stephen Maller, Jason Molle and Ciaran Morton
transferred to Thomson Corporation and resigned as Directors of the
Company. At the same date, Patrick Sommers became a Non-executive Director
of the Company upon the transfer of his employment to Thomson Corporation.
During the year, bonuses were paid to the Executive Directors in respect of
the sale of the ISD, the successful repayment of the Company's debt and,
where applicable, the restructuring and formation of the Company. Bonuses
payable in 2001 but relating to 2000 are also included in the table, being
(Pounds)90,000 to Daniel Wagner and (Pounds)76,500 to David Mattey.
Benefits include P11D benefits (non-cash compensation) for the UK Directors, as
discussed in the Remuneration Committee Report.
The following beneficial interests of the Directors of the Company are shown in
the register maintained by the Company in accordance with the Companies Act
1985:
Interests in Ordinary shares
<TABLE>
<CAPTION>
1 January 31 December % of issued
2000 or, if 2000 or, if shares as at
later, on earlier, on 31 December
Name of beneficial owner appointment Acquisitions retirement 2000 /(3)/
<S> <C> <C> <C> <C> <C>
I Barton/(1)/ 479,139 - 479,139 0.28
M Hussey (to 5 September 2000) 242,610 - 242,610 0.14
R Lomnitz/(1)/ (from 22 December 2000) 94,500 - 94,500 0.05
S Maller (to 4 May 2000) 25,441 - 25,441 0.02
D Mattey/(1)/ 2,335,200 - 2,335,200 1.35
J Molle (to 4 May 2000) 135,116 - 135,116 0.08
C Morton (to 4 May 2000) 202,001 - 202,001 0.12
P Sommers/(1) (2)/ 48,000 * 290,496 338,496 0.20
R Swank (to 4 December 2000) 32,000 * - 32,000 0.02
A Thomas/(1)/ 100,000 - 100,000 0.06
D Wagner/(1)/ 17,434,780 - 17,434,780 10.10
-------------------------------------------------------------------------------------------------------------------------
Total 21,128,787 290,496 21,419,283 12.42
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* held as American Depositary Shares, one ADS being equivalent to four Ordinary
shares
(1) The interests of the current Directors in the Company's share capital
remained unchanged at 7 June 2001.
(2) On exercise of his options under offers 3 and 4 of the Employee Stock
Purchase Plan, Patrick Sommers had unrealised net gains of (Pounds)248
and (Pounds)1,225 respectively.
(3) The percentages of shares held by each Director are shown based on the
Ordinary Share Capital outstanding of 172,614,502 as at 31 December
2000.
Apart from Daniel Wagner, Prudential plc and Thomson Finance S.A., to the
Company's knowledge, no other person is the owner of more than 5% of the
outstanding Ordinary Shares nor is the Company directly or indirectly owned or
controlled by any other corporation or any government.
Options over Ordinary Shares
<TABLE>
<CAPTION>
At 1 January 2000 At 31 December
or, if later, on Granted/ 2000 or, if earlier, Exercise Exercis- Exercis-
Scheme appointment (Cancelled) Exercised on retirement price able from able to
<S> <C> <C> <C> <C> <C> <C> <C>
I Barton - - - - - - - -
M Hussey - - - - - - - -
R Lomnitz Executive Scheme 32,000 - - 32,000 (Pounds)0.94 04/05/03 04/05/10
Unapproved Scheme 23,000 - - 23,000 (Pounds)0.94 04/05/03 04/05/07
S Maller SAYE Scheme/(3)/ 7,040 - - 7,040 (Pounds)0.49 01/12/99 31/05/00
SAYE Scheme/(3)/ 2,156 - - 2,156 (Pounds)0.64 04/05/00 04/11/00
SAYE Scheme/(3)/ 308 - - 308 (Pounds)2.24 04/05/00 04/11/00
SAYE Scheme/(3)/ 766 - - 766 (Pounds)1.80 04/05/00 04/11/00
SAYE Scheme/(3)/ 569 - - 569 (Pounds)1.37 04/05/00 04/11/00
SAYE Scheme/(3)/ 1,174 - - 1,174 (Pounds)0.99 04/05/00 04/11/00
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.89 14/03/00 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.73 04/05/00 30/04/02
Unapproved Scheme/(4)/ 120,000 - - 120,000 (Pounds)1.50 04/05/00 08/10/02
Executive Scheme/(4)/ 62,727 - - 62,727 (Pounds)1.10 24/03/97 04/05/01
Executive Scheme/(4)/ 20,000 - - 20,000 (Pounds)0.80 25/04/98 04/05/01
Executive Scheme/(4)/ 17,500 - - 17,500 (Pounds)2.48 04/10/98 04/05/01
Unapproved Scheme/(4)/ 250,000 - - 250,000 (Pounds)4.00 04/05/00 02/07/03
D Mattey SAYE Scheme 17,045 (17,045) - - (Pounds)0.99 01/07/04 31/12/04
SAYE Scheme 31,839 - 31,839 (Pounds)0.53 01/12/00 31/05/06
Unapproved Scheme 30,000 - - 30,000 (Pounds)1.73 30/04/01 30/04/05
Unapproved Scheme 120,000 - - 120,000 (Pounds)1.50 08/10/01 08/10/05
Unapproved Scheme - 50,000 - 50,000 (Pounds)0.94 04/05/03 04/05/07
Executive Scheme 122,727 - - 122,727 (Pounds)1.10 24/03/97 24/03/04
Unapproved Scheme 325,000 - - 325,000 (Pounds)4.00 02/07/02 02/07/06
J Molle Unapproved Scheme/(4)/ 54,545 - - 54,545 (Pounds)1.10 24/03/97 04/05/01
Unapproved Scheme/(4)/ 17,500 - - 17,500 (Pounds)2.48 04/10/98 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.89 14/03/00 04/05/01
US Stock Option Plan/(1) / 30,000 - - 30,000 (Pounds)1.73 30/04/99 30/04/02
US Stock Option Plan/(1) / 120,000 - - 120,000 (Pounds)1.50 08/10/99 08/10/02
Employee Stock Purchase 5,276 - - 5,276 (Pounds)0.56 05/05/00 05/05/00
Plan/(2)/
US Stock Option Plan/(1) / 250,000 - - 250,000 (Pounds)4.00 04/05/00 02/07/03
Unapproved Scheme/(4)/ 50,000 - - 50,000 (Pounds)4.00 04/05/00 02/07/03
C Morton SAYE Scheme/(3)/ 35,204 - - 35,204 (Pounds)0.49 01/12/99 31/05/00
Unapproved Scheme/(4)/ 17,500 - - 17,500 (Pounds)2.48 04/10/98 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.89 14/03/00 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.73 04/05/00 30/04/02
Unapproved Scheme/(4)/ 120,000 - - 120,000 (Pounds)1.50 04/05/00 08/10/02
Executive Scheme/(4)/ 61,364 - - 61,364 (Pounds)1.10 24/03/97 04/05/01
Unapproved Scheme/(4)/ 300,000 - - 300,000 (Pounds)4.00 04/05/00 02/07/03
P Sommers US Stock Option Plan/(1) / 200,000 - - 200,000 (Pounds)1.50 08/10/99 08/10/08
US Stock Option Plan/(1) / 200,000 - - 200,000 (Pounds)0.90 02/07/00 02/07/09
US Stock Option Plan/(1) / - 200,000 - 200,000 (Pounds)0.94 04/05/01 04/05/10
Employee Stock Purchase 2,352 (428) (1,924) - (Pounds)0.82 05/05/00 05/05/00
Plan/(2)/
Employee Stock Purchase 5,276 (2,148) (3,128) - (Pounds)0.56 05/05/00 05/05/00
Plan/(2)/
Unapproved Scheme/(4)/ 600,000 - - 600,000 (Pounds)4.00 04/05/00 02/07/03
Individual arrangement - 285,444 - 285,444 (Pounds)1.70 05/05/01 05/05/07
R Swank Individual arrangement 26,844 - - 26,844 (Pounds)2.20 14/11/98 14/11/04
Individual arrangement 16,928 - - 16,928 (Pounds)1.85 08/09/99 08/09/05
</TABLE>
<TABLE>
<CAPTION>
At 1 January 2000 At 31 December
or, if later, on Granted/ 2000 or, if earlier, Exercise Exercis- Exercis-
Scheme appointment (Cancelled) Exercised on retirement price able from able to
<S> <C> <C> <C> <C> <C> <C> <C>
A Thomas - - - - - - - -
D Wagner SAYE Scheme 17,045 (17,045) - - (Pounds)0.99 01/07/04 31/12/04
SAYE Scheme - 31,839 - 31,839 (Pounds)0.53 01/12/00 31/05/06
Unapproved Scheme 30,000 - - 30,000 (Pounds)1.73 30/04/01 30/04/05
Unapproved Scheme 130,000 - - 130,000 (Pounds)1.50 08/10/01 08/10/05
Unapproved Scheme - 50,000 - 50,000 (Pounds)0.94 04/05/03 04/05/07
Executive Scheme 163,636 - - 163,636 (Pounds)1.10 24/03/97 24/03/04
------------------------------------------------------------------------------------------------------------------------------------
Grand Total 3,755,482 612,456 (5,052) 4,362,886
====================================================================================================================================
</TABLE>
(1) Under the terms of the US Stock Option Plan, options are granted in the
form of ADSs at an exercise price expressed in US Dollars. Options granted
under the US Stock Option Plan become exercisable in cumulative increments
as determined by the Remuneration Committee of the Board of Directors. For
the purpose of uniformity, all options detailed above are expressed in
Ordinary shares and in Pounds Sterling.
On 4 May 2000, when Jason Molle transferred to Thomson, his options held
under the US Stock Option Scheme became immediately exercisable, remaining
so until the later of:
. 12 months after the date of transfer, being 4 May 2001, or;
. the fourth anniversary after the date of grant
(2) Under the terms of the Employee Stock Purchase Plan, rights were granted
for eligible US employees to acquire beneficial ownership of Ordinary
shares of the Company by purchasing ADSs. The purchase price may not be
less than the lower of 85% of the fair market value of the ADSs on:
. the offering date, or;
. the purchase date
The total purchase price is met by accumulated payroll deductions over the
course of the offering. All rights to purchase ADSs under the ESPP matured
on completion of the ISD sale, whereupon they lapsed. For the purpose of
uniformity, all rights to purchase ADSs under the ESPP detailed above are
expressed in Ordinary shares and in Pounds Sterling. On exercise of his
options under the ESPP3 and ESPP4 plans, Patrick Sommers made net gains of
(Pounds)248 and (Pounds)1,225 respectively.
(3) Following the transfer of Stephen Maller and Ciaran Morton to Thomson, all
outstanding options under the SAYE Scheme became immediately exercisable
(to the value of accumulated savings at the date of transfer) and remained
exercisable for six months, whereupon they lapsed.
(4) On completion of the ISD sale, options held under the Executive Scheme and
Unapproved Scheme by Stephen Maller, Jason Molle, Ciaran Morton and Pat
Sommers became
immediately exercisable and remain so for a period of 12 months commencing
on the later of:
. the date of transfer, being 4 May 2000, or;
. the third anniversary after the date of grant
Long Term Incentive Plan Awards
<TABLE>
<CAPTION>
Granted during At 31 December Exercisable Exercisable
2000 2000 from to
<S> <C> <C> <C> <C>
R Lomnitz 382,353 382,353 29/09/03 29/10/03
D Mattey 500,000 500,000 29/09/03 29/10/03
D Wagner 588,235 588,235 29/09/03 29/10/03
=======================================================================================================
</TABLE>
The first grant under the Long Term Incentive Plan was made on 29 September
2000. Release of the Restricted Share Awards detailed above is contingent on
achievement of the pre-determined performance criteria set out in note 21 and on
payment by the LTIP-holder to the Company of any employer's National Insurance
liability arising thereon.
The mid market price of the Company's Ordinary shares on 29 December 2000, the
last trading day in 2000, was 23.5 pence per share and the range during 2000 was
23.5 pence to 232.5 pence per share. Further details of the Company's share
option schemes are set out in Note 13.
None of the Directors have notified the Company of a beneficial interest in any
other shares, transactions or arrangements that would require disclosure in the
financial statements.
10. Taxation On Loss On Ordinary Activities
<TABLE>
<CAPTION>
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
UK Corporation tax at 30% (1999: 31%) 10 (65) -
Overseas tax 166 1,413 776
Adjustment relating to earlier years 71 156 -
Deferred tax charge/(credit) 24 (26) (7)
----------------------------------------------------------------------------------------------------------------------
Tax charge 271 1,478 769
======================================================================================================================
</TABLE>
11. (Loss)/Earnings Per Share
<TABLE>
<CAPTION>
Restated
2000 1999 1998
<S> <C> <C> <C>
Attributable loss ((Pounds)) (132,002,000) (5,874,000) 4,439,000
Weighted average number of ordinary shares in issue (no.) 166,572,662 151,928,606 150,579,177
----------------------------------------------------------------------------------------------------------------------
Loss per share (pence) (79.2) (3.9) 2.9
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
12. INTANGIBLE FIXED ASSETS
Group Company
(Pounds)000 (Pounds)000
<S> <C> <C>
Cost
At 31 December 1999 - as previously reported 55,840 17,360
Prior year adjustment (see note 12a) (1,152) (818)
----------- -----------
As restated at 31 December 1999 54,688 16,542
Additions 2,896 489
Disposed of with ISD (58,346) (16,665)
Exchange adjustments 1,128 -
----------- -----------
At 31 December 2000 366 366
=========== ===========
Amortisation
At 31 December 1999 - as previously reported 28,810 12,461
Prior year adjustment (see note 12a) (376) (259)
----------- -----------
As restated at 31 December 1999 28,434 12,202
Provision for year 3,918 926
Disposed of with ISD (32,583) (12,762)
Exchange adjustments 597 -
----------- -----------
At 31 December 2000 366 366
=========== ===========
Net book amount
At 31 December 2000 - -
=========== ===========
As restated at 31 December 1999 26,254 4,340
=========== ===========
</TABLE>
(a) During the year the Company changed its accounting policy for the
eCommerce, Web Solutions and Ventures divisions, as disclosed in note 1 to
these financial statements, such that development costs associated with
these divisions are expensed to the profit and loss account as incurred.
The results for 2000 have been prepared on this revised basis, while the
results for 1999 have been restated to reflect this policy change.
(b) The Company continues to capitalise intangible fixed assets that are
acquired from outside of the Group together with their associated purchase
costs.
13. GOODWILL
<TABLE>
Group
(Pounds)000
<S> <C>
Cost
At 31 December 1999 10,281
Additions 257
Disposed of with ISD (1,841)
Deferred consideration adjustment (1,342)
Exchange Adjustment 73
-----------
At 31 December 2000 7,428
===========
Amortisation
At 31 December 1999 476
Disposed of with ISD (113)
Provision for year 617
Exceptional provision for diminution in value 4,084
-----------
At 31 December 2000 5,064
===========
Net book amount
At 31 December 2000 2,364
===========
At 31 December 1999 9,805
===========
</TABLE>
Write Works
On 18 November 1998, the Company acquired 100% of the share capital of Write
Works Limited in an agreement that capped the maximum consideration (payable in
cash and new Ordinary shares) at (Pounds)6,015,000, based on the achievement of
certain earnings targets over the following two financial years (see note 24).
An initial payment of (Pounds)2,152,000 was made on 18 November 1998 (consisting
of cash of (Pounds)1,000,000 and the issue of 694,025 new Ordinary shares at a
price of (Pounds)1.66 per share).
Due to the failure to meet certain of the earnings targets, the remaining
deferred consideration was reduced and further consideration of
(Pounds)1,674,000 (consisting of (Pounds)1,260,000 in cash and the issue of
428,796 new Ordinary shares at a price of (Pounds)0.96 per share) was paid on 11
May 2000. A supplemental agreement was made with the vendors on 20 July 2000
leading to a further cash payment of (Pounds)156,000 on 20 July 2000 and a final
consideration of (Pounds)584,000 (consisting of (Pounds)450,180 in cash and the
issue of 712,959 new Ordinary shares at a price of 18.8 pence per share) on 15
April 2001.
These adjustments to the consideration gave rise to a reduction of
(Pounds)1,342,000 to goodwill.
In view of the trading performance of the eCommerce division, subsequently
supported by the decision to terminate the eCommerce operations, the Company has
made an exceptional provision of (Pounds)4,084,000 against the carrying value of
the remaining goodwill balance associated with the acquisition of Write Works
Limited.
Muscat
The residual goodwill relates to Muscat Limited, which was acquired on 14 August
1997. On 1 December 1999, the Company announced that it had acquired the
remaining 30% minority interest in its UK subsidiary, Muscat Limited. The
consideration of (Pounds)2,500,737 was satisfied by the issue of 3,012,936
Ordinary Shares at (Pounds)0.83 per share.
The resultant goodwill of (Pounds)2,490,000 has been capitalised and will
subsequently be written off over 10 years as set out in Note 1.
14. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
COST
At 31 December 1999 3,219 29,914 2,774 362 36,269
Exchange adjustments 49 270 49 (3) 342
Additions 10 2,526 9 - 2,545
Disposals (376) (798) (158) (142) (1,474)
Disposed of with ISD (1,857) (26,842) (2,127) (189) (31,015)
-------- -------- -------- -------- ---------
At 31 December 2000 1,022 5,070 547 28 6,667
======== ======== ======== ======== =========
Depreciation
At 31 December 1999 2,154 18,059 1,420 298 21,931
Exchange adjustments 12 115 16 (3) 140
Provided for the year 106 3,358 171 22 3,657
Disposals (358) (666) (65) (137) (1,226)
Disposed of with ISD (1,177) (16,907) (1,041) (155) (19,280)
-------- -------- -------- -------- ---------
At 31 December 2000 737 3,959 501 25 5,222
======== ======== ======== ======== =========
Net book amount
At 31 December 2000 285 1,111 46 3 1,445
======== ======== ======== ======== =========
At 31 December 1999 1,065 11,855 1,354 64 14,338
======== ======== ======== ======== =========
</TABLE>
The provision for depreciation in the year ended 31 December 2000 includes an
amount of (Pounds)953,000 for the impairment of tangible fixed assets following
a review of the business by the Board of Directors resulting in a decision to
sell or terminate the Group's eCommerce division.
On 10 November 1999, the Company entered into an agreement with International
Computers Limited ("ICL") to outsource the operations of its data center in Palo
Alto, California for a period of seven years. In connection with this
transaction, the Company sold certain assets in the Palo Alto data centre with a
net book value of (Pounds)3,475,000 in return for cash of (Pounds)3,058,000 and
a reduction in outsourcing charges of (Pounds)1,451,000. As part of the disposal
of ISD any obligations arising under this arrangement will be recharged to
Thomson Corporation.
Equipment includes assets under finance leases of (Pounds)49,000 and
(Pounds)12,809,000 at 31 December 2000 and 1999, respectively. Accumulated
depreciation relating to equipment under finance leases totalled (Pounds)2,000
and (Pounds)7,554,000 at 31 December 2000 and 1999, respectively.
<TABLE>
<CAPTION>
Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
Company (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C>
Cost
At 31 December 1999 1,002 11,357 591 318 13,268
Transfers (to)/from
subsidiary undertakings (401) 126 123 (14) (166)
Additions 4 2,126 15 - 2,145
Disposals - (47) - (128) (175)
Disposed of with ISD (16) (8,814) (158) (163) (9,151)
--------- --------- --------- --------- ---------
At 31 December 2000 589 4,748 571 13 5,921
========= ========= ========= ========= =========
Depreciation
At 31 December 1999 657 9,664 498 266 11,085
Transfers (to)/from
subsidiary undertakings (247) 174 73 (14) (14)
Provided for the year 49 1,879 79 18 2,025
Disposals - (11) - (123) (134)
Disposed of with ISD 7 (7,872) (112) (137) (8,114)
--------- --------- --------- --------- ---------
At 31 December 2000 466 3,834 538 10 4,848
========= ========= ========= ========= =========
Net book amount
At 31 December 2000 123 914 33 3 1,073
========= ========= ========= ========= =========
At 31 December 1999 345 1,693 93 52 2,183
========= ========= ========= ========= =========
</TABLE>
The net book amounts of assets held under finance leases at 31 December 2000 was
(Pounds)47,000 (1999: (Pounds)nil).
15. FIXED ASSET INVESTMENTS
(Pounds)000
Group
At 31 December 1999 9,635
Additions 1,832
Amounts written off (note 7) (1,944)
Disposals (2,580)
Disposed of with ISD (6,343)
--------
At 31 December 2000 600
========
The additions during the year ended 31 December 2000 relate to minority
investments made by Bright Station Ventures in Internet related businesses.
The Company has provided (Pounds)1,944,000 against the carrying value of its
portfolio of minority investments in the year ended 31 December 2000.
Included within investments is the Company's investment in Sopheon plc, a
company listed on the Alternative Investment Market in London. This holding
arose following the acquisition of Teltech Resources Network Corporation (in
which the Company had an equity interest) by Sopheon plc for gross cash proceeds
of (Pounds)2,699,000 and the issue of 429,127 shares by Sopheon. At 31 December
2000 the carrying amount of the Company's investment in Sopheon was
(Pounds)300,000 and the market value was (Pounds)687,000.
15. FIXED ASSET INVESTMENTS (continued)
<TABLE>
<CAPTION>
Long term
loans to
group
Investments companies Total
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Company
At 31 December 1999 63,221 123,301 186,522
Amounts written off (4,693) - (4,693)
Additions 3,291 - 3,291
Deferred consideration adjustment (1,342) - (1,342)
Disposals (2,581) (123,301) (125,882)
Disposed of with ISD (48,706) - (48,706)
Provisions for impairment (344) - (344)
Transfers to subsidiary undertakings (100) - (100)
----------- ----------- -----------
At 31 December 2000 8,746 - 8,746
=========== =========== ===========
</TABLE>
The following companies were the Group's principal subsidiary undertakings as at
31 December 2000 and have all been included in the consolidated accounts. Each
subsidiary primarily does business in the country of its
incorporation/registration and all equity is in the form of Ordinary shares or
their equivalent.
<TABLE>
<CAPTION>
Country of
incorporation/ Proportion of Nature of
Company name registration equity held business
<S> <C> <C> <C>
Bright Station Ventures Ltd England 100% 1
Bright Station Contracts Ltd England 100% 2
KMK DigiTex Co. Ltd Japan 100% 3
OfficeShopper.com Holdings plc England 100% 4
OfficeShopper.com Ltd England 100% 5
Smartlogik Holdings plc England 100% 4
Smartlogik Inc USA 100% 6
Smartlogik Ltd England 100% 6
Sparza Ltd England 100% 7
WebTop.com Holdings plc England 100% 4
WebTop Search Ltd (formerly WebTop.com Ltd) England 100% 8
</TABLE>
Key - Nature of business
1 Investment company
2 Dormant company
3 Dormant company in process of liquidation
4 Holding company
5 Provision of on-line office supplies
6 Provision of knowledge management technology
7 Provision of eCommerce procurement systems
8 Provision of indexing and search technology
16. DEBTORS
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Amounts falling due within one year
Trade debtors 1,268 30,362 435 6,417
Amounts owed by subsidiary undertakings - - 1,491 26,488
Other debtors 922 1,657 712 673
Prepayments and accrued income 1,067 4,671 777 1,680
----------- ----------- ----------- -----------
3,257 36,690 3,415 35,258
Amounts falling due in more than one year
Other debtors 53 - - -
----------- ----------- ----------- -----------
3,310 36,690 3,415 35,258
=========== =========== =========== ===========
</TABLE>
Trade debtors for the Group are stated net of the allowance for doubtful trade
debtor balances which amounted to (Pounds)97,975 at 31 December 2000 (1999:
(Pounds)2,184,000).
Trade debtors for the Company are stated net of the allowance for doubtful trade
debtor balances which amounted to (Pounds)69,975 at 31 December 2000 (1999:
(Pounds)364,000).
17. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Senior Credit Facility - 30,075 - 30,075
Amounts owed to subsidiary undertakings - - - 14,052
Trade creditors 2,914 8,095 1,878 2,806
Obligations under finance leases 20 1,813 20 1,729
Other creditors 952 4,030 945 3,704
Taxation and social security 958 1,008 704 782
Corporation tax - 556 - -
Accruals and deferred income 2,060 24,560 1,453 3,350
Deferred consideration - purchase of subsidiary
(see note 24) 450 1,437 450 1,437
----------- ----------- ----------- -----------
7,354 71,574 5,450 57,935
=========== =========== =========== ===========
</TABLE>
18. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
$180 million 11% Senior Subordinated Notes due 2007 - 108,231 - 108,231
Senior Credit Facility - 22,835 - 22,835
Other creditors - 355 - -
Deferred consideration - purchase of subsidiary
(see note 24) - 1,396 - 1,396
Obligations under finance leases 17 4,553 17 3,283
---------- ----------- ---------- -----------
17 137,370 17 135,745
========== =========== ========== ===========
</TABLE>
18. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (continued)
Obligations under finance leases are due as follows:
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Within 1 year 20 1,813 20 1,729
Within 1 - 2 years 17 3,629 17 3,283
Within 2 - 5 years - 924 - -
----------- ----------- ----------- -----------
37 6,366 37 5,012
=========== =========== =========== ===========
</TABLE>
19. PROVISION FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
Termination
Deferred of property
taxation leases Legal Total
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Group
At 31 December 1999 89 566 775 1,430
Reclassification to creditors - - (545) (545)
Transfer from/(to) profit and loss account 24 - (230) (206)
Disposed of with ISD (113) (566) - (679)
----------- ----------- ----------- -----------
At 31 December 2000 - - - -
=========== =========== =========== ===========
</TABLE>
Deferred taxation
<TABLE>
<CAPTION>
2000 2000 1999 1999
Potential Provided in Potential Provided in
Liability accounts Liability accounts
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Group
Fixed asset related - - 2,704 -
Other timing differences - - 89 89
----------- ----------- ----------- -----------
- - 2,793 89
=========== =========== =========== ===========
</TABLE>
At completion, the Group retains significant tax losses. The quantum of these is
not yet agreed with the Inland Revenue. Subject to the agreement of the Inland
Revenue, the total tax losses accrued at 31 December 2000 and their potential
future benefit can be summarised as follows:
. (Pounds)56 million of capital losses available to offset future capital
profits
. (Pounds)30 million of trading losses available to carry forward against
profits arising from the same trade, as determined by the Inland Revenue
. (Pounds)12 million of non-trading deficits available to offset future non-
trading profits.
<TABLE>
<CAPTION>
2000 2000 1999 1999
Potential Provided in Potential Provided in
Liability accounts Liability accounts
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Company
Fixed asset related - - 1,470 -
Other timing differences - - - -
----------- ----------- ----------- -----------
- - 1,470 -
=========== =========== =========== ===========
</TABLE>
At 31 December 2000, the Company had approximately (Pounds)86.3 million of tax
losses carried forward (1999: (Pounds)13.2 million) giving rise to an unprovided
potential deferred tax asset of (Pounds)27.4 million (1999: (Pounds)3.9
million). Approximately (Pounds)56 million of these tax losses relate to the
capital loss arising on the disposal of ISD (see note 6).
20. FINANCIAL INSTRUMENTS
The Group's principal financial instruments comprise cash and short-term
deposits and finance leases as well as other financial instruments, such as
trade debtors and trade creditors, that arise directly from its operations.
The Group is exposed to a number of different market risks including interest
rates and foreign currency rates. The Board reviews and agrees policies to
manage each of these risks as follows:
Interest rate risk
The Group deposits surplus funds at fixed rates of interest for relatively short
maturities (less than one month).
Foreign currency risk
Given the relatively small scale of overseas operations, the Group has limited
foreign currency exposure. Foreign currencies are purchased in the spot market
as and when required.
Credit risk
The Group's policy is to place its cash and investments with high-quality
financial institutions in order to limit the amount of credit exposure. The
Group performs ongoing evaluations of its customers' financial condition and
maintains provisions against potential credit losses. Such losses, in the
aggregate, have not exceeded management expectations. Financial instruments
which expose the Group to credit risk are cash, investments and trade debtors,
which generally are not collateralised.
Liquidity risk
The Group maintains a balance between continuity of funding and flexibility
through the use of deposits with a short maturity of less than one month.
Short-term debtors and creditors have been excluded from this note as permitted
under FRS 13.
Interest rate risk profile of financial liabilities
The interest rate risk profile of financial liabilities of the Group at 31
December 2000 was as follows:
<TABLE>
<CAPTION>
Fixed Floating
rate rate
financial financial Finance
liabilities liabilities leases Total
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
At 31 December 2000
Sterling - - (37) (37)
----------- ----------- ----------- -----------
Total - - (37) (37)
=========== =========== =========== ===========
At 31 December 1999
US Dollar 114,550 52,910 - 167,460
Euro related 47 - - 47
----------- ----------- ----------- -----------
Total 114,597 52,910 - 167,507
=========== =========== =========== ===========
</TABLE>
20. FINANCIAL INSTRUMENTS (continued)
Interest rate risk profile of financial assets
The interest rate risk profile of financial assets of the Group at 31 December
2000 was as follows:
<TABLE>
<CAPTION>
2000 1999
Cash and Cash and
bank bank
deposits deposits
(Pounds)000 (Pounds)000
<S> <C> <C>
Currency
Sterling 15,193 4,404
Euro related - 797
Japanese Yen 717 5,055
US Dollar 424 265
----------- -----------
Total 16,334 10,521
=========== ===========
</TABLE>
At 31 December 2000, no deposits had a maturity of greater than one month. As
such, the Company considers the interest rate exposure of cash and bank deposits
to be floating.
The maturity profile of the Group's financial liabilities at 31 December 2000 is
shown in note 18 to the financial statements.
Fair values of financial assets and financial liabilities
In the opinion of the Directors, the carrying amount of cash and bank deposits
is a reasonable estimate of fair value and the market value of the finance lease
obligations approximates the carrying amount, having regard to the interest
rates available to the Group for similar borrowings at the balance sheet date.
21. Share Capital
<TABLE>
<CAPTION>
2000 1999 1998
Number (Pounds)000 Number (Pounds)000 Number (Pounds)000
<S> <C> <C> <C> <C> <C> <C>
Authorised:
Ordinary shares of 1 250,000,000 2,500 199,827,000 1,998 199,827,000 1,998
pence each
Allotted, called up
and fully paid:
Ordinary shares of 1 172,614,502 1,726 154,943,398 1,549 151,467,107 1,514
pence each
====================================================================================================================================
</TABLE>
During the three years ended 31 December 2000, the following movements occurred
in the Ordinary shares of the Company:
<TABLE>
<CAPTION>
Date Period Event Notes Shares Number Shares
(Pounds)000
<S> <C> <C> <C> <C> <C>
31 December 1997 150,191,853 1,502
09/02/98 to Save As You Earn share option (1) 44,514 -
02/06/98 exercises
02/03/98 to Exercise of share options (2) 396,323 4
21/08/98
11/05/98 to Allotment of shares under the 401(k) (3) 140,392 1
17/12/98 Plan
18/11/98 Write Works Ltd acquisition (4) 694,025 7
----------------------------------------------------------------------------------------------------------------------------
31 December 1998 151,467,107 1,514
01/02/99 to Allotment of shares under the 401(k) (3) 246,620 3
02/12/99 Plan
29/06/99 Employee Stock Purchase Plan (5) 132,248 1
29/11/99 to Save As You Earn share option (1) 84,487 1
17/12/99 exercises
30/11/99 Acquisition of outstanding Muscat Ltd (6) 3,012,936 30
share capital
----------------------------------------------------------------------------------------------------------------------------
31 December 1999 154,943,398 1,549
04/01/00 to Allotment of shares under the 401(k) (3) 68,844 1
05/05/00 Plan
10/01/00 to Save As You Earn share option (1) 155,335 2
19/07/00 exercises
03/03/00 to Exercise of share options (2) 194,318 2
15/03/00
06/03/00 to Exercise of stock options (7) 31,196 -
06/05/00
27/03/00 Exercise of Muscat share options (8) 84,038 1
05/05/00 Allotment to JIYU Holdings Ltd (9) 7,038,123 70
05/05/00 Allotment to Thomson Finance SA (10) 9,297,290 93
05/05/00 Employee Stock Purchase Plan (5) 87,720 1
10/05/00 Allotment to Patrick Sommers (11) 285,444 3
11/05/00 Write Works Ltd acquisition - (4) 428,796 4
deferred consideration
----------------------------------------------------------------------------------------------------------------------------
31 December 2000 172,614,502 1,726
============================================================================================================================
</TABLE>
1) Save As You Earn option exercises
At various dates throughout 1998, 1999 and 2000, in accordance with the
Company's Save As You Earn Option Scheme, a number of eligible employees
exercised their share options.
<TABLE>
<CAPTION>
Year Ordinary shares Price range Total
issued consideration
<S> <C> <C> <C>
1998 44,514 (Pounds)0.49 to (Pounds)0.64 (Pounds)21,973
1999 84,487 (Pounds)0.49 (Pounds)41,399
2000 155,335 (Pounds)0.49 to (Pounds)0.64 (Pounds)79,348
=================================================================================================
</TABLE>
2) Exercise of share options
A number of eligible employees exercised their share options at various dates
throughout 2000 in accordance with the Company's share option schemes.
<TABLE>
<CAPTION>
Year Ordinary shares Price range Total
issued consideration
<S> <C> <C> <C>
1998 396,323 (Pounds)1.10 (Pounds)435,955
1999 - - -
2000 194,318 (Pounds)1.10 to (Pounds)1.89 (Pounds)267,637
=============================================================================================================
</TABLE>
3) 401(k) Investment Savings Plan contributions
Until 2 May 2000, the Company operated a defined contribution pension scheme in
the US (the 401(k) Investment Savings Plan). The Company matched employee
contributions to this Plan at various dates throughout 1998, 1999 and 2000,
partially with the allotment of Ordinary shares valued at market price at the
time of issue and subsequently converted into ADSs.
<TABLE>
<CAPTION>
Year Ordinary ADS Price range Aggregate market
shares issued equivalent value
<S> <C> <C> <C> <C>
1998 140,392 35,098 (Pounds)0.56 to (Pounds)1.84 (Pounds)179,936
1999 246,620 61,655 (Pounds)0.66 to (Pounds)1.24 (Pounds)203,596
2000 68,844 17,211 (Pounds)0.92 to (Pounds)1.63 (Pounds)80,108
===================================================================================================================================
</TABLE>
The Plan was terminated on 5 May 2000 due to the transfer of participants to
Thomson Corporation.
4) Employee Stock Purchase Plan
The Company operated an Employee Stock Purchase Plan for US employees as defined
by section 423(b) of the United States Internal Revenue Code of 1986.
<TABLE>
<CAPTION>
Year Ordinary shares ADS equivalent Aggregate
issued market value
<S> <C> <C> <C>
1998 - - -
1999 132,248 33,062 (Pounds)120,346
2000 87,720 21,930 (Pounds)57,850
=============================================================================================================================
</TABLE>
5) Acquisition of Write Works Ltd
On 18 November 1998, the Company acquired 100% of the share capital of Write
Works Limited. The consideration consisted of an initial payment of
(Pounds)965,000 in cash and (Pounds)1,150,000 by the issue of 694,025 new
Ordinary shares, representing a value of (Pounds)1.66 per share. Further
consideration of (Pounds)1,260,000 in cash and 428,796 new Ordinary shares, at a
value of (Pounds)0.96 per share was pad to the vendors on 11 May 2000 on the
achievement of certain pre-determined performance targets. Pursuant to an
agreement made with the vendors on 20 July 2000, a final consideration of
(Pounds)450,181 in cash and 712,959 new Ordinary shares, a value of (Pounds)0.19
per share, was paid on 17 April 2001.
6) Acquisition of outstanding Muscat share capital
On 1 December 1999, the Company announced the acquisition of the remaining 30%
interest in the share capital of Muscat Ltd. The purchase consideration was
(Pounds)2,500,737, satisfied by the issue of 3,012,936 Ordinary shares of the
Company. The Ordinary shares were valued at 83p each, being the average mid-
market price of Ordinary shares of the Company over the five trading days prior
to 30 November 1999. The Company originally acquired 70% of Muscat Ltd in 1997.
7) Exercise of stock options
A number of eligible employees exercised their options over ADSs at various
dates throughout 2000 in accordance with the Company's US Stock Option Scheme.
The options were exercised at prices between (Pounds)0.78 and (Pounds)1.87 per
share for a total consideration of (Pounds)31,019.
8) Exercise of Muscat share options
On 27 March 2000, 84,038 share options were exercised in accordance with the
Muscat Unapproved Share Option Scheme at a price of (Pounds)0.43, representing a
total consideration of (Pounds)36,136.
9) JIYU Holdings Ltd
On completion of the ISD sale, JIYU Holdings Ltd, a private investment company
unconnected to any of the Company's existing shareholders or investors,
subscribed for 7,038,123 new Ordinary shares at a price of 170.5 pence per
share, for an aggregate cash consideration of (Pounds)12.0 million. During the
year, JIYU Holdings Ltd transferred their holding to B D Holdings Ltd, another
company in the same Group. B D Holdings' shareholding is shown in the Directors'
Report, which is set out on page 13 of the Company's Annual Report 2000 attached
as an exhibit to the Companys' Report on Form 6-K dated June 21, 2001, and
incorporated herein by reference.
10) Thomson Finance SA
Following the ISD sale, Thomson Finance SA agreed to subscribe for 9,297,290 new
Ordinary shares in the Company at 170.5p per share, representing an aggregate
cash consideration of (Pounds)15.9 million. Thomson's holding is shown in the
Directors' Report, which is set out on page 13 of the Company's Annual Report
2000 attached as an exhibit to the Company's Report on Form 6-K dated June 21,
2001 and is incorporated herein by reference.
11) Patrick Sommers
As shown in note 8 above, Patrick Sommers was allotted 71,361 ADSs on completion
of the ISD sale credited as fully paid at a price of $10.51 per ADS, being the
average mid-market closing price for ADSs during the period 2 March 2000 to 13
April 2000. This allotment is equivalent to 285,444 ordinary shares. Patrick
Sommers was restricted from disposing of these shares for a period of 12 months
from the date of issue.
As at 31 December 2000, the Company had in place five option plans; the 1994
Executive Share Option Scheme, the 1994 Savings Related Share Option Scheme, the
1994 Unapproved Executive Share Option Scheme, the 1997 US Stock Option Plan and
the 1998 US Employee Stock Purchase Plan. Options over the Company's Ordinary
shares were also granted as part of a rollover arrangement with employees of
Muscat Ltd and options over American Depositary Shares were granted to certain
non-executive Directors of a US subsidiary under individual arrangements.
Additionally, restricted share awards have been made under the Long Term
Incentive Plan established on 5 September 2000.
At 31 December 2000, the following options are outstanding over the Company's
shares:
Executive Scheme
<TABLE>
<CAPTION>
Normal exercise ISD employee Options Options
Date of Grant Exercise price period exercise period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C> <C>
24/03/1994 (Pounds)1.10 24/03/97 to 24/03/04 350,454 680,863
24/03/1994 (Pounds)1.10 24/03/97 to 04/05/01 263,591 -
25/04/1995 (Pounds)0.80 25/04/98 to 25/04/05 - 20,000
25/04/1995 (Pounds)0.80 25/04/98 to 04/05/01 20,000 -
04/10/1995 (Pounds)2.48 04/10/98 to 04/10/05 40,500 134,500
04/10/1995 (Pounds)2.48 04/10/98 to 04/05/01 91,000 -
14/03/1997 (Pounds)1.89 14/03/00 to 14/03/07 47,980 103,880
14/03/1997 (Pounds)1.89 14/03/00 to 04/05/01 32,500 -
09/04/1998 (Pounds)1.58 09/04/01 to 09/04/08 67,950 214,900
09/04/1998 (Pounds)1.58 04/05/00 to 09/04/02 123,450 -
01/04/1999 (Pounds)1.21 01/04/02 to 01/04/09 36,892 158,832
01/04/1999 (Pounds)1.21 04/05/00 to 01/04/03 96,940 -
02/07/1999 (Pounds)0.91 02/07/02 to 02/07/09 25,000 53,450
02/07/1999 (Pounds)0.91 04/05/00 to 02/07/03 8,450 -
25/08/1999 (Pounds)0.74 25/08/02 to 25/08/09 - 30,000
25/08/1999 (Pounds)0.74 04/05/00 to 25/08/03 20,000 -
04/05/2000 (Pounds)0.94 04/05/03 to 04/05/10 436,550 -
05/09/2000 (Pounds)0.70 05/09/03 to 05/09/10 69,805 -
---------------------------------------------------------------------------------------------------------
Total 1,731,062 1,396,425
=========================================================================================================
</TABLE>
Unapproved Scheme
<TABLE>
<CAPTION>
Normal exercise ISD employee Options Options
Date of Grant Exercise price period exercise period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C> <C>
24/03/1994 (Pounds)1.10 24/03/97 to 24/03/01 - 128,863
24/03/1994 (Pounds)1.10 24/03/97 to 04/05/01 128,863 -
04/10/1995 (Pounds)2.48 04/10/98 to 04/10/02 7,500 105,500
04/10/1995 (Pounds)2.48 04/10/98 to 04/05/01 90,500 -
02/01/1996 (Pounds)2.29 02/01/99 to 02/01/03 - 21,834
28/02/1996 (Pounds)1.75 28/02/99 to 28/02/03 15,000 15,000
16/08/1996 (Pounds)2.87 16/08/99 to 16/08/03 25,000 120,000
16/08/1996 (Pounds)2.87 16/08/99 to 04/05/01 60,000 -
14/03/1997 (Pounds)1.89 14/03/00 to 14/03/04 137,020 448,620
14/03/1997 (Pounds)1.89 14/03/00 to 04/05/01 265,000 -
26/03/1997 (Pounds)2.00 26/03/00 to 26/03/04 7,500 7,500
09/04/1998 (Pounds)1.58 09/04/01 to 09/04/05 146,050 376,600
09/04/1998 (Pounds)1.58 04/05/00 to 09/04/02 206,050 -
30/04/1998 (Pounds)1.73 30/04/01 to 30/04/05 90,000 150,000
30/04/1998 (Pounds)1.73 04/05/00 to 30/04/02 60,000 -
08/09/1998 (Pounds)1.70 08/09/01 to 08/09/05 10,000 10,000
08/10/1998 (Pounds)1.50 08/10/01 to 08/10/05 400,000 790,000
08/10/1998 (Pounds)1.50 04/05/00 to 08/10/02 240,000 -
01/04/1999 (Pounds)1.21 01/04/02 to 01/04/06 58,108 261,168
01/04/1999 (Pounds)1.21 04/05/00 to 01/04/03 173,060 -
02/07/1999 (Pounds)0.91 02/07/02 to 02/07/06 75,000 86,550
02/07/1999 (Pounds)0.91 04/05/00 to 02/07/03 11,550 -
02/07/1999 (Pounds)4.00 02/07/02 to 02/07/06 925,000 1,525,000
02/07/1999 (Pounds)4.00 04/05/00 to 02/07/03 600,000 -
04/05/2000 (Pounds)0.94 04/05/03 to 04/05/07 517,450 -
04/05/2000 (Pounds)0.94 04/05/00 to 04/05/04 53,000 -
05/09/2000 (Pounds)0.70 05/09/03 to 05/09/07 17,195 -
---------------------------------------------------------------------------------------------------------
Total 4,318,846 4,046,635
=========================================================================================================
</TABLE>
Muscat Unapproved Scheme
<TABLE>
<CAPTION>
Normal exercise Options Options
Date of Grant Exercise price period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
01/10/1997 (Pounds)0.44 01/10/00 to 01/10/04 128,270 128,270
20/10/1997 (Pounds)0.43 20/10/99 to 20/10/04 - 168,077
01/01/1998 (Pounds)0.59 01/01/01 to 01/01/05 44,231 88,462
01/04/1998 (Pounds)0.67 01/04/01 to 01/04/05 103,206 132,693
01/09/1998 (Pounds)0.67 01/09/01 to 01/09/05 36,859 36,859
01/11/1998 (Pounds)0.67 01/11/01 to 01/11/05 - 58,974
01/12/1998 (Pounds)0.67 01/12/01 to 01/12/05 - 29,487
---------------------------------------------------------------------------------------------------------
Total 312,566 642,822
=========================================================================================================
</TABLE>
Savings Related Share Option Scheme
<TABLE>
<CAPTION>
Normal exercise Options Options
Date of Savings Contract Exercise price period outstanding outstanding
2000 1999
<C> <S> <C> <C> <C>
01/12/1994 (Pounds)0.49 01/12/99 to 31/05/00 - 133,774
01/06/1995 (Pounds)0.64 01/06/00 to 30/11/00 - 99,183
01/12/1995 (Pounds)2.24 01/12/00 to 31/05/01 - 2,464
01/06/1996 (Pounds)1.80 01/06/01 to 30/11/01 5,750 25,680
01/05/1997 (Pounds)1.74 01/05/02 to 31/10/02 - 2,378
01/07/1998 (Pounds)1.37 01/07/01 to 31/12/01 9,820 55,216
01/07/1998 (Pounds)1.37 01/07/03 to 31/12/03 7,554 37,869
01/07/1999 (Pounds)0.99 01/07/02 to 31/12/02 30,724 118,586
01/07/1999 (Pounds)0.99 01/07/04 to 31/12/04 21,135 128,108
01/12/2000 (Pounds)0.53 01/12/03 to 31/05/04 272,696 -
01/12/2000 (Pounds)0.53 01/12/05 to 31/05/06 84,054 -
--------------------------------------------------------------------------------------------------------------------
Total 431,733 603,258
====================================================================================================================
</TABLE>
Long Term Incentive Plan Awards
<TABLE>
<CAPTION>
Restricted Restricted
Normal exercise Share Awards Share Awards
Date of Grant Exercise price/(1)/ period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
29/09/2000 Fixed at time of exercise 29/09/03 to 29/10/03 2,926,470 -
19/12/2000 Fixed at time of exercise 19/12/03 to 19/01/04 260,000 -
-------------------------------------------------------------------------------------------------------------------
Total 3,186,470 -
===================================================================================================================
</TABLE>
(1) The release of Restricted Share Awards is contingent on the achievement of
pre-determined performance criteria, set out in the latter part of this
note, and on payment by the employee to the Company of any employers'
National Insurance liability arising upon exercise.
At 31 December 2000, the following options are outstanding over the Company's
American Depositary Shares:
Employee Stock Purchase Plan
<TABLE>
<CAPTION>
Date of Savings Exercise price Normal exercise date Options Options
Contract outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
01/10/1998 $10.49 30/09/2000 - 4,577
23/04/1999 $ 8.50 22/04/2001 - 13,072
05/10/1999 $ 3.79 04/10/2000 - 32,134
--------------------------------------------------------------------------------------------------------------------
Total - 49,783
====================================================================================================================
</TABLE>
US Stock Option Plan
<TABLE>
<CAPTION>
Date of Grant Exercise price Normal exercise ISD employee Options Options
period/(1)/ exercise period/(2)/ outstanding outstanding
2000 1999
<S> <C> <C> <C> <C> <C>
09/04/1998 $11.00 09/04/99 to 09/04/08 8,625 94,375
09/04/1998 $11.00 09/04/99 to 09/04/02 3,125 -
30/04/1998 $11.88 30/04/99 to 30/04/08 - 7,500
30/04/1998 $11.88 30/04/99 to 30/04/02 7,500 -
08/09/1998 $11.81 08/09/99 to 08/09/08 - 18,000
08/10/1998 $ 9.90 08/10/99 to 08/10/08 65,000 110,000
08/10/1998 $ 9.90 08/10/99 to 08/10/02 30,000 -
01/04/1999 $ 8.00 01/04/00 to 01/04/09 10,000 147,750
01/04/1999 $ 8.00 01/04/00 to 01/04/03 11,250 -
02/07/1999 $ 5.75 02/07/00 to 02/07/09 50,000 90,000
02/07/1999 $25.74 02/07/02 to 02/07/06 37,500 162,500
02/07/1999 $25.74 04/05/00 to 02/07/03 62,500 -
25/08/1999 $ 4.75 25/08/00 to 25/08/09 - 6,250
04/05/2000 $ 3.74 04/05/01 to 04/05/10 58,000 -
---------------------------------------------------------------------------------------------------------
Total 343,500 636,375
=========================================================================================================
</TABLE>
1) Options become exercisable in stages. After one year, up to 1/4 of the
number of options granted may be exercised. For the next three years
1/48 of the remaining options become exercisable each subsequent
month.
2) Certain ISD employees' stock options became fully vested on 4 May 2000
and remain exercisable during the periods shown, in accordance with
change of control provisions in their employment contracts. Options
held by all other employees who transferred to ISD became exercisable
on completion, thereafter they lapsed.
Individual US arrangements
<TABLE>
<CAPTION>
Date of Grant Exercise price Exercise period Options Options
outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
14/11/1997 $14.90 14/11/98 to 14/11/04 6,711 6,711
12/12/1997 $10.63 12/12/97 to 05/08/00 (1) - 6,250
08/09/1998 $11.81 08/09/99 to 08/09/05 4,232 4,232
01/04/1999 $ 8.00 01/04/99 to 05/08/00 (1) - 6,250
05/05/2000 $10.51 05/05/01 to 05/05/07 71,361 -
----------------------------------------------------------------------------------------------------------
Total 82,304 23,443
==========================================================================================================
</TABLE>
(1) Options become exercisable in cumulative monthly increments during the year
following the date of grant.
Total outstanding options and awards granted over Ordinary share equivalents:
11,683,893
1994 Executive Share Option Scheme
In March 1994, the Company adopted the Inland Revenue approved 1994 Executive
Share Option Scheme. Under the terms of the Executive Scheme, options to acquire
Ordinary shares may be granted at the discretion of the Remuneration Committee
of the Board of Directors to any employee, including full-time employee
Directors. The exercise price is determined at the date of grant of an option
and shall not be less than the higher of the par value of an Ordinary share and
the closing market price of an Ordinary share on the day preceding the date of
grant. Options under the Executive Scheme generally become exercisable on the
third anniversary of the date of grant and lapse on the tenth anniversary of the
date of grant. The number of options which can be granted under the Executive
Scheme and the aggregate exercise price of options available to any individual
under an approved scheme was limited to (pound)30,000 in the Finance Act 1996.
Transactions under the Executive Scheme for the three years ended 31 December
2000 were as follows:
<TABLE>
<CAPTION>
Number of
options Exercise Weighted
outstanding price average
000s (pound) (pound)
<S><C>
At 31 December 1997 1,474 0.80-3.41 1.45
Granted 334 1.58-1.70 1.59
Cancelled (139) 1.10-2.87 1.89
Exercised (200) 1.10 1.10
--------------------------------------------------------- ---------------- ----------------- ----------------
At 31 December 1998 1,469 0.80-2.48 1.49
Granted 294 0.74-1.21 1.11
Cancelled (367) 1.10-2.48 1.68
--------------------------------------------------------- ---------------- ----------------- ----------------
At 31 December 1999 1,396 0.74-2.48 1.36
Granted 585 0.70-0.94 0.91
Cancelled (176) 0.70-2.48 1.15
Exercised (74) 1.10-1.89 1.18
--------------------------------------------------------- ---------------- ----------------- ----------------
At 31 December 2000 1,731 0.70-2.48 1.24
--------------------------------------------------------- ---------------- ----------------- ----------------
Exercisable at 31 December 1998 1,027 0.80-2.48 1.40
Exercisable at 31 December 1999 835 0.80-2.48 1.32
Exercisable at 31 December 2000 1,095 0.74-2.48 1.37
--------------------------------------------------------- ---------------- ----------------- ----------------
</TABLE>
On completion of the ISD sale in May 2000, options held by employees who
transferred to Thomson became exercisable and remain so for a period of 12
months commencing on the later of 4 May 2000 and the third anniversary of the
date of grant of the option.
1994 Unapproved Executive Share Option Scheme
In March 1994, the Company adopted the 1994 Unapproved Executive Share Option
Scheme (the "Unapproved Scheme"). Under the terms of the Unapproved Scheme,
options to subscribe for Ordinary shares may be granted at the discretion of the
Remuneration Committee of the Board of Directors to any employee, including
full-time employee Directors. The exercise price is determined at the date of
grant of an option and shall not be less than the higher of the par value of an
Ordinary share and the closing market price of an Ordinary share on the day
preceding the date of grant. Options under the Unapproved Scheme generally
become
exercisable on the third anniversary of the date of grant and lapse on
the seventh anniversary of the date of grant. The number of shares over which
options may be granted under the Unapproved Scheme is consistent with
institutional investor guidelines on overall limits applicable to employee share
schemes.
Transactions under the Unapproved Scheme for the three years ended 31 December
2000 were as follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
options price average
outstanding
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1997 1,340 1.10-2.87 1.90
Granted 1,436 1.50-1.73 1.55
Cancelled (209) 1.58-2.87 2.13
Exercised (196) 1.10 1.10
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 2,371 1.10-2.87 1.73
Granted 1,988 0.91-4.00 1.15
Cancelled (348) 1.21-2.87 1.73
At 31 December 1999 4,046 0.91-4.00 2.53
Granted 589 0.70-0.94 0.93
Cancelled (196) 0.94-2.87 1.92
Exercised (120) 1.50 1.50
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 4,319 0.70-4.00 2.37
-------------------------------------------------------------------------------------------------------------------------------
Exercisable at 31 December 1998 339 1.10-2.87 1.89
Exercisable at 31 December 1999 514 1.10-2.87 2.00
Exercisable at 31 December 2000 737 0.94-4.00 2.35
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On completion of the ISD sale in May 2000, options held by employees who
transferred to Thomson became exercisable and remain so for a period of 12
months commencing on the later of 4 May 2000 and the third anniversary of the
date of grant of the option.
1998 Muscat Unapproved Share Option Scheme
The remaining 30% of the issued share capital of Muscat Ltd was acquired in
December 1999. Prior to the transaction, various Muscat employees held a total
of 436 options at exercise prices ranging from (Pounds)627 to (Pounds)1,100.
Under the 1998 Muscat Unapproved Share Option Scheme, these employees were
offered, and accepted a total of 642,822 replacement options over Ordinary
shares of the Company at exercise prices ranging from (Pounds)0.43 to
(Pounds)0.67 per share. Transactions under the Muscat Scheme for the three
years ended 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
options price average
outstanding
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1998 - - -
Granted 643 0.43-0.67 0.55
At 31 December 1999 643 0.43-0.67 0.55
Cancelled (246) 0.43-0.67 0.57
Exercised (84) 0.43 0.43
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 313 0.44-0.67 0.56
-------------------------------------------------------------------------------------------------------------------------------
Exercisable at 31 December 1998 - - -
Exercisable at 31 December 1999 42 0.43 0.43
Exercisable at 31 December 2000 128 0.44 0.44
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On completion of the ISD sale in May 2000, options held by employees who
transferred to Thomson became exercisable for a period of six months, whereupon
they lapsed.
1994 Savings Related Share Option Scheme
In March 1994, the Company adopted the 1994 Savings Related Share Option Scheme
("SAYE Scheme"), which was subsequently approved by the Inland Revenue. Under
the rules of the SAYE Scheme, employees and full-time employee Directors with
more than six months' service are eligible to participate. All options are
linked to a contractual savings plan. Participants may save between (pound)5 and
(pound)250 per month over a three or five year period, at the end of which they
are granted a tax-free bonus. Participants may withdraw from their savings
contract at any time (although their options will then lapse) and are not
obliged to exercise their options at the date of maturity. The exercise price is
determined at the date of grant of options and shall not be less than the par
value of an Ordinary share and 85% of the market value of an Ordinary share at
the date of invitation, which ever is the higher. Options under the SAYE Scheme
normally become exercisable on the bonus date and remain exercisable for a
period of six months. The number of shares over which options may be granted
under the SAYE Scheme is consistent with institutional investor guidelines on
overall limits applicable to a company's employee share schemes. Transactions
under the SAYE Scheme for the three years ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
options price average
outstanding
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1997 629 0.49-2.24 0.88
Granted 224 1.37 1.37
Cancelled (157 0.49-1.80 1.49
Exercised (45) 0.49-0.64 0.49
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 651 0.49-2.24 0.93
Granted 312 0.99 0.99
Cancelled (276) 0.49-1.80 1.15
Exercised (84) 0.49 0.49
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1999 603 0.49-2.24 0.92
Granted 412 0.53 0.53
Cancelled (428) 0.53-2.24 0.98
Exercised (155) 0.49-0.64 0.51
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 432 0.53-1.80 0.64
-------------------------------------------------------------------------------------------------------------------------------
Exercisable at 31 December 1998 - - -
Exercisable at 31 December 1999 134 0.49 0.49
Exercisable at 31 December 2000 - - -
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On completion of the ISD sale, options held by employees who transferred to
Thomson became exercisable for a period of six months, whereupon they lapsed.
Long Term Incentive Plan
In September 2000, the Company adopted the Long Term Incentive Plan ("LTIP").
Under the rules of the LTIP, key executives selected by the Remuneration
Committee may receive a deferred promise by the Company to provide shares at no
cost. Awards under the LTIP will normally vest at the end of the "Restricted
Period" of three years, following the achievement of predetermined performance
criteria and on payment by the employee to the Company of any employers'
National Insurance liability arising thereon. There are two performance
criteria associated with all awards made to date:
The performance of the Company's share price over the Restricted Period must
equal or exceed the performance of the techMARK All Share Index for the same
period and the proportion of the award released at the end of the Restricted
Period is determined as detailed:
<TABLE>
<CAPTION>
Company's final average share price at the end of the Percentage of award released
Restricted Period
<S> <C>
Less than 0%
(Pounds)1.80
(Pounds)1.80 25%
Between (Pounds)1.80 and (Pounds)2.20 Proportionate release between 25% and 100%
(Pounds)2.20 and 100%
above
------------------------------------------------------------------------------------------------------------
</TABLE>
Transactions under the LTIP for the year ended 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of awards
outstanding
000's
At 31 December 1999 -
<S> <C>
Granted 3,186
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 3,186
--------------------------------------------------------------------------------------------------------------------------
Exercisable at 31 December 1999 -
Exercisable at 31 December 2000 -
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 US Employee Stock Purchase Plan
In June 1998 the Company adopted the 1998 US Employee Stock Purchase Plan (the
"ESPP"), which provides for the grant of "Rights" to purchase ADSs in the
Company. The Rights are intended to qualify as options issued under "employee
stock purchase plans" as defined in Section 423(b) of the Internal Revenue Code
of 1986, as amended ("the Code"). During the period June 1998 to 4 May 2000, all
US resident employees including full-time employee Directors were eligible to
participate. Rights under an offering were linked to accumulated payroll
deductions over the course of an offering. Participants were entitled to
withdraw from the ESPP at any time during an offering, although their Rights
would then lapse. The purchase price of the ADSs was not less than 85% of the
fair market value of ADSs on the offering date or on the purchase date, which
ever was the lower. The purchase price included any UK stamp duty reserve tax
payable in respect of the issue of ADSs.
Under US law, an individual may not purchase more than $25,000 worth of ADSs in
any calendar year (as determined by the fair market value on the offering date).
The number of shares over which Rights may be granted under the ESPP is
consistent with institutional investor guidelines in respect of overall limits
applicable to employee share schemes.
All rights to acquire ADSs under the ESPP matured on completion of the sale of
ISD to Thomson, whereupon 42 employees exercised their options. Transactions
under the ESPP for the year ended 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
options over ADSs price average
outstanding
000s $ $
<S> <C> <C> <C>
At 31 December 1997 - - -
Granted 66 8.65-10.49 8.91
Cancelled (9) 8.65 8.65
-------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 57 8.65-10.49 8.96
Granted 48 3.79-8.50 5.36
Cancelled (31) 8.50-10.49 2.47
Exercised (33) 5.35 5.35
-------------------------------------------------------------------------------------------------------------------------
At 31 December 1999 41 3.79-10.49 5.64
Cancelled (19) 3.79-10.49 5.49
Exercised (22) 3.46-5.08 4.06
-------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 - - -
-------------------------------------------------------------------------------------------------------------------------
-
Exercisable at 31 December 1998 - - -
Exercisable at 31 December 1999 - - -
Exercisable at 31 December 2000 - - -
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
1997 US Stock Option Plan
In November 1997 the Company adopted the 1997 US Stock Option Plan (the
"USSOP"), which provides for the grant of both incentive and non-statutory stock
options to purchase ADSs in the Company. Incentive stock options granted under
the USSOP are intended to qualify as incentive stock options within the meaning
of Section 422 of the US Internal Revenue Code of 1986, as amended (the "Code").
Non-statutory stock options granted under the USSOP are not intended to qualify
as incentive stock options, as defined by the Code. Under the terms of the
USSOP, options to acquire ADSs may be granted by the Remuneration Committee to
any US resident employees including full-time employee Directors.
The exercise price of incentive stock and non-statutory options under the USSOP
may not be less than the fair market value of the ADSs subject to option on the
date of grant and, in some cases, may not be less than 110% of such fair market
value. Options granted under the USSOP vest in cumulative increments, as
determined by the Remuneration Committee, and lapse no later than the tenth
anniversary of the date of grant.
The number of shares over which options may be granted under the USSOP is
consistent with institutional investor guidelines on overall limits applicable
to employee share schemes. Transactions under the USSOP for the three years
ended 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
options over ADSs price average
outstanding
000s $ $
<S> <C> <C> <C>
At 31 December 1997 63 14.90 14.90
Granted 427 9.88-11.88 10.75
Cancelled (122) 9.88-14.90 12.93
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 368 9.90-11.88 10.73
Granted 456 4.75-25.74 13.77
Cancelled (187) 4.75-11.80 10.04
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1999 637 4.75-25.74 13.11
Granted 58 3.74 3.74
Cancelled (343) 5.75-25.74 11.96
Exercised (8) 4.75-11.81 6.15
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 344 3.74-25.74 12.83
-------------------------------------------------------------------------------------------------------------------------------
Exercisable at 31 December 1998 - - -
Exercisable at 31 December 1999 80 9.90-25.74 10.65
Exercisable at 31 December 2000 186 5.75-11.88 8.71
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Individual US arrangements
Between 1997 and 1999, options over ADSs were granted at the prevailing market
value to certain individuals who were Non-executive Directors of The Dialog
Corporation, the Company's North American subsidiary, which has since been sold
to Thomson. Additionally, on 5 May 2000, Patrick Sommers was granted an option
over 71,361 ADSs at a strike price of $10.51 under an individual arrangement
pursuant to an agreement detailed in Note 9. Transactions under these
individual US schemes up to 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of Exercise Weighted
options over ADSs price average
outstanding
000s $ $
<S> <C> <C> <C>
At 31 December 1997 13 10.63-14.90 12.84
Granted 4 11.81 11.81
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 17 10.63-14.90 12.59
Granted 6 8.00 8.00
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 1999 23 8.00-14.90 11.36
Granted 71 10.51 10.51
Cancelled (12) 8.00-10.63 9.32
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 82 10.51-14.90 10.93
-------------------------------------------------------------------------------------------------------------------------------
Exercisable at 31 December 1998 13 10.63-14.90 12.84
Exercisable at 31 December 1999 23 8.00-14.90 11.37
Exercisable at 31 December 2000 11 11.81-14.90 13.71
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22. SUBSIDIARY COMPANY SHARE OPTIONS
On 5 September 2000, the Company adopted discretionary share option schemes in
respect of four designated subsidiaries; OfficeShopper, Smartlogik, Sparza and
WebTop, for the incentivisation and benefit of key management and staff within
each company.
Under the schemes, which are administered by the Board of Bright Station,
eligible employees may be granted options to acquire Ordinary shares in the
relevant subsidiary at a price no less than the higher of:
(a) the aggregate nominal value of the Ordinary shares under option; or
(b) the aggregate market value of the Ordinary shares under option at the date
of grant as determined by the Board.
1/12 of the number of options granted vest at three monthly intervals following
the date of grant, becoming fully vested on the third anniversary of grant.
Where a participant ceases to hold office within the Group, their vested options
remain exercisable for a period of three years, unless they leave for a
specified reason such as misconduct. However, neither employees nor former
employees may exercise their options unless pre-determined performance criteria
are met.
The aggregate number of shares issued and issuable pursuant to the subsidiary
share option schemes may not exceed 15% of the subsidiary's issued share capital
in any consecutive ten year period. Options not exercised before the expiry of
ten years from the date of grant shall lapse.
At 31 December 2000, the following options were outstanding over Ordinary shares
of subsidiary companies:
<TABLE>
<CAPTION>
OfficeShopper Unapproved Scheme
Options Options
Date of Grant Exercise price outstanding outstanding
2000 1999
<S> <C> <C> <C>
13/10/2000 (Pounds)0.17 3,000,000 -
----------- -----------
Total 3,000,000 -
=========== ===========
<CAPTION>
Smartlogik Unapproved Scheme
Options Options
Date of Grant Exercise price outstanding outstanding
2000 1999
<S> <C> <C> <C>
13/10/2000 (Pounds)2.67 3,287,000 -
30/11/2000 (Pounds)2.67 388,500 -
----------- -----------
Total 3,675,500 -
=========== ===========
<CAPTION>
WebTop.com Unapproved Scheme
Options Options
Date of Grant Exercise price outstanding outstanding
2000 1999
<S> <C> <C> <C>
13/10/2000 (Pounds)0.84 1,916,000 -
13/10/2000 (Pounds)0.75 1,600,000 -
30/11/2000 (Pounds)0.84 972,000 -
----------- -----------
Total 4,488,000 -
=========== ===========
</TABLE>
No grants were made during the year under the Sparza Unapproved Scheme.
The OfficeShopper.com Holdings plc 2000 Unapproved Share Options Scheme
Transactions under the Scheme for the year ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number
of options Exercise Weighted
outstanding price average
(Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 - - -
Granted 3,000,000 0.17 0.17
----------- ----------- -----------
At 31 December 2000 3,000,000 0.17 0.17
=========== =========== ===========
Exercisable at 31 December 1999 - - -
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
The Smartlogik Holdings plc 2000 Unapproved Share Options Scheme
Transactions under the Scheme for the year ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number
of options Exercise Weighted
outstanding price average
(Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 - - -
Granted 3,911,500 2.67 2.67
Cancelled (236,000) 2.67 2.67
----------- ----------- -----------
At 31 December 2000 3,675,500 2.67 2.67
=========== =========== ===========
Exercisable at 31 December 1999 - - -
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
The WebTop.com Holdings plc 2000 Unapproved Share Options Scheme
Transactions under the Scheme for the year ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number
of options Exercise Weighted
outstanding price average
(Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 - - -
Granted 4,516,000 0.75-0.84 0.81
Cancelled (28,000) 0.84 0.84
----------- ----------- -----------
At 31 December 2000 4,488,000 0.75-0.84 0.81
=========== =========== ===========
Exercisable at 31 December 1999 - - -
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
23. SHARE PERMIUM
<TABLE>
<CAPTION>
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Balance at 1 January 154,949 152,128
Premium arising on shares issued 28,085 -
Premium arising on shares issued on exercise of options 1,023 350
Premium arising on shares issued on placing/flotation
and acquisitions of fixed asset investments - 2,471
------------ ------------
Balance at 31 December 184,057 154,949
============ ============
</TABLE>
24. SHARES TO BE ISSUED
On 18 November 1998, the Company acquired 100% of the share capital of Write
Works Limited in an agreement that capped the maximum consideration (payable in
cash and new Ordinary shares) at (Pounds)6,015,000, based on the achievement of
certain earnings targets over the following two financial years.
Due to the failure to meet certain of the earnings targets, the remaining
deferred consideration was reduced and further partial consideration of
(Pounds)1,674,000 (consisting of (Pounds)1,260,000 in cash and the issue of
428,796 new Ordinary Shares at a price of (Pounds)0.96 per share) was paid on 11
May 2000. A supplemental agreement was made with the vendors on 20 July 2000
leading to an interim cash payment of (Pounds)156,000 on 20 July 2000 and a
final consideration of (Pounds)584,000 (consisting of (Pounds)450,180 in cash
and the issue of 712,959 new Ordinary Shares at a price of (Pounds)0.19 per
share) on 17 April 2001. The shares to be issued do not have a dilutive impact
at the year end as they were issued at market value on the 17 April 2001. The
following table details the movement in shares to be issued in the year ended 31
December 2000:
<TABLE>
<CAPTION>
(Pounds)000
<S> <C>
At 1 January 2000 967
Revision to deferred consideration (420)
Issue of shares on 11 May 2000 (413)
------------
At 31 December 2000 134
============
</TABLE>
25. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Group
Balance at 1 January (261,079) (249,714)
Loss for the financial year (132,002) (5,874)
Effect of exchange rate movements on net investment in foreign
subsidiaries net of associated borrowings (4,008) 894
Write back of goodwill following disposal of ISD 227,854 -
Effect of exchange rate movements on goodwill written back - (6,385)
----------- -----------
Balance at 31 December (169,235) (261,079)
=========== ===========
</TABLE>
Cumulative goodwill written off at 31 December 2000 amounted to balances
denominated in Pounds Sterling of (Pounds)5,737,000 (1999: (Pounds)226,267,000,
comprising balances denominated in US Dollars of $355,429,000 and balances
denominated in Pounds Sterling of (Pounds)5,737,000).
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Company
Balance at 1 January (121,181) (13,720)
Loss for the financial year (35,027) (103,843)
Effect of exchange rate movements on net debt (5,353) (3,618)
----------- -----------
Balance at 31 December (161,561) (121,181)
=========== ===========
</TABLE>
26. RECONCILIATION OF MOVEMENT IN ORDINARY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Group
Loss for the financial year (132,002) (5,874)
Other recognised gains and losses relating to the year (net) (4,008) (5,491)
New share capital subscribed for cash 29,285 355
New share capital subscribed on acquisition of subsidiaries and
other fixed asset investments - 2,501
Decrease in shares to be issued (see note 24) (833) -
Write back of goodwill written back following disposal of ISD 227,854 -
----------- -----------
Net movement in ordinary shareholders' funds 120,296 (8,509)
Ordinary shareholders' funds at 1 January (103,614) (95,105)
----------- -----------
Ordinary shareholders' funds at 31 December 16,682 (103,614)
=========== ===========
<CAPTION>
Restated
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Company
Loss for the financial year (35,027) (103,843)
New share capital subscribed for cash 29,285 355
New share capital subscribed on acquisition of subsidiaries and
other fixed asset investments - 2,501
Effect of exchange rate movements on net debt (5,352) (3,618)
Shares to be issued (833) -
----------- -----------
Net movement in ordinary shareholders' funds (11,928) (104,605)
Shareholders' funds at 1 January 36,284 140,889
----------- -----------
Shareholders' funds at 31 December 24,356 36,284
=========== ===========
</TABLE>
27. MINORITY EQUITY INTERESTS
<TABLE>
<CAPTION>
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Balance at 1 January 543 1,077
Profit attributed to the minorities 37 50
ISD disposal (580) -
Exchange adjustments - 26
Arising from acquisitions during the year - (610)
----------- -----------
- 543
=========== ===========
</TABLE>
28. COMMITMENTS UNDER OPERATING LEASES AND FINANCE LEASES
As at 31 December 2000, the Group had annual commitments under non-cancellable
operating leases as set out below:
<TABLE>
<CAPTION>
2000 1999
Land and Land and
buildings Other buildings Other
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
Operating leases which expire:
Within one year 6 186 31 -
In two to five years 697 57 1,970 40
After five years 332 - 3,700 -
----------- ----------- ----------- -----------
1,035 243 5,701 40
=========== =========== =========== ===========
</TABLE>
29. Reconciliation Of Operating (Loss)/Profit To Net Cash (Outflow)/Inflow From
Operating Activities
<TABLE>
<CAPTION>
Restated
2000 1999 1998
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Operating (loss)/profit (18,081) 19,245 23,026
Less: Restructuring costs - - 2,583
----------------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit before restructuring costs (18,081) 19,245 25,609
Depreciation charges 2,704 7,482 7,962
Impairment of tangible fixed assets 953 - -
Amortisation of intangible fixed assets 3,623 9,047 7,699
Impairment of intangible assets 295 - -
Amortisation of goodwill 617 415 61
Loss on sale of tangible fixed assets 195 631 17
Decrease in stocks 1 167 11
(Increase)/decrease in debtors (2,298) 5,686 (1,077)
Increase/(decrease) in creditors 1,139 (7,607) (13)
Exchange variances 95 401 786
Cash costs of restructuring (472) (2,660) (6,904)
----------------------------------------------------------------------------------------------------------------------------
Net cash (outflow)/inflow from operating activities (11,229) 32,807 34,151
============================================================================================================================
</TABLE>
The comparative figures for 1999 have been restated to reflect the change in
disclosure of amounts written off investments.
30. Analysis Of Changes In Net (Debt)/Funds
<TABLE>
<CAPTION>
Cash and Debt due Debt due
Bank bank within one after one Finance
Cash deposits deposits year year lease Total
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C> <C>
At 1 January 1998 13,102 620 13,722 (3,039) (155,806) (781) (145,904)
Cash flows (8,551) (620) (9,171) 2,770 6,812 547 958
Exchange movements (57) - (57) 81 1,671 - 1,695
Other non-cash changes - - - (44) (902) - (946)
Other movements - - - (14,446) 14,446 - -
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 1999 4,494 - 4,494 (14,678) (133,779) (234) (144,197)
Reclassification of loan - - - (894) - - (894)
from other creditors
Cash flows 6,304 - 6,304 1,404 (6,933) (2,533) (1,758)
Exchange movements (277) - (277) (465) (4,515) 15 (5,242)
Other non-cash changes - - - - (1,274) (3,614) (4,888)
Other movements - - - (16,942) 16,942 - -
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2000 10,521 - 10,521 (31,575) (129,559) (6,366) (156,979)
Cash flows 5,813 - 5,813 32,441 140,118 642 179,014
Exchange movements - - - (866) (4,434) - (5,300)
Other non-cash changes - - - - (6,125) 5,687 (438)
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2000 16,334 - 16,334 - - (37) 16,297
=============================================================================================================================
</TABLE>
31. CAPITAL COMMITMENTS
Capital commitments as at 31 December were as follows:
<TABLE>
<CAPTION>
2000 1999
(Pounds)000 (Pounds)000
<S> <C> <C>
Authorised and contracted for - 403
=========== ===========
</TABLE>
32. POST BALANCE SHEET EVENTS
On 28 February 2001, the Company made its preliminary announcement of its
results for the year ended 31 December 2000. The loss before tax for the year
reported was (Pounds)128,944,000. Certain adjustments to the figures reported in
the preliminary announcement have been made as follows:
<TABLE>
<CAPTION>
(Pounds)000
<S> <C>
Original loss before tax per preliminary announcement (128,944)
Impairment adjustment (see below) (2,249)
Reclassification of capitalised development costs relating to ISD (501)
-----------
Loss before tax (131,694)
===========
</TABLE>
On 30 April the Group announced its intention to refocus its activities on the
Web Services Division, with the resultant sale and closure of its eCommerce
activities, comprising OfficeShopper and Sparza, and curtailment of head office
activities.
The decision to refocus the activities of the business, as described above,
provided evidence of an impairment in value that had occurred prior to the
balance sheet date. An impairment review of the carrying value of the fixed
assets held in the balance sheet at 31 December 2000 has been performed and an
adjustment to the carrying value was made as follows.
32. POST BALANCE SHEET EVENTS (continued)
The impairment of fixed assets was calculated as follows:
<TABLE>
<CAPTION>
Original 31 Carrying Revised 31
December value December
2000 adjustments 2000
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
Fixed assets
Intangible assets 295 (295) -
Goodwill 2,621 (257) 2,364
Tangible assets 2,398 (953) 1,445
Investments 1,344 (744) 600
----------- ----------- -----------
6,658 (2,249) 4,409
=========== =========== ===========
</TABLE>
A change was also made to the exceptional loss on the disposal of ISD as a
result of a reclassification of capitalised development costs. The effect of
this change has also been detailed above.
The Group is proposing a placing and open offer of 270,000,000 new shares of
1 pence each subject to approval by the shareholders at an Extraordinary General
Meeting of the Company to be held on 6 July 2001. The estimated proceeds of the
placing and open offer of approximately (Pounds)12.0 million net of expenses,
are required for the Group to be able to continue in operational existence for
the foreseeable future.
On 12 June 2001, the Company negotiated a secured (Pounds)1.5 million bridging
facility which is to be repaid from the proceeds of the placing and open offer.
33. Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP)
The adjustments to net (loss)/income and shareholders' equity under US GAAP can
be reconciled as follows:
<TABLE>
<CAPTION>
Restated
-----------------------------------------------------------------------------------------------------------------------
Year ended 31 December 2000 1999
(Pounds)000 (Pounds)000
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustments to net (loss)/income
Retained (deficit)/profit in accordance with UK GAAP (132,002) (5,874)
US GAAP adjustments:
Revenue recognition 820 (15,614)
Provision against 'available for sale' security 344 -
System and product development costs:
- capitalized during the year (2,896) (11,958)
- amortisation 3,918 9,104
Deferred indexing costs - 245
Acquisition accounting (11,905) (36,963)
Employee costs (29) (29)
Gain on disposal of discontinued operations 113,326 -
Loss on sale and leaseback transaction - (991)
Income taxes 24 (26)
-----------------------------------------------------------------------------------------------------------------------
Net loss in accordance with US GAAP (28,400) (62,106)
=======================================================================================================================
(Loss)/income per share from continuing activities in accordance with US GAAP (13.6) (5.3)
(pence)
Loss per share from discontinued in accordance with US GAAP[pence] (3.5) (35.5)
-----------------------------------------------------------------------------------------------------------------------
Net loss per share in accordance with US GAAP (pence) (17.1) (40.8)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Restated
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
(Pounds)000 (Pounds)000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustments to shareholders' equity
Ordinary shareholders' funds in accordance with UK GAAP 16,682 (103,614)
US GAAP adjustments:
Revenue recognition (3,400) (18,984)
Capitalized system and product development costs net of amortisation - (26,254)
Deferred indexing costs - (296)
Acquisition accounting - 163,449
Provision against 'available for sale' security 344 -
Loss on sale and leaseback transaction - (993)
Income taxes - 89
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with US GAAP 13,626 13,397
====================================================================================================================================
</TABLE>
Accounting principles
These consolidated financial statements have been prepared in accordance with UK
GAAP which differs in certain significant respects from US GAAP. A description
of the relevant accounting principles which differ materially is given below:
Turnover
In relation to the Information Services Division (ISD), which was discontinued
during the year ended 31 December 2000, it was the Company's policy to recognize
online subscriptions in full when contractually due and invoiced and to provide
in full for the cost of related service obligations. Under US GAAP online
subscription revenues are recognized rateably over the subscription term which
is usually twelve months. No adjustment is required under US GAAP for the
'modular pricing' subscriptions since these subscriptions were recognized
rateably over the subscription term.
In 1999, the Company recognized revenue in respect of technology sales and
exclusive distribution rights when contractually due and invoiced. Under US
GAAP, this revenue is deferred over the contract period of ten years.
Discontinued operations
Under UK GAAP a business is classified as a discontinued operation where the
sale or termination of the operation concerned has a material effect on the
nature and focus of a company's operations and represents a material reduction
in a company's operating activities resulting from either withdrawal from a
particular market (a class of business or geographical area), or from a material
reduction in turnover in its continuing markets. The Group analyses turnover and
operating profit between continuing and discontinued operations.
Under US GAAP a business is classified as a discontinued operation where it
represents the disposal of a separate major line of business or class of
customer. Under US GAAP the operating profit from discontinued operations would
be shown on a separate line below income from continuing operations.
The Company announced its intention to dispose of the Information Services
Division on 23 March 2000. The disposal was completed on 4 May 2000. A loss on
disposal was charged to the profit and loss account, which was calculated
according to UK GAAP (see below for US GAAP calculation). The results of the
division up to the date of disposal were disclosed under discontinued
operations.
Intangible fixed assets
Historically it has been the Company's policy to capitalize costs associated
with the development of the host computer systems and the development of new
products. In the year 2000 the Group's business comprised the eCommerce, Web
Solutions and Ventures divisions. In recognition of the fact that these
divisions are not mature and in light of changing industry practice, the Company
decided to change its accounting policy such that development costs associated
with these divisions are expensed to the profit and loss account as incurred.
Under US GAAP, all costs incurred to establish the technological feasibility of
computer software to be sold, leased, or otherwise marketed are expensed as
incurred. Statement of Financial Accounting Standards No. 86 requires that
product development costs incurred subsequent to establishing technological
feasibility up until the product's general release are capitalized; however in
the Company's case the period between the establishment of technical
feasibility, as evidenced by a product design and the completion and testing of
a working model, and the product's release is short and the associated costs
insignificant and consequently under US GAAP no product development costs have
been capitalized.
Indexing costs
The Company's policy in relation to the discontinued Information Services
Division was to defer database indexing costs and amortize these costs on a
straight line basis over two years. Under US GAAP database indexing costs are
expensed as incurred.
Deferred taxation
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallize in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
temporary differences and a valuation allowance is established to reduce
deferred tax assets to the amount which 'more likely than not' will be realized
in future tax returns. Deferred tax amounts also arise as a result of the other
US GAAP adjustments.
The UK deferred tax liability can be reconciled as follows to the US GAAP net
deferred tax asset:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
(Pounds)000 (Pounds)000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UK liability - (89)
Liabilities not provided for under UK GAAP - (2,704)
-------------------------------------------------------------------------------------------------------------------
Full potential deferred tax liability under UK GAAP - (2,793)
Unprovided deferred tax asset on tax losses 29,400 18,594
Tax effects of US GAAP adjustments:
Revenue recognition 1,020 5,695
System and product development costs - 8,109
Deferred indexing costs - 89
Acquisition accounting - 31,819
Sale and leaseback - 298
-------------------------------------------------------------------------------------------------------------------
Gross deferred tax asset in accordance with US GAAP 30,420 64,604
-------------------------------------------------------------------------------------------------------------------
Total net deferred tax asset under US GAAP 30,420 61,811
Deferred tax asset valuation allowance (30,420) (61,811)
-------------------------------------------------------------------------------------------------------------------
Net deferred tax asset in accordance with US GAAP - -
===================================================================================================================
</TABLE>
Management believes that the available objective evidence creates sufficient
uncertainty regarding realisability of these items such that a full deferred tax
asset valuation allowance has been recorded.
The US GAAP basis tax provision/(benefit) is comprised as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 1999
(Pounds)000 (Pounds)000
-----------------------------------------------------------------------------------------------------------------------------------
Current:
UK Corporation tax 10 (65)
Non UK tax 237 1,569
------------------------------------------------------------------------------------------------------------------------------------
247 1,504
====================================================================================================================================
</TABLE>
Acquisition accounting
Under UK GAAP, the Company has written off purchased goodwill, defined as the
excess of the acquisition price over the fair value of the net assets acquired,
against reserves for all acquisitions made prior to 31 December 1997. Under UK
GAAP, for all acquisitions made since 1 January 1998, goodwill is capitalized
and subsequently written off over its estimated useful life, which currently
ranges from 10 to 20 years.
For US GAAP purposes, the acquisition price is allocated to all tangible and
intangible assets acquired based on their fair value, including in-process
research and development. Amounts allocated to in-process research and
development are then immediately expensed. Goodwill and other acquisition-
related intangible assets are recognized on the balance sheet and amortized by
charges against income over its estimated useful life, not to exceed 40 years.
Employee costs
During 1993 certain share allocations were made to certain of the Company's
employees at par value which were below deemed market value. Under UK GAAP these
share issues were recorded at their par value whereas under US GAAP the
difference between the par value and the deemed market value is considered to be
employee compensation and expensed in total in the year from the year of grant.
In addition, prior to December 1995, options were granted under the Company's
Sharesave Scheme at a 20% discount (15% with effect from December 1995 onwards)
from the fair market value of the stock at the date of grant. Under UK GAAP, the
share issues are recorded at their discounted price when the options are
exercised. Under US GAAP following the measurement principles of APB 25 -
Accounting for Stock Issued to Employees ("APB 25") and the Financial Accounting
Standards Board Interpretation 44, Accounting for certain transactions involving
Stock Compensation an Interpretation of Accounting Principles Board Opinion No.
25 ("Fin 44"), the discount is considered to be employee compensation and is
expensed over the vesting period, which is the five year savings period of the
scheme.
Investment in debt and equity securities
Under UK GAAP, fixed asset investments are held at cost unless there is a
permanent diminution in value whereupon provision is made for such diminution
through the profit and loss account. Under US GAAP, debt and equity investments
that meet the definition of 'available-for-sale securities', as defined by
Statement of Financial Accounting Standards no. 115 ('SFAS 115'), are held at
their market value; unrealized holding gain and losses are excluded from
earnings and reported as a net amount as a component of shareholders' equity
until realized.
Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with FRS 1
(revised) presents substantially the same information as that required under US
GAAP. Under US GAAP, however, there are certain differences from UK GAAP with
regard to the classification of items within the cash flow statement and with
regard to the definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for trading activities,
returns in investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisition and disposals, equity dividends paid,
management of liquid resources and financing activities.
Under US GAAP, however, three categories of cash flow activity are reported;
operating activities, investing activities and financing activities. Cash flows
from taxation and returns on investments and servicing of finance would be
included under operating activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include overdrafts, but do
include investments repayable within three months of maturity when required.
Set out below, for illustrative purposes, is a summary consolidated statement of
cashflows under US GAAP:
<TABLE>
<CAPTION>
Restated
------------------------------------------------------------------------------------------------------------------------------------
Year ended 31 December 2000 1999
(Pounds)000 (Pounds)000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash (used in)/provided by operating activities (21,414) 4,522
Net cash provided by/(used in) investing activities 172,12 (6,422)
Net cash (used in)/provided by financing activities (144,902) 8,205
------------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 5,81 6,305
Cash and cash equivalents at beginning of period 10,52 4,494
Effect of foreign exchange rate changes - (278)
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 16,33 10,521
====================================================================================================================================
</TABLE>
Fair value of financial instruments
The carrying amounts and estimated fair values of the Group's financial
instruments for the three years ended 31 December 2000 are as follows:
<TABLE>
<CAPTION>
Carrying Fair Carrying Fair
amount value amount value
2000 2000 1999 1999
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and bank deposits 16,334 16,334 10,521 10,521
Senior Credit Facility - - (55,424) (55,424)
Senior Subordinated Notes - - (111,663) (53,598)
Obligations under finance leases 37 37 (6,366) (6,366)
Interest rate cap agreement - - - 30
====================================================================================================================================
</TABLE>
The carrying amount of Senior Subordinated Notes was based on the quoted market
prices for these instruments. The carrying amount of cash and bank deposits is a
reasonable estimate of fair value.
The Senior Credit Facility bears interest on a floating rate basis based on the
current value of US Dollar LIBOR. Therefore the fair value of this instrument is
considered to approximate its carrying amount.
In the opinion of the Directors, the market value of the finance lease
obligations approximates the carrying amount, having regard to the interest
rates available to the Group for similar borrowings at the balance sheet date.
The fair value of the interest rate cap agreement has been estimated upon the
available market price for a similar instrument at 31 December 1998 and 1999.
Exceptional items
In the current year the Company recorded the loss on disposal of the Information
Services Division (ISD) as an exceptional item. Under US GAAP, the gain/loss is
shown below continuing operations as a separate line item on the profit and
loss. This loss was calculated using a net assets disposed of figure calculated
in accordance with UK GAAP. As discussed above there is a difference between UK
GAAP and US GAAP in the treatment of intangible fixed assets and goodwill.
Consequently, under US GAAP, adjustments have to be made to the loss on disposal
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
2000
(Pounds)000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Exceptional loss on disposal in accordance with UK GAAP (101,688)
Revenue recognition 14,764
System and product development costs 25,763
Acquisition accounting 71,623
Deferred indexing costs 296
Loss on sale and leaseback transaction 993
Income tax (113)
------------------------------------------------------------------------------------------------------------------------------------
Gain on disposal in accordance with US GAAP 11,638
====================================================================================================================================
</TABLE>
Under UK GAAP, the following exceptional items are shown separately on the face
of the profit and loss account after operating profit and before interest;
profits or losses on the sale or termination of an operation; costs of a
fundamental reorganisation or restructure; and profits or losses on the disposal
of fixed assets. Under US GAAP, these items should be included as a normal
operating item such that operating profit/(loss) includes these costs. The
adjustments to operating (loss)/profit under US GAAP can be reconciled as
follows:
<TABLE>
<CAPTION>
Restated
------------------------------------------------------------------------------------------------------------------------------------
Year ended 31 December 2000 1999
(Pounds)000 (Pounds)000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating (loss)/profit in accordance with UK GAAP (22,165) 19,245
Reclassification of exceptional item calculated in accordance with US GAAP (as above) 11,638 (911)
------------------------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit in accordance with US GAAP (10,527) 18,334
====================================================================================================================================
</TABLE>
Sale and leaseback transactions
Under UK GAAP, impairment of fixed assets is measured by comparing the carrying
value of the fixed asset with its recoverable amount. The recoverable amount is
the higher of the amounts that can be obtained from selling the fixed asset (net
realizable value) or using the fixed asset (value in use). However, under US
GAAP, when the fair value of assets subject to a sale and leaseback transaction
is less than the book value, a loss needs to be recognized in the profit and
loss account.
Recent accounting pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB 101),
which provides guidance on revenue recognition. SAB 101 is effective for fiscal
years beginning after December 15, 1999. During 2000, the Company adopted SAB
101, which did not have a material impact on the Company's results of operations
or financial condition.
Statement of Financial Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No.
138, became effective for the Company on 1 April 2001. SFAS No. 133, which
requires the recordings of all derivatives on the balance sheet at fair value,
introduces new rules in respect of hedge accounting and the recognition of
movements in fair value through the income statement. The Company did not have
any derivative financial instruments at 31 December 2001, therefore, the
standard did not have any impact on the results of operations for 2000.
Subsequent Events
On 30 April the Group announced its intention to refocus its activities on the
Web Services Division with the resultant closure of its eCommerce activities,
comprising Officeshopper and Sparza, and the curtailment of head office
activities. This restructure has now been substantially completed.
An Extraordinary General Meeting of the Company was held on July 6, 2001 where a
Placing and Open Offer of 270,000,000 new shares of 1 pence each was approved by
the shareholders of the Company. The proceeds of the Open Offer were
approximately (Pounds)12.0 million net of expenses. The change of name of the
Company, from Bright Station plc to Smartlogik Group plc was also approved at
this meeting. The following Directors of the Company resigned from the Board:
Daniel Wagner, David Mattey, Allen Thomas, Pat Sommers and Ian Barton; and the
following Directors were appointed: Stephen Hill, Simon Canham, David Jefferies
and James Bair. Robert Lomnitz was re-elected as a Director of the Company.
Shareholders approved amendments to the Company's share option schemes enabling
the Company to grant options over up to 15% of issued share capital, rather than
up to 10%. Finally, shareholders also approved the grant of options to David
Jefferies, James Bair and Alan Jefferies, a consultant to the Company.
Shareholder approval was required for grants to these three individuals since
the Rules of the Company's share option schemes would not normally permit Non-
executive Directors nor consultants to participate.
On June 18, 2001, the Company received a letter from NASDAQ indicating that the
Company had failed to comply with the minimum bid price requirement for
continued listing set forth in NASDAQ Marketplace Rule 4310(c)(4) (the "NASDAQ
Rule"). The notice stated that the Company has 90 calendar days or until
September 17, 2001 to regain compliance with the NASDAQ Rule, after which if the
Company does not comply with the NASDAQ Rule, its ADSs could be delisted from
NASDAQ. The Company currently is exploring its options regarding the NASDAQ
listing of its ADSs, including potential delisting. Removal of the ADSs from
listing on NASDAQ could have a material adverse effect on the liquidity of the
ADSs.
ITEM 18 - FINANCIAL STATEMENTS
Not applicable.
ITEM 19 -EXHIBITS
1.1 Memorandum of Association of the Company
1.2 Articles of Association of the Company
2.1(1) Form of Deposit Agreement among M.A.I.D. plc, The Bank of New York,
as Depositary, and holders from time to time of American Depositary
Shares issued thereunder (including as an exhibit the form of
American Depositary Receipt)
3.1 Not applicable
4.1 Agreement for the Sale of Shares and Release of Options, dated
October 13, 1999, between the Company and the holders of shares in
Muscat Limited (to be filed as an amendment)
4.2 Instruments creating Warrants (to be filed as an amendment)
4.3(2) A Sale and Purchase Agreement, dated March 23, 2000, between the
Company and Thomson Corporation
4.4 Subscription Agreement, dated March 23, 2000, between the Company
and Jiyu Holdings (to be filed as an amendment)
4.5 Engagement Letter, dated May 23, 2001, between the Company and Hoare
Govett (to be filed as an amendment)
4.6 Placing Letters, dated May 29, 2001, between Hoare Govett as agent
of the Company and certain institutional investors (to be filed as
an amendment)
4.7 Bridge Facility Letter, dated June 12, 2001, between the Company
and antfactory Investments BV (to be filed as an amendment)
4.8 Employment Agreement, dated June 13, 2001, between the Company and
Stephen Hill (to be filed as an amendment)
4.9 Employment Agreement, dated June 13, 2001, between the Company and
Simon Canham (to be filed as an amendment)
4.10 Employment Agreement, dated June 13, 2001, between the Company and
Robert Lomnitz (to be filed as an amendment)
4.11 Letter Agreement, dated June 13, 2001, between the Company and
Stephen Hill (to be filed as an amendment)
4.12 Letter Agreement, dated June 13, 2001, between the Company and Simon
Canham (to be filed as an amendment)
4.13 Letter Agreement, dated January 2, 2001, between the Company and
Robert Lomnitz (to be filed as an amendment)
5.1 Not applicable
6.1 Not applicable
7.1 Not applicable
8.1 List of Subsidiaries
9.1 Not applicable
10.1 The Company's Annual Report 2000
10.2 Auditors' Report to the Shareholders of Bright Station plc
(included in Exhibit 10.1)
10.3 The Company's Annual Report 1999
10.4 Certain portions of the Company's listing particulars issued April
3, 2000
10.5 Certain portions of the Company's Circular proposing the Placing and
Open Offer
10.6 Schedule 10 - Notification of Major Interests in Shares
_______________________
(1) Incorporated by reference to the exhibit designated by exhibit number 4.1
in Amendment No. 2 to the Company's Registration Statement on Form F-1
(Registration No. 33-97786).
(2) Incorporated by reference to the exhibit designated by exhibit number 4 in
the Company's Annual Report on Form 20-F filed with the Securities and
Exchange Commission on July 15, 2000.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SMARTLOGIK GROUP PLC
/s/ Simon Canham
----------------------------------
Name: Simon Canham
Title: Chief Financial Officer
Date: July 16, 2001
EXHIBIT 1.1
No. 1890236
THE COMPANIES ACT 1948 TO 1981
________________________
COMPANY LIMITED BY SHARES
________________________
MEMORANDUM OF ASSOCIATION
-of-
SMARTLOGIK GROUP PLC
1. The name of the Company is Smartlogik Group plc *
2. The Company is to be a public Company. **
3. The Registered Office of the Company will be situate in England.
4. *** (i) The object of the Company is to act as and to carry on the
business of a holding and co-ordinating company of the group of
companies of which the Company is for the time being the holding
company and to carry on the business of an investment company and
to do all lawful acts and things whatever that are necessary or
convenient in acting as or carrying on the business of a holding
company or in carrying on the business of an investment company
or both.
(ii) Without prejudice to the generality of the object and the powers of
the Company derived from Section 3A of the Act the Company has
power to do all or any of the following things:-
(A) to carry on business as computer consultants, analysts, salesmen
and engineers, and to act as electrical and general engineers, as
designers, manufacturers, assemblers, installers, repairers,
importers, exporters, distributors, lessors and agents for the sale
of and dealers in computers and their component parts and
accessories, computer software and all manner of computerised
information systems, and as analysts and advisers undertaking data
preparation, word processing and programming and to act generally
as contractors and consultants in all matters relating to the
________________________________________________________________________________
* The name was changed from Mapola Limited to M.A.I.D Systems Limited
on 27th March 1985.
The name was changed from M.A.I.D Systems Limited to M.A.I.D plc on
10th February 1994.
The name was changed from M.A.I.D plc to The Dialog Corporation on
17th November 1997.
The name was changed from The Dialog Corporation plc to Bright
Station plc on 4th May 2000.
The name was changed from Bright Station plc to Smartlogik Group plc on
6th July 2001.
** The Company was re-registered as a public limited company on 10th February
1994.
*** The objects of the Company were amended by Special Resolution passed on
14th March 1994.
________________________________________________________________________________
application or operation of computers or computer based systems, or the
purchase or sale of computer time, to carry on business as wholesale or
retail dealers in and agents or representatives for business and
accounting machines, office furniture and all manner of goods, products,
processes, materials and services of any description either as principals
on for or on behalf of any individual, firm, company, authority or other
organisation in any part of the world and to tender for and to place
contracts on investments, to act as advertising and market research
specialists, exhibition, conference and display contractors and
promoters;
(B) to carry on any other trade or business which can, in the opinion of the
Board of Directors, be advantageously carried on by the Company in
connection with or as ancillary to any of the above businesses or the
general business of the Company, or further any of its objects;
(C) to purchase, take on lease or in exchange, hire or otherwise acquire and
hold for any estate or interest any lands, buildings, easements, rights,
privileges, concessions, patents, patent rights, licences, secret
processes, machinery plant, stock-in-trade, and any real or personal
property of any kind for such consideration and on such terms as may be
considered expedient;
(D) to erect, construct, lay down, enlarge, alter and maintain any roads,
railways, tramways, sidings, bridges, reservoirs, shops, stores,
factories, buildings, works, plant and machinery necessary or convenient
for the Company's business, and to contribute to or subsidise the
erection, construction and maintenance of any of the above;
(E) to borrow or raise or secure the payment of money for the purposes of or
in connection with the Company's business, and for the purposes of or in
connection with the borrowing or raising of money by the Company to
become a member of any building society;
(F) to mortgage and charge the undertaking and all or any of the real and
personal property and aspects, present or future, and all or any of the
uncalled capital for the time being of the Company, and to issue at par
or at a premium or discount, and for such consideration and with and
subject to such rights, powers, privileges and conditions as may be
thought fit, debentures or debenture stock, either permanent or
redeemable or repayable and collaterally or further to secure any
securities of the Company by a trust deed or other assurance;
(G) to issue and deposit any securities which the Company has power to issue
by way of mortgage to secure any sum less than the nominal amount of such
securities, and also by way of security for the performance of any
contracts or any obligations of the Company or of its customers or other
persons or corporations having dealings with the Company, or in whose
businesses or undertakings the Company is interested, whether directly or
indirectly;
(H) the receive money on deposit or loan upon such terms as the Company may
approve, and to guarantee the obligations and contracts of any person or
corporation;
(I) to make advances to customers and others with or without security, and upon
such terms as the Company may approve and generally to act as bankers for
any person or corporation;
(J) to grant pensions, allowances, gratuities, and bonuses to officers, ex-
officers, employees or ex-employees of the Company or its predecessors in
business or the dependents or connections of such persons, to establish and
maintain or concur in establishing and maintaining trusts, funds or schemes
(whether contributory or non-contributory) with a view to providing
pensions or other benefits for any such persons as aforesaid, their
dependents or connections, and to support or subscribe to any charitable
funds or institutions, the support of which may, in the opinion of the
Directors, be calculated directly or indirectly to benefit the Company or
its employees, and to institute or maintain any club or other establishment
or profit sharing scheme calculated to advance the interest of the Company
or its officers or employees;
(K) to draw, make, accept, endorse, negotiate, discount and execute promissory
notes, bills or exchange and other negotiable instruments;
(L) to invest and deal with the moneys of the Company not immediately required
for the purposes of its business in or upon such investments or securities
and in such manners as may from time to time be determined;
(M) to pay for any property or rights acquired by the Company, either in cash
or fully or partly paid-up shares, with or without preferred or deferred
special rights or restrictions in respect of dividend, repayment of
capital, voting or otherwise, or by any securities which the Company has
power to issue, or partly in one mode and partly in another, and generally
on such term as the Company may determine;
(N) to accept payment for any property or rights sold or otherwise disposed of
or dealt with by the Company, either in cash, by instalments or otherwise,
or in fully or partly paid-up shares of any company or corporation, with or
without deferred or preferred or special rights or restrictions in respect
of dividend, repayment of capital, voting or otherwise, or in debentures or
mortgage debentures or debenture stock, mortgages or other securities of
and company or corporation, or partly in one mode and partly in another,
and generally on such terms as the Company may determine, and to hold,
dispose of or otherwise deal with any shares, stock or securities so
acquired;
(O) to enter into any partnership or joint-purse arrangement or
arrangement for sharing profits, union of interests or co-operation
with any company, firm or person carrying on or proposing to carry on
any business within the objects of this Company, and to acquire and
hold, sell, deal with or dispose of shares, stock or securities of any
such company, and to guarantee the contracts or liabilities of, or the
payments of the dividends, interest or capital of any shares, stock or
securities of and to subsidise or otherwise assist any such company;
(P) to establish or promote or concur in establishing or promoting any
other company whose objects shall include the acquisition and taking
over of all or any the assets and liabilities of this Company or the
promotion of which shall be in any manner calculated to advance
directly or indirectly the objects or interests of this Company and to
acquire and hold or dispose of shares, stock or securities of and
guarantee the payment of the dividends, interest or capital of any
shares, stock or securities issued by or any other obligations of any
such company;
(Q) to purchase or otherwise acquire and undertake all or any part of the
business, property, assets, liabilities and transactions of any
person, firm or company carrying on any business which this Company is
authorised to carry on;
(R) to sell improve, manage, develop, turn to account, exchange let on
rent, royalty, share of profits or otherwise, grant licences,
easements and other rights in or over, and in any other manner deal
with or dispose of the undertaking and all or any of the property and
assets for the time being of the Company for such consideration as the
Company may think fit;
(S) to amalgamate with any other company whose objects are to include
objects similar to those of this Company, whether by sale or purchase
(for fully or partly paid-up shares or otherwise) of the undertaking
subject to the liabilities of this or any such other company as
aforesaid with or without winding up, or by sale or purchase (for
fully or partly paid-up shares or otherwise) of all or a controlling
interest in the shares or stock of this or any such company as
aforesaid, or by partnership, or any arrangement of the nature of
partnership, or in any other manner;
(T) to distribute among the members in specie any property of the Company,
or any proceeds of sale or disposal of any property of the Company,
but so that no distribution amounting to a reduction of capital be
made except with the sanction (if any) for the time being required by
law;
(U) to do all or any of the above things in any part of the world, and
either as principals, agents, trustees, contractors or otherwise, and
either alone or in conjunction with others, and either by or through
agents, trustees, sub-contractors or otherwise;
(V) to do all such things as are incidental or conducive to the above
objects or any of them;
and it is hereby declared that in the construction of this clause the word
"company" except where used in reference to the Company shall be deemed to
include any person or partnership or other body of persons, whether
incorporated or not incorporated, and whether domiciled in Great Britain or
elsewhere, and that the objects specified in the different paragraphs of
this clause shall, except where otherwise expressed therein, be in no way
limited by reference to any other paragraph or the name of the Company, but
may be carried out in as full and ample a manner and shall be construed in
as wide a sense as if each of the said paragraphs defined the objects of a
separate, distinct, and independent company.
5. The liability of the members is limited.
6. The share capital of the Company is (Pounds)100 divided in 100 shares of
(Pounds)1 each.*
The shares in the original or any increased capital may be divided into several
classes, and there may be attached thereto respectively any preferential,
deferred or other special rights, privileges, conditions or restrictions as to
dividend, capital, voting or otherwise.
________________________________________________________________________________
* By Ordinary resolution passed on 24th October 1985 the share capital of
the Company was sub-divided into 1000 shares of 10 pence each.
By Special Resolution passed on 11th September 1990 the share capital of
the company was increased to (Pounds)10,000 and sub-divided into 1,000,000
shares of 1 pence each.
By Special Resolution passed on 4th February 1994 the share capital of
the Company was increased to (Pounds)100,000 divided into 10,000,000 of
1 pence each.
By Special Resolution passed on 14th March 1994 the share capital of the
Company was increased to (Pounds)1,100,000 divided into 110,000,000 shares
of 1 pence each.
By Special Resolution passed on 30th October 1995 the share capital of
the Company was increased to (Pounds)1,350,000 divided into 135,000,000
shares of 1 pence each.
By Special Resolution passed on 10th November 1997 the share capital of
the Company was increased to (Pounds)1,998,270 divided into 199,827,000
shares of 1 pence each.
By Special Resolution passed on 4th May 2000 the share capital of the
Company was increased to (Pounds)2,500,000 divided into 250,000,000 shares
of 1 pence each.
By Special Resolution passed on 6th July 2001 the share capital of the
Company was increased to (Pounds)6,500,000 divided into 650,000,000 shares
of 1 pence each.
We, the several persons whose names and addresses are subscribed, are desirous
of being formed into a Company in pursuance of this Memorandum of Association,
and we respectively agree to take the number of shares in the capital of the
Company set opposite our respective names.
NAMES, ADDRESSES AND NUMBER OF SHARES
DESCRIPTIONS OF TAKEN BY EACH
SUBSCRIBERS SUBSCRIBER
__________________ _______________
Karen Wilson, ONE
81 City Road,
London,
EC1Y 1BD
Company Registration Agent
Mark Francis Burton ONE
81 City Road
London
EC1Y 1BD
Company Registration Agent
Dated this 3rd Day of December, 1984
Witness to the above Signatures:
Helen Louise Ashton
81 City Road
London
EC1Y 1BD
Company Registration Agent
Exhibit 1.2
THE COMPANIES ACT 1985
PUBLIC COMPANY LIMITED BY SHARES
SMARTLOGIK GROUP PLC
---------------------
NEW ARTICLES OF ASSOCIATION
---------------------
(Adopted by Special Resolution passed on 10 November 1997)
THEODORE
GODDARD
London
SMARTLOGIK GROUP PLC
NEW ARTICLES OF ASSOCIATION
CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
PRELIMINARY
<S> <C>
1. Definitions....................................................... 1
2. Exclusion of Table A.............................................. 4
CAPITAL
3. Capital........................................................... 4
4. Allotment......................................................... 4
5. Share warrants to bearer.......................................... 4
6. Commissions and brokerage......................................... 5
7. Trusts not recognised............................................. 5
8. Purchase of own shares............................................ 5
VARIATION OF CLASS RIGHTS
9. Sanction.......................................................... 5
10. Class meetings.................................................... 6
ALTERATION OF SHARE CAPITAL
11. Increase, consolidation, sub-division and cancellation............ 6
12. Fractions......................................................... 7
13. Reduction of share capital........................................ 7
CERTIFICATED SHARES
14. Right to certificates............................................. 8
15. Replacement certificates.......................................... 8
UNCERTIFICATED SHARES
16. Uncertificated shares............................................. 8
LIEN ON SHARES
17. Company's lien on shares not fully paid........................... 10
18. Enforcement of lien by sale....................................... 10
19. Application of sale proceeds...................................... 10
CALLS
20. Calls............................................................. 11
21. Liability of joint holders........................................ 11
22. Interest.......................................................... 11
23. Differentiation................................................... 11
24. Payment in advance of calls....................................... 11
25. Restrictions if calls unpaid...................................... 11
26. Sums due on allotment treated as calls............................ 12
</TABLE>
FORFEITURE
<TABLE>
<S> <C>
27. Forfeiture after notice of unpaid call............................ 12
28. Notice after forfeiture........................................... 12
29. Consequences of forfeiture........................................ 12
30. Disposal of forfeited share....................................... 13
31. Proof of forfeiture............................................... 13
UNTRACED MEMBERS
32. Sale of shares.................................................... 13
33. Application of sale proceeds...................................... 14
TRANSFER OF SHARES
34. Form of transfer.................................................. 15
35. Registration of a certificated share transfer..................... 15
36. Registration of an uncertificated share transfer.................. 16
37. Renunciation of allotments........................................ 16
38. No fee on registration............................................ 16
39. Closing of Register of Members.................................... 16
TRANSMISSION OF SHARES
40. On death.......................................................... 16
41. Election of person entitled by transmission....................... 16
42. Rights on transmission............................................ 17
GENERAL MEETINGS
43. Annual and extraordinary general meetings......................... 17
44. Convening of extraordinary general meetings....................... 17
45. Notice of general meetings........................................ 18
46. Quorum for general meeting........................................ 19
47. Procedure if quorum not present................................... 19
48. Chairman of general meeting....................................... 19
49. Rights of Directors and others to attend meetings................. 19
50. Accommodation of members at meeting............................... 19
51. Security.......................................................... 20
52. Power to adjourn.................................................. 20
53. Notice of adjourned meeting....................................... 20
54. Business of adjourned meeting..................................... 20
VOTING
55. Voting at a general meeting....................................... 20
56. Poll procedure.................................................... 21
57. Votes of members.................................................. 21
58. Chairman's casting vote........................................... 22
59. Voting restrictions on an outstanding call........................ 22
PROXIES
60. Proxy instrument.................................................. 22
61. Termination of proxy or corporate authority....................... 23
62. Corporate representatives......................................... 24
63. Amendment to resolutions.......................................... 24
64. Objection to error in voting...................................... 24
FAILURE TO DISCLOSE INTERESTS IN SHARES
65. Failure to disclose interests in shares........................... 24
APPOINTMENT, RETIREMENT AND REMOVAL OF DIRECTORS
66. Number of Directors............................................... 27
67. No share qualification............................................ 27
68. Company's power to appoint Directors.............................. 27
69. Board's power to appoint Directors................................ 27
70. Appointment of executive Directors................................ 28
71. Eligibility of new Directors...................................... 28
72. Rotational retirement at annual general meeting................... 28
73. Position of retiring Director..................................... 28
74. No age limit...................................................... 29
75. Removal by ordinary resolution.................................... 29
76. Vacation of Director's office..................................... 29
ALTERNATE DIRECTORS
77. Appointment....................................................... 30
78. Responsibility.................................................... 30
79. Participation at Board meetings................................... 30
80. Interests......................................................... 31
81. Termination of appointment........................................ 31
BOARD POWERS
82. Board powers...................................................... 31
83. Directors below the minimum number................................ 31
84. Delegation to executive Directors................................. 32
85. Delegation to committees.......................................... 32
86. Local management.................................................. 32
87. Delegation to agents.............................................. 32
88. Exercise of voting power.......................................... 33
89. Provision for employees........................................... 33
90. Overseas registers................................................ 33
91. Associate directors............................................... 33
92. Borrowing powers.................................................. 33
</TABLE>
DIRECTORS' REMUNERATION, EXPENSES AND BENEFITS
<TABLE>
<S> <C>
93. Fees................................................................ 36
94. Expenses............................................................ 36
95. Remuneration of executive Directors................................. 37
96. Special remuneration................................................ 37
97. Pensions and other benefits......................................... 37
DIRECTORS' PROCEEDINGS
98. Board meetings...................................................... 37
99. Notice of Board meetings............................................ 37
100. Quorum............................................................. 38
101. Board chairman..................................................... 38
102. Voting............................................................. 38
103. Telephone participation............................................ 38
104. Written resolutions................................................ 38
105. Committee proceedings.............................................. 39
106. Minutes............................................................ 39
107. Validity of proceedings............................................ 39
INTERESTS OF DIRECTORS
108. Permitted interests................................................ 39
109. Disclosure of interests to Board................................... 40
110. Interested Director not to vote or count for quorum................ 40
111. Director's interest in own appointment............................. 41
112. Conclusive rulings on Directors' interests......................... 41
113. Connected persons.................................................. 41
114. Suspension or relaxation of provisions concerning
Directors' interests.................................................... 42
SECRETARY
115. Secretary.......................................................... 42
SEALS AND DOCUMENT AUTHENTICATION
116. Application of Seal................................................ 42
117. Official seal for use abroad....................................... 42
118. Directors or Secretary to authenticate or certify.................. 43
DIVIDENDS AND OTHER PAYMENTS
119. Declaration........................................................ 43
120. Interim dividends.................................................. 43
121. Entitlement to dividends........................................... 43
122. Payment methods.................................................... 43
123. Deductions......................................................... 44
124. Interest........................................................... 45
125. Unclaimed dividends................................................ 45
126. Uncashed dividends................................................. 45
127. Dividends in kind.................................................. 45
128. Scrip dividends.................................................... 45
129. Reserves........................................................... 47
130. Capitalisation of profits and reserves............................. 47
RECORD DATES
131. Board to fix date.................................................. 48
ACCOUNTS
132. Access to accounting records....................................... 48
133. Distribution of annual accounts.................................... 49
NOTICES
134. Notices to be in writing........................................... 49
135. Service on members................................................. 49
136. Notices by advertisement........................................... 50
137. Evidence of giving notice.......................................... 50
138. Notice binding on transferees...................................... 50
139. Notice to persons entitled by transmission......................... 50
DOCUMENT DESTRUCTION
140. Document destruction............................................... 51
WINDING UP
141. Division of assets................................................. 51
INDEMNITY
142. Right to indemnity................................................. 52
143. Power to insure.................................................... 52
</TABLE>
Company number: 1890236
THE COMPANIES ACT 1985
PUBLIC COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
of
SMARTLOGIK GROUP PLC
The name of the Company was changed from M.A.I.D plc to The Dialog
Corporation plc by way of a Special Resolution of the Members of
the Company passed on 10 November 1997.
The name of the Company was changed from The Dialog Corporation plc to Bright
Station plc by way of a Special Resolution of the members of the Company passed
on 27 April 2000.
The name of the Company was changed from Bright Station plc to Smartlogik Group
plc by way of a Special Resolution of the members of the Company on 6 July 2001.
(Adopted by Special Resolution passed on 10 November 1997)
The authorised share capital of the Company was increased from (Pounds)1,998,270
to (Pounds)2,500,000 on 4 May 2000.
The authorised share capital of the Company was increased from (Pounds)2,500,000
to (Pounds)6,500,000 on 6 July 2001.
PRELIMINARY
1. Definitions
(A) In these Articles the following words have the following meanings:
ACT the Companies Act 1985;
THE ACTS the Companies Act and every other statute
concerning companies and affecting the Company.
This includes any orders, regulations or further
legislation made under the Companies Act or other
statute as well as any re-enactment;
ADR DEPOSITARY A custodian or depositary or their nominee, which,
under a contract with the Company approved by the
Board, holds the Company's shares and issues
American Depositary Receipts;
AMERICAN DEPOSITARY American depositary receipts which are issued by
RECEIPTS the ADR Depositary. American Depositary Receipts
represent American Depositary Shares and are proof
of rights relating to American Depositary Shares or
a right to receive them;
AMERICAN DEPOSITARY American depositary shares, which represent
RECEIPTS interests in the Company's shares deposited with
the ADR Depositary. Each American Depositary Share
represents 4 ordinary shares of 1p each in the
Company;
APPROVED DEPOSITARY A custodian or other person (or their nominee) who
is appointed by a contract with the Company or in
some other way acting under that appointment. The
custodian or other person (or their nominee) holds
or is interested in shares in the Company on behalf
of someone else and issues securities or other
documents proving ownership or in some other way
shows the entitlement of the owner to such shares
or interests. The contract only has effect to the
extent that the Board has approved such
arrangements;
Examples of an Approved Depositary will include the
ADR Depositary. It also includes the trustees of
any share scheme set up by the Company or any
scheme or arrangement set up for the benefit of the
Company's employees or the employees of any of the
Company's subsidiary undertakings (if that share
scheme or scheme or arrangement has been approved
by the Board and approved in a general meeting);
ARTICLES these articles of association;
AUDITORS the auditors of the Company;
BOARD the board of Directors or the Directors present or
deemed to be present at a duly convened meeting at
which a quorum is present;
CERTIFICATED in relation to a share, a share which is recorded
in the Register of Members as being held in
certificated form;
CLEAR DAYS in relation to a period of a notice, that period
excluding the day when the notice is given and the
day for which it is given or on which it is to take
effect;
COMPANY Smartlogik Group plc, registered in England with
number 1890236;
DIRECTOR a director of the Company;
EXECUTION any mode of execution (and "executed" shall be
construed accordingly);
GROUP the group comprising the Company and its subsidiary
undertakings (not including any parent undertaking
of the Company);
GROUP UNDERTAKING any undertaking in the Group, including the
Company;
HOLDER in relation to a share, the member whose name is
entered in the Register of Members as the holder of
that share;
LONDON STOCK EXCHANGE London Stock Exchange Limited;
MEMBER a member of the Company or, if the context
otherwise requires, a member of the Board or of any
committee;
OPERATOR the Operator (as defined in the Uncertificated
Securities Regulations) of the relevant
Uncertificated System;
ORDINARY SHARES ordinary shares of 1 pence each in the Company;
PAID or PAID UP paid up or credited as paid up;
PARTICIPATING a share or class of shares or a renounceable
SECURITY right of allotment of a share, title to which
is permitted to be transferred by means of an
Uncertificated System in accordance with the
Uncertificated Securities Regulations;
RECOGNISED PERSON a recognised clearing house or a nominee of a
recognised clearing house or of a recognised
investment exchange who is designated as its
nominee for the purposes of section 185 of the Act;
REGISTERED OFFICE the registered office of the Company;
REGISTER OF MEMBERS the Company's register of members kept pursuant to
the Act or, as the case may be, any overseas branch
register kept pursuant to these Articles;
SEAL the common seal of the Company or any official or
securities seal that the Company has or may have as
permitted by the Act;
SECRETARY the secretary of the Company or any other person
appointed to perform any of the duties of the
secretary of the Company including a joint,
temporary, assistant or deputy secretary;
SHARE a share in the capital of the Company;
UNCERTIFICATED in relation to a share, a share to which title is
recorded in the Register of Members as being held
in uncertificated form and title to which may be
transferred by means of an Uncertificated System in
accordance with the Uncertificated Securities
Regulations;
UNCERTIFICATED the Uncertificated Securities Regulations 1995
SECURITIES (SI 1995 No. 3272); and
REGULATIONS
UNCERTIFICATED a relevant system, as defined in the
SYSTEM Uncertificated Securities Regulations.
(B) In these Articles:
(i) words or expressions which are not defined in paragraph (A) of this
Article have the same meanings (where applicable) as in the Act as
in force on the date of the adoption of these Articles;
(ii) a reference to any statute or any statutory instrument or any provision
of a statute or of a statutory instrument includes a reference to any
statutory modification or re-enactment of it for the time being in force,
as (where applicable) amended or modified or extended by any other
statute or any order, regulation, instrument or other subordinate
legislation made under such statute or statutory provision or under the
statute under which such statutory instrument was made;
(iii) words in the singular include the plural and vice versa, words importing
any gender include all genders and a reference to a "PERSON" includes any
individual, firm, partnership, unincorporated association, company,
corporation or other body corporate;
(iv) references to "WRITING" or "WRITTEN" include printing, typewriting
lithography, photography and any other modes of representing or
reproducing words in a legible and non-transitory form;
(v) a reference to an Uncertificated System is a reference to the
Uncertificated System in respect of which the particular share or class
of shares or renounceable right of allotment of a share is a
Participating Security;
(vi) where an ordinary resolution is expressed to be required for any purpose,
a special or extraordinary resolution is also effective for such purpose
and where an extraordinary resolution is required for any purpose, a
special resolution is also effective for such purpose; and
(vii) headings do not affect the interpretation of any Article.
2. Exclusion of Table A
The regulations contained in Table A as prescribed under the Act do
not apply to the Company.
CAPITAL
3. Capital
The authorised share capital of the Company is pound sterling 6,500,000
which is divided into 650,000,000 Ordinary Shares of 1 pence each.
4. Allotment
(A) Subject to the Act and these Articles, the unissued shares shall be at
the disposal of the Board, who may offer, allot, grant options over or
otherwise dispose of them to such persons and on such terms as it may
decide (including, without limitation, terms relating to the renunciation
of any allotment).
(B) Subject to the Act and without prejudice to any rights attached to any
existing shares, any share may be issued with such rights or restrictions
as the Company may by ordinary resolution determine (or, if the Company
has not so determined, as the Board may determine).
(C) Subject to the Act, any share may be issued which is, or is to be liable,
to be redeemed at the option of the Company or the holder on such terms
and in such manner as may be provided by these Articles.
5. Share warrants to bearer
(A) Subject to the Act, the Company may, with respect to any full paid
shares, issue a warrant (a "SHARE WARRANT") stating that the bearer of
the warrant is entitled to the shares specified in it. The Company may
provide (by coupons or otherwise) for the payment of future dividends on
the shares included in a share warrant.
(B) The powers referred to in paragraph (A) of this Article may be exercised
by the Board, which may determine and vary the terms on which a share
warrant is to be issued, including (without limitation) terms on which:
(i) a new share warrant or coupon may be issued in the place of one damaged,
defaced, worn out or lost (provided that no new share warrant shall be
issued to replace one that has been lost unless the Board is satisfied
beyond reasonable doubt that the original has been destroyed);
(ii) the bearer of the share warrant may be entitled to receive notice of and
to attend, vote and demand a poll at general meetings;
(iii) dividends may be paid; and
(iv) any share warrant may be surrendered and the name of the holder entered
in the Register of Members in respect of the shares specified in it.
(C) Subject to the terms on which a share warrant is issued and to these
Articles, the bearer of a share warrant shall be deemed to be a
member for all purposes. The bearer of a share warrant shall be
subject to the terms in force and applicable to such share warrant,
whether made before or after its issue.
6. Commissions and brokerage
The Company may exercise all powers of paying commissions in relation to
a subscription for shares or other allotment conferred by the Act.
Subject to the Act, such commissions may be satisfied in cash or by the
allotment of fully or partly paid shares or partly in one way and partly
in the other. The Company may also pay such brokerage in relation to a
subscription for shares as may be lawful.
7. Trusts not recognised
Except as required by law, no person shall be recognised by the Company
as holding any share on any trust and (except as otherwise provided by
these Articles or by law) the Company shall not be bound by or recognise
any interest in any share except an absolute right of the holder to share
in its entirety (even if the Company has notice of such interest).
8. Purchase of own shares
Subject to the Act and to any rights attached to any shares, the Company
may purchase, or enter into a contract under which it will or may
purchase, any of its own shares of any class (including any redeemable
shares) in any way. Any shares to be so purchased may be selected for
purchase in any manner whatsoever.
VARIATION OF CLASS RIGHTS
9. Sanction
(A) If the share capital of the Company is divided into shares of different
classes, any of the rights attached to any class of shares
(notwithstanding that the Company may be or be about to be in
liquidation) may be varied or abrogated in such manner (if any) as may be
provided by such rights or, in the absence of any such provision, either
with the consent in writing of the holders of not less than three-
quarters in nominal value of the issued shares of the class or with the
sanction of an extraordinary resolution passed at a separate meeting of
the holders of shares of the class duly convened and held in accordance
with these Articles.
(B) Subject to the terms of issue of or rights attached to any shares, the
rights or privileges attached to any class of shares shall be deemed not
to be varied or abrogated by;
(i) the creation or issue of any new shares ranking pari passu in all
respects (save as to the date from which such new shares shall rank for
dividend) with or subsequent to those already issued;
(ii) the reduction of the capital paid up on such shares or by the purchase or
redemption by the Company of any of its own shares in accordance with the
Act and these Articles; or
(iii) the Board resolving that a class of shares is to become or is to cease to
be, or the Operator permitting such class of shares to become or to cease
to be, a Participating Security.
10. Class meetings
A separate meeting for the holders of a class of shares shall be convened
and conducted as nearly as possible in the same way as an extraordinary
general meeting, except that:
(i) no member, other than a Director, shall be entitled to notice of it
or to attend unless he is a holder of shares of that class;
(ii) no vote may be given except in respect of a share of that class;
(iii) the quorum at the meeting other than an adjourned meeting shall be two
persons present in person holding or representing by proxy at least one-
third in nominal value of the issued shares of that class and at an
adjourned meeting the quorum shall be one person holding shares of the
class in question or his proxy; and
(iv) a poll may be demanded by a member present in person or by proxy and
entitled to vote at the meeting and on a poll each member shall have one
vote for every share of that class of which he is the holder.
ALTERATION OF SHARE CAPITAL
11. Increase, consolidation, sub-division and cancellation
The Company may by ordinary resolution:
(i) increase its share capital by a sum to be divided into shares of an
amount prescribed by the resolution;
(ii) consolidate and divide all or any of its share capital into shares of a
larger amount than its existing shares;
(iii) subject to the Act, sub-divide all or any of its shares into shares of a
smaller amount and may by the resolution decide that one or more of the
shares resulting from the sub-division may have any preference or other
advantage as compared with the others; and
(iv) cancel shares which, at the date of the passing of the resolution, have
not been taken or agreed to be taken by a person and diminish the amount
of its share capital by the amount of the shares so cancelled.
12. Fractions
(A) If, as the result of a consolidation and division or a sub-division of
shares, fractions of shares become attributable to members, the Board may
on behalf of the members deal with the fractions as it thinks fit,
including (without limitation) in either of the ways prescribed in this
Article below.
(B) The Board may sell shares representing the fractions to any person
(including, subject to the Act, the Company) for the best price
reasonably obtainable and distribute the net proceeds of sale in due
proportion amongst the persons to whom such fractions are attributable
(except that if the amount due to a person is less than pound
sterling3.00, or such other sum as the Board may decide, the Company may
retain such sum for its own benefit). To give effect to such sale the
Board may:
(i) in the case of certificated shares, authorise a person to execute an
instrument of transfer of shares to the purchaser or as the purchaser may
direct; and
(ii) in the case of uncertificated shares, exercise any power conferred on it
by Article 16(I) (uncertificated shares) to effect a transfer of the
shares.
(C) The purchaser will not be bound to see to the application of the purchase
monies in respect of any such sale. The title of the transferee to the
shares will not be affected by any irregularity in or invalidity of the
proceedings connected with the sale or transfer. Any instrument or
exercise referred to at paragraph (B) of this Article shall be effective
as if it had been executed or exercised by the holder of the shares to
which it relates.
(D) In relation to the fractions the Board may issue, subject to the Act, to
a member credited as fully paid by way of capitalisation the minimum
number of shares required to round up his holding of shares to a number
which, following a consolidation and division or a sub-division, leaves a
whole number of shares (such issue being deemed to have been effected
immediately before the consolidation or the sub-division, as the case may
be). The amount required to pay up those shares may be capitalised as the
Board thinks fit out of amounts standing to the credit of any reserve or
fund of the Company (including any share premium account, capital
redemption reserve and profit and loss account), whether or not available
for distribution, and applied in paying up in full the appropriate number
of shares. A resolution of the Board capitalising part of any such
reserve or fund will have the same effect as if the capitalisation had
been made with the sanction of an ordinary resolution of the Company
pursuant to Article 130 (capitalisation of profits and reserves). In
relation to the capitalisation the Board may exercise all the powers
conferred on it by Article 130 without the sanction of an ordinary
resolution of the Company.
13. Reduction of share capital
Subject to the Act and to any rights attached to any shares, the Company
may by special resolution reduce its share capital or any capital
redemption reserve, share premium account or other undistributable
reserve in any way.
CERTIFICATED SHARES
14. Right to certificates
(A) Subject to the Act, the requirements of the London Stock Exchange and
these Articles, every person (except a Recognised Person), upon becoming
the holder of a certificated share is entitled, without charge, to one
certificate for all the certificated shares of a class registered in his
name or, in the case of certificated shares of more than one class being
registered in his name, to a separate certificate for each class of
shares, unless the terms of issue of the shares provide otherwise.
(B) Where a member (other than a Recognised Person) transfers part of his
shares comprised in a certificate he shall be entitled, without charge,
to one certificate for the balance of certificated shares retained by
him.
(C) The Company is not bound to issue more than one certificate for
certificated shares held jointly by two or more persons. Delivery of a
certificate to one joint holder shall be sufficient delivery to all joint
holders.
(D) A certificate shall specify the number and class and the distinguishing
numbers (if any) of the shares in respect of which it is issued and the
amount paid up on the shares. It shall be issued under the Seal, which
may be affixed to or printed on it, or in such other manner as the Board
may approve, having regard to the terms of issue and the requirements of
the London Stock Exchange.
15. Replacement certificates
If any certificate is worn-out, defaced, lost or destroyed, the Company
may cancel it and issue a replacement certificate subject to such terms
as the Board may decide as to evidence and indemnity (with or without
security) and to payment of any exceptional out-of-pocket expenses of the
Company in investigating such evidence and preparing such indemnity or
such security but otherwise free of charge, and the certificate is worn-
out or defaced) on delivery up of the old certificate.
UNCERTIFICATED SHARES
16. Uncertificated shares
(A) The Board may resolve that a class of shares is to become, or is to cease
to be, a Participating Security .
(B) Shares of a class shall not be treated as forming a separate class from
other shares of the same class as a consequence only of such shares being
held in uncertificated form.
(C) Any share of a class which is a Participating Security may be changed
from an uncertificated share to a certificated share and from a
certificated share to an uncertificated share in accordance with the
Uncertificated Securities Regulations.
(D) These Articles apply to uncertificated shares of a class which is a
Participating Security only to the extent that these Articles are
consistent with the holding of such shares in uncertificated form, with
the transfer of title to such shares by means of the Uncertificated
System and with the Uncertificated Securities Regulations.
(E) The Board may lay down regulations not included in these Articles which:
(i) apply to the issue, holding or transfer of uncertificated shares (in
addition to or in substitution for any provisions in these Articles);
(ii) set out (where appropriate) the procedures for conversion and/or
redemption of uncertificated shares; and/or
(iii) the Board considers necessary or appropriate to ensure that these
Articles are consistent with the Uncertificated Securities Regulations
and/or the Operator's rules and practices.
(F) Such regulations will apply instead of any relevant provisions in these
Articles which relate to certificates and the transfer, conversion and
redemption of shares or which are not consistent with the Uncertificated
Securities Regulations, in all cases to the extent (if any) stated in
such regulations. If the Board makes any such regulations, paragraph (D)
of this Article will (for the avoidance of doubt) continue to apply to
these Articles, when read in conjunction with those regulations.
(G) Any instruction given by means of an Uncertificated System as referred to
in these Articles shall be a dematerialised instruction given in
accordance with the Uncertificated Securities Regulations, the facilities
and requirements of the Uncertificated System and the Operator's rules
and practices.
(H) For any purpose under these Articles, the Company may treat a member's
holding of uncertificated shares and of certificated shares of the same
class as if they were separate holdings, unless the Board otherwise
decides.
(I) Where the Company is entitled under the Act, the Operator's rules and
practices, these Articles or otherwise to dispose of, forfeit, enforce a
lien over or sell or otherwise procure the sale of any shares of a class
which is a Participating Security which are held in uncertificated form,
the Board may take such steps (subject to the Uncertificated Securities
Regulations and to such rules and practices) as may be required or
appropriate, by instruction by means of an Uncertificated System or
otherwise, to effect such disposal, forfeiture, enforcement or sale
including by (without limitation):
(i) requesting or requiring the deletion of any computer-based entries in the
Uncertificated System relating to the holding of such shares in
uncertificated form;
(ii) altering such computer-based entries so as to divest the holder of such
shares of the power to transfer such shares other than to a person
selected or approved by the Company for the purpose of such transfer;
(iii) requiring any holder of such shares, by notice in writing to him, to
change his holding of such uncertificated shares into certificated form
within any specified period;
(iv) requiring any holder of such shares to take such steps as may be
necessary to sell or transfer such shares as directed by the Company;
(v) otherwise rectify or change the Register of Members in respect of any
such shares in such manner as the Board considers appropriate (including,
without limitation, by entering the name of a transferee into the
Register of Members as the next holder of such shares); and/or
(vi) appointing any person to take any steps in the name of any holder of such
shares as may be required to change such shares from uncertificated form
to certificated form and/or to effect the transfer of such shares (and
such steps shall be effective as if they had been taken by such holder).
LIEN ON SHARES
17. Company's lien on shares not fully paid
The Company has a first and paramount lien on each issued share (not
being a fully paid share) for all amounts payable to the Company (whether
presently payable or not) at a fixed time or called in respect of such
share. The Board may resolve that any share be exempt wholly or in part
from this Article. The lien applies to all dividends on any such share
and to all amounts payable by the Company in respect of such share.
18. Enforcement of lien by sale
(A) For the purpose of enforcing the Company's lien on any shares, the Board
may sell them in such manner as it decides if an amount in respect of
which the lien exists is presently payable and is not paid within 14
clear days following the giving of a notice to the holder (or any person
entitled to the share as a consequence of death or bankruptcy) demanding
payment of the amount due within such 14 clear day period and stating
that if the notice is not complied with the shares may be sold. CCD-0077
(B) To give effect to such sale the Board may:
(i) in the case of certificated shares, authorise a person to execute an
instrument of transfer of shares in the name and on behalf of the holder
of, or the person entitled by transmission to, them to the purchaser or
as the purchaser may direct; and
(ii) in the case of uncertificated shares, exercise any power conferred on it
by Article 16(I) (uncertificated shares) to effect a transfer of the
shares.
(C) The purchaser will not be bound to see to the application of the purchase
monies in respect of any such sale. The title of the transferee to the
shares will not be affected by any irregularity in or invalidity of the
proceedings connected with the sale or transfer. Any instrument or
exercise referred to at paragraph (B) of this Article shall be effective
as if it had been executed or exercised by the holder of, or the person
entitled by transmission to, the shares to which it relates.
19. Application of sale proceeds
The net proceeds of any sale of shares subject to the Company's lien
under these Articles (after payment of the sale costs) shall be applied
in or towards satisfaction of the amount then due to the Company in
respect of the lien. Any balance shall be paid to the original holder of,
or the person entitled (but for such sale) by transmission to, the shares
on (in the case of certificated shares) surrender to the Company for
cancellation of the certificate for such shares and (in all cases)
subject to the Company having a lien on such balance on the same basis as
applied to such shares for any amount not presently payable as existed on
such shares before the sale.
CALLS
20. Calls
Subject to the terms on which shares are allotted, the Board may make
calls on the members in respect of any amounts unpaid on their shares
(whether in respect of nominal value or premium) and not payable on a
date fixed by or in accordance with the allotment terms. Each member
shall (subject to receiving at least 14 clear days' notice specifying
when and where the payment is to be made) pay to the Company the amount
called as required by such notice. A call may be made payable by
instalments. A call shall be deemed to have been made when the resolution
of the Board authorising it is passed. A call may, before the Company's
receipt of any amount due under it, be revoked or postponed in whole or
in part as the Board may decide. A person upon whom a call is made will
remain liable for calls made on him notwithstanding the subsequent
transfer of the shares in respect of which the call was made.
21. Liability of joint holders
The joint holders of a share shall be jointly and severally liable to pay
all calls in respect of it.
22. Interest
If the whole of the sum payable in respect of any call is not paid by the
day it becomes due and payable, the person from whom it is due shall pay
all costs, charges and expenses that the Company may have incurred by
reason of such non-payment, together with interest on the unpaid amount
from the day it became due and payable until it is paid at the rate fixed
by the terms of the allotment of the share or in the notice of the call
or, if no rate is fixed, at such rate, not exceeding 20 per cent. per
annum (compounded on a six monthly basis), as the Board shall determine.
The Board may waive payment of such costs, charges, expenses or interest
in whole or in part.
23. Differentiation
Subject to the allotment terms, the Board may differentiate between the
holders of shares in the amounts and times of payment of calls on their
shares.
24. Payment in advance of calls
The Board may receive from any member all or any part of the amount
uncalled and unpaid on the shares held by him. The member's liability on
the shares to which such payment relates shall be reduced by such amount.
The Company may pay interest on such amount from the time of receipt
until the time when such amount would, but for such advance, have become
due and payable at such rate as the Board may decide.
25. Restrictions if calls unpaid
Unless the Board decides otherwise, no member shall be entitled to
receive any dividend or to be present or vote at any meeting or to
exercise any right or privilege as a member until he has paid all calls
due and payable on every share held by him, whether alone or jointly with
any other person, together with interest and expenses (if any) to the
Company.
26. Sums due on allotment treated as calls
Any sum payable in respect of a share on allotment or at any fixed date,
whether in respect of the nominal value of the share or by way of premium
or as an instalment of a call, shall be deemed to be a call. If such sum
is not paid, these Articles shall apply as if it had become due and
payable by virtue of a call.
FORFEITURE
27. Forfeiture after notice of unpaid call
(A) If a call or an instalment of a call remains unpaid after it has become
due and payable, the Board may give to the person from whom it is due not
less than 14 clear days' notice requiring payment of the amount unpaid
together with any interest which may have accrued and any costs, charges
and expenses that the Company may have incurred by reason of such non-
payment. The notice shall state the place where payment is to be made and
that if the notice is not complied with the shares in respect of which
the call was made will be liable to be forfeited. If the notice is not
complied with, any shares in respect of which it was given may, before
the payment required by the notice has been made, be forfeited by a
resolution of the Board. The forfeiture will include all dividends and
other amounts payable in respect of the forfeited shares not paid before
the forfeiture.
(B) The Board may accept the surrender of a share which is liable to be
forfeited in accordance with these Articles. All provisions in these
Articles which apply to the forfeiture of a share also apply to the
surrender of a share.
28. Notice after forfeiture
When a share has been forfeited, the Company shall give notice of the
forfeiture to the person who was before forfeiture the holder of the
share or the person entitled by transmission to the share. No forfeiture
will be invalidated by any omission to give such notice. An entry of the
fact and date of forfeiture shall be made in the Register of Members.
29. Consequences of forfeiture
(A) A share shall, on its forfeiture, become the property of the Company.
(B) All interest in and all claims and demands against the Company in respect
of a share and all other rights and liabilities incidental to the share
as between its holder and the Company shall, on its forfeiture, be
extinguished and terminate except as otherwise stated in these Articles
or, in the case of past members, as provided by the Act.
(C) The holder of a share which is forfeited shall:
(i) on its forfeiture cease to be a member in respect of it;
(ii) if a certificated share, surrender to the Company for cancellation the
certificate for the share;
(iii) remain liable to pay to the Company all monies payable in respect of the
share at the time of forfeiture, with interest from such time of
forfeiture until the time of payment, in the same manner in all respects
as if the share had not been forfeited; and
(iv) remain liable to satisfy all (if any) claims and demands which the
Company might have enforced in respect of the share at the time of
forfeiture without any deduction or allowance for the value of the share
at the time of forfeiture or for any consideration received on its
disposal.
30. Disposal of forfeited share
(A) Subject to the Act, a forfeited share may be sold, re-allotted or
otherwise disposed of on such terms and in such manner as the Board may
decide either to the person who was before the forfeiture the holder or
to any other person. At any time before the disposal, the forfeiture may
be cancelled on such terms as the Board may decide. Where for the purpose
of its disposal a forfeited share is to be transferred to any transferee,
the Board may :
(i) in the case of certificated shares, authorise a person to execute an
instrument of transfer of shares in the name and on behalf of their
holder to the purchaser or as the purchaser may direct; and
(ii) in the case of uncertificated shares, exercise any power conferred on it
by Article 16(I) (uncertificated shares) to effect a transfer of the
shares.
(B) The purchaser will not be bound to see to the application of the purchase
monies in respect of any such sale. The title of the transferee to the
shares will not be affected by any irregularity in or invalidity of the
proceedings connected with the sale or transfer. Any instrument or
exercise referred to at paragraph (A) of this Article shall be effective
as if it had been executed or exercised by the holder of, or the person
entitled by transmission to, the shares to which it relates.
31. Proof of forfeiture
A statutory declaration by a Director or the Secretary that a share has
been forfeited on a specified date shall be conclusive evidence of the
facts stated in it against all persons claiming to be entitled to the
share. The declaration shall (subject to the execution of any necessary
instrument of transfer) constitute good title to the share. The person to
whom the share is disposed of shall not be bound to see to the
application of the consideration (if any) given for it on such disposal.
His title to the share will not be affected by irregularity in, or
invalidity of, the proceedings connected with the forfeiture or disposal.
UNTRACED MEMBERS
32. Sale of shares
(A) The Company may sell at the best price reasonably obtainable any share of
a member, or any share to which a person is entitled by transmission, if:
(i) during the period of twelve years prior to the date of the publication of
the advertisements referred to in this paragraph (A) (or, if published on
different dates, the earlier or earliest of them) no cheque, warrant or
money order in respect of such share sent by or on behalf of the Company
through the post in a pre-paid envelope addressed to the member or to the
person entitled by transmission to the share, at his address in the
Register of Members or other address last known to the Company has been
cashed and the Company has received no communication in respect of such
share from such member or person, provided that during such twelve year
period the Company has paid at least three cash dividends (whether
interim or final) and no such dividend has been claimed by the person
entitled to it;
(ii) on or after the expiry of such twelve year period the Company has given
notice of its intention to sell such share by advertisements in a
national newspaper and in a newspaper circulating in the area in which
the address in the Register of Members or other last known address of the
member or the person entitled by transmission to the share or the address
for the service of notices on such member or person notified to the
Company in accordance with these Articles is located ;
(iii) such advertisements, if not published on the same day, are published
within 30 days of each other;
(iv) during a further period of three months following the date of publication
of such advertisements (or, if published on different dates, the date on
which the requirements of this paragraph (A) concerning the publication
of newspaper advertisements are met) and prior to the sale the Company
has not received any communication in respect of such share from the
member or person entitled by transmission; and
(v) the Company has informed the London Stock Exchange of its intention to
make such sale, if shares of the class concerned are listed on the London
Stock Exchange.
(B) If during such twelve year period, or during any subsequent period ending
on the date when all the requirements of paragraph (A) of this Article
have been met in respect of any shares, any additional shares have been
issued in respect of those held at the beginning of, or previously so
issued during, any such subsequent period and all the requirements of
paragraph (A) of this Article have been satisfied with regard to such
additional shares, the Company may also sell the additional shares.
(C) To give effect to a sale pursuant to paragraph (A) or paragraph (B) of
this Article, the Board may :
(i) in the case of certificated shares, authorise a person to execute an
instrument of transfer of shares in the name and on behalf of the holder
of, or the person entitled by transmission to, them to the purchaser or
as the purchaser may direct; and
(ii) in the case of uncertificated shares, exercise any power conferred on it
by Article 16(I) (uncertificated shares) to effect a transfer of the
shares.
(D) The purchaser will not be bound to see to the application of the purchase
monies in respect of any such sale. The title of the transferee to the
shares will not be affected by any irregularity in or invalidity of the
proceedings connected with the sale or transfer. Any instrument or
exercise referred to at paragraph (C) of this Article shall be effective
as if it had been executed or exercised by the holder of, or the person
entitled by transmission to, the shares to which it relates.
33. Application of sale proceeds
The Company shall account to the member or other person entitled to such
share for the net proceeds of such sale by carrying all monies in respect
of the sale to a separate account. The Company shall be deemed to be a
debtor to, and not a trustee for, such member or other person in respect
of such monies. Monies carried to such separate account may either be
employed in the business of the Company or invested as the Board may
think fit. No interest shall be payable to such member or other person in
respect of such monies and the Company shall not be required to account
for any money earned on them.
TRANSFER OF SHARES
34. Form of transfer
(A) Subject to these Articles, a member may transfer all or any of his
shares:
(i) in the case of certificated shares, by an instrument of transfer in
writing in any usual form or in another form approved by the Board, which
must be executed by or on behalf of the transferor and (in the case of a
transfer of a share which is not fully paid) by or on behalf of the
transferee; or
(ii) in the case of uncertificated shares, without a written instrument in
accordance with the Uncertificated Securities Regulations.
(B) The transferor shall remain the holder of the share transferred until the
name of the transferee is entered in the Register of Members in respect
of it.
35. Registration of a certificated share transfer
(A) Subject to these Articles, the Board may, in its absolute discretion and
without giving a reason, refuse to register the transfer of a
certificated share or the renunciation of a renounceable letter of
allotment unless it is:
(i) in respect of a share which is fully paid;
(ii) in respect of a share on which the Company has no lien;
(iii) in respect of only one class of shares;
(iv) in favour of a single transferee or renouncee or not more than four joint
transferees or renouncees;
(v) duly stamped (if required); and
(vi) delivered for registration to the Registered Office or such other place
as the Board may decide, accompanied by the certificate for the shares to
which it relates (except in the case of a transfer by a Recognised Person
where a certificate has not been issued, or in the case of a
renunciation) and any other evidence as the Board may reasonably require
to prove the title to such share of the transferor or person renouncing
and the due execution by him of the transfer or renunciation or, if the
transfer or renunciation is executed by some other person on his behalf,
the authority of such person to do so,
provided that the Board shall not refuse to register any transfer or
renunciation of any certificated shares listed on the London Stock
Exchange on the ground that they are partly paid in circumstances where
such refusal would prevent dealings in such shares on the London Stock
Exchange from taking place on an open and proper basis.
(B) If the Board refuses to register a transfer or renunciation pursuant to
this Article, it shall, within two months after the date on which the
transfer or renunciation was delivered to the Company, send notice of the
refusal to the transferee or renouncee. An instrument of transfer or
renunciation which the Board refuses to register shall (except in the
case of suspected fraud) be returned to the person delivering it. All
instruments of transfer which are registered may, subject to these
Articles, be retained by the Company.
36. Registration of an uncertificated share transfer
(A) The Board shall register a transfer of title to any uncertificated share
or the renunciation or transfer of any renounceable right of allotment of
a share which is a Participating Security held in uncertificated form in
accordance with the Uncertificated Securities Regulations, except that
the Board may refuse (subject to any relevant requirements of the London
Stock Exchange) to register any such transfer or renunciation which is in
favour of more than four persons jointly or in any other circumstance
permitted by the Uncertificated Securities Regulations.
(B) If the Board refuses to register any such transfer or renunciation the
Company shall, within two months after the date on which the instruction
relating to such transfer or renunciation was received by the Company,
send notice of the refusal to the transferee or renouncee.
37. Renunciation of allotments
The Board may, at its discretion, recognise and give effect to a
renunciation of the allotment of any share by the allottee in favour of
some other person.
38. No fee on registration
No fee shall be charged for the registration of a transfer of a share or
the renunciation of a renounceable letter of allotment or other document
relating to or affecting the title to any share.
39. Closing of Register of Members
The registration of transfers of shares or of any class of shares may be
suspended at such times and for such periods (not exceeding thirty days
in any year) as the Board may decide (subject to the Uncertificated
Securities Regulations in the case of any shares of a class which is a
Participating Security).
TRANSMISSION OF SHARES
40. On death
If a member dies, the survivors or survivor where he was a joint holder,
or his personal representatives where he was the sole or only surviving
holder, shall be the only persons recognised by the Company as having any
title to his shares. Nothing in these Articles shall release the estate
of a deceased holder from any liability in respect of a share which has
been held by him solely or jointly.
41. Election of person entitled by transmission
(A) A person becoming entitled to a share in consequence of the death or
bankruptcy of a member, or of any other event giving rise to a
transmission of such entitlement by operation of law, may, on such
evidence as to his title being produced as the Board may require, elect
either to become registered as the holder of such share or to have some
person nominated by him so registered. If he elects to be registered
himself, he shall give notice to the Company to that effect. If he elects
to have some other person registered, he shall:
(i) in the case of a certificated share, execute an instrument of transfer of
such share to such person; and
(ii) in the case of an uncertificated share, either:
(a) procure that all appropriate instructions are given by means of
the Uncertificated System to effect the transfer of such share
to such person; or
(b) change the uncertificated share to certificated form and then
execute an instrument of transfer of such share to such
person.
(B) All the provisions of these Articles relating to the transfer of shares
shall apply to the notice or instrument of transfer or instructions (as
the case may be) referred to at paragraph (A) of this Article if it were
an instrument of transfer executed, or they were instructions given, by
the member and the event giving rise to the transmission had not
occurred.
(C) The Board may give notice requiring a person to make the election
referred to in paragraph (A) of this Article. If such notice is not
complied with within sixty days, the Board may withhold payment of all
dividends and other amounts payable in respect of the share until notice
of election has been made.
42. Rights on transmission
A person becoming entitled by transmission to a share shall have the
rights to which he would be entitled if he were the holder of the share,
except that he shall not, before being registered as its holder, be
entitled in respect of it to attend or vote at any general meeting or at
any separate meeting of the holders of any class of shares.
GENERAL MEETINGS
43. Annual and extraordinary general meetings
(A) The Company shall hold annual general meetings, which shall be convened
by the Board, in accordance with the Act.
(B) All general meetings other than annual general meetings shall be called
extraordinary general meetings.
44. Convening of extraordinary general meetings
The Board may convene an extraordinary general meeting whenever it thinks
fit. An extraordinary general meeting shall also be convened on such
requisition, or in default may be convened by such requisitionists, as
provided by the Act and no business shall be transacted at such meeting
except that stated by the requisition or proposed by the Board. If there
are not within the United Kingdom sufficient Directors to call a general
meeting, any Director may call a general meeting.
45. Notice of general meetings
(A) An annual general meeting, and an extraordinary general meeting convened
for the passing of a special resolution, shall be convened by not less
than 21 clear days' notice in writing. All other extraordinary general
meetings shall be convened by not less than 14 clear days' notice in
writing.
(B) Subject to the Act and notwithstanding that it is convened by shorter
notice than that specified in paragraph (A) of this Article, a general
meeting shall be deemed to have been duly convened if it is so agreed:
(i) in the case of an annual general meeting, by all the members entitled to
attend and vote at the meeting; and
(ii) in the case of any other meeting, by a majority in number of the members
having a right to attend and vote at the meeting, being a majority
together holding not less than 95 per cent. in nominal value of the
shares giving that right.
(C) The notice of meeting shall specify:
(i) whether the meeting is an annual general meeting or an extraordinary
general meeting;
(ii) the place, the day and the time of the meeting;
(iii) subject to the requirements of the London Stock Exchange, the general
nature of the business to be transacted;
(iv) if the meeting is convened to consider a special or extraordinary
resolution, the intention to propose the resolution as such; and
(v) with reasonable prominence, that a member entitled to attend and vote is
entitled to appoint one or more proxies to attend and, on a poll, vote
instead of him and that a proxy need not also be a member.
(D) The notice of meeting:
(i) shall be given to the members (other than a member who, under these
Articles or any restrictions imposed on any shares, is not entitled to
receive notice from the Company), to the Directors and to the Auditors;
and
(ii) may specify a time by which a person must be entered on the Register of
Members in order for such person to have the right to attend or vote at
the meeting (subject to the Uncertificated Securities Regulations if the
Company is then a participating issuer for the purpose of the
Uncertificated Securities Regulations).
(E) The Board may determine that the members entitled to receive notice of a
meeting are those persons entered on the Register of Members at the close
of business on a day determined by the Board (subject to the
Uncertificated Securities Regulations if the Company is then a
participating issuer for the purpose of the Uncertificated Securities
Regulations).
(F) The accidental omission to send a notice of meeting or, in cases where it
is intended that it be sent out with the notice, an instrument of proxy
to, or the non-receipt of either by, any person entitled to receive such
notice shall not invalidate the proceedings at that meeting.
46. Quorum for general meeting
No business shall be transacted at a general meeting unless a quorum is
present. Two persons entitled to vote on the business to be transacted,
each being a member or a proxy for a member or a duly authorised
representative of a corporation which is a member, shall be a quorum. The
absence of a quorum will not prevent the appointment of a chairman of the
meeting in accordance with these Articles. Such appointment shall not be
treated as being part of the business of the meeting.
47. Procedure if quorum not present
If within fifteen minutes (or such longer time not exceeding one hour as
the chairman of the meeting may decide to wait) after the time appointed
for the holding of the meeting a quorum is not present, or if during
meeting a quorum ceases to be present, the meeting:
(i) if convened on the requisition of members, shall be dissolved; and
(ii) in any other case shall stand adjourned to the same day in the next week
or to such other day and at such other time and place as the chairman
(or, in default, the Board) may decide.
If at such adjourned meeting a quorum is not present within fifteen
minutes after the time appointed for holding it one person entitled to
vote at the business to be transacted, being a member or a proxy for a
member or a duly authorised representative of a corporation of a member,
shall be a quorum.
48. Chairman of general meeting
The chairman (if any) of the Board or, in his absence, the vice-chairman
(if any) shall preside as chairman at a general meeting. If there is no
chairman or vice-chairman, or if at a meeting neither is present within
five minutes after the time fixed for the start of the meeting, or
neither is willing to act, the Directors present shall select one of
their number to be chairman of the meeting. If only one Director is
present and willing to act, he shall be chairman of the meeting. In
default, the members present in person and entitled to vote shall choose
one of their number to be chairman of the meeting.
49. Rights of Directors and others to attend meetings
A Director (and any other person invited by the chairman of the meeting
to do so) shall be entitled to attend and speak at a general meeting and
at a separate meeting of the holders of any class of shares, whether or
not he is a member.
50. Accommodation of members at meeting
If it appears to the chairman of the meeting that the meeting place
specified in the notice convening the meeting is inadequate to
accommodate all members entitled and wishing to attend, the meeting will
be duly constituted and its proceedings valid if the chairman is
satisfied that adequate facilities are available to ensure that a member
who is unable to be accommodated is able:
(i) to participate in the business for which the meeting has been
convened;
(ii) to hear and see all persons present who speak (whether by the use of
microphones, loud-speakers, audio-visual communications equipment or
otherwise), whether in the meeting place or elsewhere; and
(iii) to be heard and seen by all other persons present in the same way.
51. Security
In addition to any measures which the Board may be required to take due
to the location or venue of the meeting, the Board may make any
arrangement and impose any restriction it considers appropriate and
reasonable in the circumstances to ensure the security of a meeting
including, without limitation, the searching of any person attending the
meeting and the imposing of restrictions on the items of personal
property that may be taken into the meeting place. The Board may refuse
entry to a meeting to a person who refuses to comply with any such
arrangements or restrictions.
52. Power to adjourn
(A) The chairman of the meeting may, with the consent of any meeting at which
a quorum is present, and shall, if so directed by the meeting, adjourn
the meeting from time to time (or indefinitely) and from place to place.
(B) Without prejudice to any other power of adjournment which the chairman of
the meeting may have under these Articles, at common law or otherwise,
the chairman may, without the consent of the meeting, adjourn the meeting
from time to time (or indefinitely) and from place to place if he decides
that it is necessary or appropriate to do so in order to:
(i) secure the proper and orderly conduct of the meeting; or
(ii) give all persons entitled to do so a reasonable opportunity of speaking
and voting at the meeting; or
(iii) ensure that the business of the meeting is properly concluded or disposed
of.
53. Notice of adjourned meeting
Whenever a meeting is adjourned for 30 days or more or indefinitely, at
least seven clear days' notice, specifying the place, the day and time of
the adjourned meeting and the general nature of the business to be
transacted, shall be given in the same manner as in the case of an
original meeting. Except in these circumstances, no member shall be
entitled to any notice of an adjournment or of the business to be
transacted at any adjourned meeting .
54. Business of adjourned meeting
No business shall be transacted at any adjourned meeting other than the
business which might properly have been transacted at the meeting from
which the adjournment took place.
VOTING
55. Voting at a general meeting
(A) At a general meeting a resolution put to the vote of the meeting shall be
decided on a show of hands unless before, or on the
declaration of the result of, the show of hands a poll is demanded by
either:
(i) the chairman of the meeting;
(ii) at least five members having the right to vote at the meeting;
(iii) a member or members representing not less than one-tenth of the total
voting rights of all the members having the right to vote at the meeting;
or
(iv) a member or members holding shares conferring a right to vote on the
resolution on which an aggregate sum has been paid up equal to not less
than one-tenth of the total sum paid up on all the shares conferring that
right.
(B) Unless a poll is so demanded and the demand is not withdrawn, a
declaration by the chairman of the meeting that a resolution has been
carried, or carried unanimously, or by a particular majority, or lost, or
not carried by a particular majority, and an entry to that effect in the
minutes of the meeting, shall be conclusive evidence of the fact without
proof of the number or proportion of the votes recorded in favour of or
against such resolution.
(C) A demand for a poll may be withdrawn before the poll is taken, but only
with the consent of the chairman of the meeting. A demand so withdrawn
shall validate the result of a show of hands declared before the demand
was made.
56. Poll procedure
(A) Any poll duly demanded on the election of a chairman of a meeting or on
any question of adjournment shall be taken forthwith. A poll duly
demanded on any other matter shall be taken in such manner and at such
time and place, not being more than thirty days from the date of the
meeting or adjourned meeting at which the poll was demanded, as the
chairman shall direct. The chairman may appoint scrutineers who need not
be members. No notice need be given of a poll not taken immediately if
the time and place at which it is to be taken are announced at the
meeting at which it is demanded. In any other case at least seven clear
days' notice shall be given specifying the time and place at which the
poll is to be taken. The result of the poll shall be deemed to be the
resolution of the meeting at which the poll was demanded.
(B) The demand for a poll (other than on the election of a chairman or any
question of adjournment) shall not prevent the continuance of the meeting
for the transaction of any business other than the question on which a
poll has been demanded. If a poll is demanded before the declaration of
the result on a show of hands and the demand is duly withdrawn, the
meeting shall continue as if the demand had not been made.
(C) On a poll votes may be given in person or by proxy. A member entitled to
more than one vote need not, if he votes, use all his votes or cast all
the votes he uses in the same way.
57. Votes of members
(A) Subject to any rights or restrictions attaching to any shares:
(i) on a show of hands every member who (being an individual) is present in
person or (being a corporation) is present by a duly authorised
representative who is not himself a member entitled to vote shall have
one vote; and
(ii) on a poll every member shall have one vote for every share of which he is
the holder.
(B) In the case of joint holders, the vote of the senior who tenders a vote
shall be accepted to the exclusion of the votes of the other joint
holders. Seniority shall be determined by the order in which the names of
the holders stand in the Register of Members in respect of the joint
holding.
(C) A member in respect of whom an order has been made by any court or
official having jurisdiction (whether in the United Kingdom or elsewhere)
in matters concerning mental disorder or incapacity may vote, on a show
of hands or on a poll, by his guardian or other person duly authorised to
act on his behalf, who may vote on a poll by proxy. Evidence to the
satisfaction of the Board of the authority of the person claiming the
right to vote shall be deposited at the Registered Office, or at such
other place as is specified in accordance with these Articles for the
deposit of instruments of proxy, not less than 48 hours before the time
appointed for holding the meeting or adjourned meeting at which the right
to vote is to be exercised, and in default the right to vote shall not be
exercisable.
58. Chairman's casting vote
In the case of an equality of votes, either on a show of hands or on a
poll, the chairman of the meeting shall be entitled to a further or
casting vote in addition to any other vote he may have or be entitled to
exercise.
59. Voting restrictions on an outstanding call
No member shall have the right (unless the Board otherwise decides) to
attend or vote at any general meeting or at any separate meeting of the
holders of any class of shares, either in person or by representative or
proxy, or to exercise any other right in respect of any share held by him
unless all amounts presently payable by him to the Company in respect of
such share (including any costs, interest or expenses) have been paid.
PROXIES
60. Proxy instrument
(A) An instrument appointing a proxy shall be in writing in any usual form or
in any other form which the Board may approve and shall be executed by or
on behalf of the appointor. A corporation may execute a form of proxy
either under its common seal or under the hand of a duly authorised
officer. A member may appoint more than one proxy to attend on the same
occasion, but only one proxy may be appointed in respect of any one
share. Deposit of an instrument of proxy shall not preclude a member from
attending and voting at the meeting or at any adjournment of it.
(B) The instrument appointing a proxy and any authority under which it is
executed or a copy of the authority certified notarially or in some other
way approved by the Board may:
(i) be deposited at the Registered Office or at such other place in the
United Kingdom as is specified in the notice convening the meeting, or in
any instrument of proxy sent out by the Company in relation to the
meeting, not less than 48 hours before the time for holding the meeting
or adjourned meeting at which the person named in the instrument proposes
to vote; or
(ii) in the case of a poll taken more than 48 hours after it was demanded, be
deposited at the place referred to in paragraph B(i) of this Article
after the poll has been demanded and not less than 24 hours before the
time appointed for taking the poll; or
(iii) where the poll is not taken forthwith but is taken not more than 48 hours
after it was demanded, be delivered at the meeting to the chairman of the
meeting or to the Secretary or to any Director,
and an instrument of proxy which is not deposited or delivered in a
manner so permitted shall be invalid. An instrument appointing a proxy
will not be valid after twelve months from the date of its execution,
except at an adjourned meeting or on a poll demanded at a meeting or an
adjourned meeting in cases where the meeting was originally held within
twelve months from such date.
(C) When two or more valid but differing instruments of proxy are delivered
in respect of the same share for use at the same meeting and in respect
of the same matter, the one which is last validly delivered (regardless
of its date or of the date of its execution) shall be treated as
replacing and revoking the other or others as regards that share. If the
Company is unable to determine which instrument was last validly
delivered, none of them shall be treated as valid in respect of that
share.
(D) An instrument appointing a proxy shall be deemed (unless the contrary is
stated in it) to confer authority to demand or join in demanding a poll
and to vote on a resolution or amendment of a resolution put to, or other
business which may properly come before, the meeting or meetings for
which it is given or any adjournment of any such meeting, as the proxy
thinks fit. Such instrument shall not confer any further right to speak
at the meeting, except with the permission of the chairman of the
meeting.
(E) The Board may at the expense of the Company send instruments of
proxy to the members by post or otherwise (with or without provision
for their return pre-paid) for use at any general meeting or at any
separate meeting of the holders of any class of shares, either in
blank or nominating as proxy in the alternative any one or more of
the Directors or any other person. If for the purpose of any meeting
invitations to appoint as proxy a person or one of a number of
persons specified in the invitations are issued at the Company's
expense, they shall be issued to all (and not to some only) of the
members entitled to be sent notice of the meeting and to vote at it.
The accidental omission to send such an instrument or to give such
an invitation to, or the non-receipt of such instrument by, any
member entitled to attend and vote at a meeting shall not invalidate
the proceedings at that meeting.
61. Termination of proxy or corporate authority
A vote given or poll demanded by proxy or by the duly authorised
representative of a corporation shall be valid notwithstanding the
previous termination of the authority of the person voting or demanding a
poll, unless notice of the termination was received by the Company at the
Registered Office, or at such other place at which the instrument of
proxy was duly deposited, at least one hour before the commencement of
the meeting or adjourned meeting at which the vote is given or the poll
demanded or (in the case of a poll not taken on the same day as the
meeting or adjourned meeting) the time appointed for taking the poll.
62. Corporate representatives
A corporation which is a member may, by resolution of its directors or
other governing body, authorise such person as it thinks fit to act as
its representative at any meeting of the Company or at any separate
meeting of the holders of any class of shares. Any person so authorised
shall be entitled to exercise the same powers on behalf of the
corporation (in respect of that part of the corporation's holdings to
which the authority relates) as the corporation could exercise if it were
an individual member. The corporation shall for the purposes of these
Articles be deemed to be present in person at any such meeting if a
person so authorised is present at it. All references in these Articles
to attendance and voting in person shall be construed accordingly. A
Director, the Secretary or some other person authorised for the purpose
by the Secretary may require the representative to produce a certified
copy of the resolution so authorising him or such other evidence of his
authority reasonably satisfactory to such person before permitting
him to exercise his powers.
63. Amendment to resolutions
(A) If an amendment shall be proposed to any resolution but shall in good
faith be ruled out of order by the chairman of the meeting, any error in
such ruling shall not invalidate the proceedings on the substantive
resolution.
(B) In the case of a resolution duly proposed as a special or
extraordinary resolution, no amendment to it (other than an
amendment to correct a patent error) may be considered or voted on
and in the case of a resolution duly proposed as an ordinary
resolution no amendment to it (other than an amendment to correct a
patent error) may be considered or voted on unless either at least
48 hours prior to the time appointed for holding the meeting or
adjourned meeting at which such ordinary resolution is to be
proposed notice in writing of the terms of the amendment and
intention to move it has been lodged at the Registered Office or the
chairman of the meeting in his absolute discretion decides that it
may be considered or voted on.
64. Objection to error in voting
No objection shall be raised to the qualification of any voter or to the
counting of, or failure to count, any vote, except at the meeting or
adjourned meeting at which the vote objected to is given or tendered or
at which the error occurs. Any such objection or error shall be referred
to the chairman of the meeting and will only invalidate the result of the
voting if, in the chairman's opinion, it is of sufficient magnitude to
affect the decision of the meeting. The chairman's decision on such
matters shall be final and binding on all concerned.
FAILURE TO DISCLOSE INTERESTS IN SHARES
65. Failure to disclose interests in shares
(A) For the purpose of this Article:
(i) "EXEMPT TRANSFER" means, in relation to shares held by a member:
(a) a transfer pursuant to acceptance of a takeover offer (as defined in
section 428 of the Act) for the Company or in relation to any of its
shares;
(b) a transfer in consequence of a sale made through the London Stock
Exchange or any stock exchange selected by the Company outside the United
Kingdom on which any shares are normally traded; or
(c) a transfer which is shown to the satisfaction of the Board to be made in
consequence of a sale in good faith of the whole of the beneficial
interest in the shares to a person who is unconnected with the member and
with any other person appearing to be interested in the shares;
(ii) "INTERESTED" is construed as it is for the purpose of section 212 of
the Act;
(iii) a person, other than the member holding a share, shall be treated as
appearing to be interested in such share if the member has informed the
Company that the person is or may be so interested, or if the Company
(after taking account of information obtained from the member or,
pursuant to a section 212 notice, from anyone else) knows or has
reasonable cause to believe that the person is or may be so interested;
(iv) reference to a person having failed to give to the Company information
required by a section 212 notice, or being in default of supplying such
information, includes references to his having:
(a) failed or refused to give all or any part of such information; and
(b) given information which he knows to be false in a material particular or
recklessly given information which is false in a material particular; and
(v) "TRANSFER" means a transfer of a share or (where applicable) a
renunciation of a renounceable letter of allotment or other renounceable
document of title relating to a share.
(B) Where notice is given by the Company under section 212 of the Act (a
"SECTION 212 NOTICE") to a member or another person appearing to be
interested in shares held by such member (the "DEFAULT
SHAREHOLDER"), and the Default Shareholder has failed in relation to
any shares ("DEFAULT SHARES"), which expression applies also to any
shares issued after the date of the section 212 notice in respect of
those shares and to any other shares registered in the name of the
Default Shareholder at any time whilst the default subsists) to give
the Company the information required within 14 days after the date
of the section 212 notice, unless the Board otherwise decides:
(i) the Default Shareholder is not entitled in respect of the Default Shares
to be present or to vote (either in person or by proxy) at a general
meeting or at a separate meeting of the holders of a class of shares or
on a poll, or to exercise other rights conferred by membership in
relation to the meeting or poll; and
(ii) where the Default Shares represent at least 0.25 per cent. in
nominal value of the issued shares of their class:
(a) a dividend (or any part of a dividend) payable in respect of the Default
Shares (except on a winding up of the Company) may be withheld by the
Company, which shall have no obligation to pay interest on such dividend;
(b) the Default Shareholder shall not be entitled to elect, pursuant to
Article 128 (scrip dividends) or otherwise, to receive shares instead of
a dividend; and
(c) the Board may, in its absolute discretion, refuse to register the
transfer of any Default Shares (subject, in the case of any
uncertificated shares, to the Uncertificated Securities Regulations)
unless:
(1) the transfer is an Exempt Transfer; or
(2) the Default Shareholder is not himself in default in supplying
the information required and proves to the satisfaction of the
Board that no person in default of supplying the information
required is interested in any of the shares which are the
subject of the transfer.
(C) The sanctions under paragraph (B) of this Article shall cease to apply
seven days after the earlier of:
(i) receipt by the Company of notice of an Exempt Transfer, but only in
relation to the shares transferred; and
(ii) receipt by the Company, in a form satisfactory to the Board, of all the
information required by the section 212 notice.
(D) The Board may:
(i) give notice in writing to any Default Shareholder holding Default Shares
in uncertificated form requiring the Default Shareholder:
(a) to change his holding of such shares from uncertificated form into
certificated form within an specified period; and
(b) then to hold such Default Shares in certificated form for so long as
the default subsists; and
(ii) appoint any person to take any steps, by instruction by means of an
Uncertificated System or otherwise, in the name of any holder of Default
Shares as may be required to change such shares from uncertificated form
into certificated form (and such steps shall be effective as if they had
been taken by such holder).
(E) When the Company serves a section 212 notice on an Approved Depository as
a shareholder, the Approved Depository need only disclose the information
relating to the Default Shares which has been recorded:
(i) in the case of the ADR Depository, under any agreement between
the ADR Depository and the Company; or
(ii) in any other cases, under the arrangements entered into by the
Company or approved by the Board, under which the Approved
Depositary was appointed; and
the sanctions under paragraph (B) of this Article will not take effect
unless and until the Approved Depositary has been given a notice naming
any person (other than the Approved Depositary) who has or appears to
have an interest in a particular number of the Default Shares.
This paragraph (E) does not limit the powers of the Board under paragraph
(B) of this Article in any other way.
(F) (i) Where a person has received a section 212 notice and the shares
in which he appears to be interested are represented by an
American Depositary Receipt, he will be treated as having an
interest in the number of American Depositary Shares which are
represented by that receipt. If there are no other reasons, he
will not be treated as being interested in the rest of the
American Depositary Shares in the Company held by the ADR
Depositary.
(ii) In any other case where any person (but not an Approved Depositary)
has received a section 212 notice and the shares in which he appears
to be interested are held by an Approved Depositary, this paragraph
(F) will be treated as only applying to those shares in which he
appears to be interested. It will not apply to any other shares held
by the Approved Depositary.
(G) If a person described in paragraph (F) of this Article fails to comply
with a section 212 notice, the Approved Depositary will only be subject
to the sanctions in paragraph (B) for the number of shares in which such
person is treated as having an interest under paragraph (F).
(H) The provisions of this Article are in addition and without prejudice to
the provisions of the Act.
APPOINTMENT, RETIREMENT AND REMOVAL OF DIRECTORS
66. Number of Directors
Unless and until otherwise determined by the Company by ordinary
resolution, the number of Directors shall be not less than three and not
more than twenty.
67. No share qualification
A Director need not hold any shares.
68. Company's power to appoint Directors
(A) Subject to these Articles, the Company may by ordinary resolution appoint
a person who is willing to act to be a Director, either to
fill a vacancy or as an addition to the existing Directors, subject to
the total number of Directors not exceeding any maximum number fixed in
accordance with these Articles.
(B) A resolution for the appointment of two or more persons as Directors by a
single resolution at a general meeting shall be void unless an ordinary
resolution that the resolution for appointment be proposed in such way
has first been agreed to by the meeting without any vote being given
against it.
69. Board's power to appoint Directors
Without prejudice to the Company's power to appoint a person to be a
Director pursuant to these Articles, the Board shall have power at any
time to appoint any person who is willing to act as a Director, either to
fill a vacancy or as an addition to the existing Board, subject to the
total number of Directors not exceeding any maximum number fixed in
accordance with these Articles. Any Director so appointed shall, if still
a Director, retire at the next annual general meeting after his
appointment and be eligible to stand for election as a Director at such
meeting. Such person shall not be taken into account in determining the
number or identity of Directors who are to retire by rotation at such
meeting.
70. Appointment of executive Directors
Subject to the Act, the Board may appoint one or more Director to hold
employment or executive office with the Company for such term (subject to
the Act) and on any other conditions the Board thinks fit. The Board may
revoke, terminate or vary the terms of any such appointment, without
prejudice to a claim for damages for breach of contract between the
Director and the Company.
71. Eligibility of new Directors
No person, other than a Director retiring (by rotation or otherwise),
shall be appointed or re-appointed a Director at any general meeting
unless:
(i) he is recommended for appointment by the Board; or
(ii) not less than seven nor more than 42 days (inclusive of the date on which
the notice is given) before the date appointed for the meeting, a notice
executed by a member (other than the person to be proposed) qualified to
vote at the meeting has been given to the Company at the Registered
Office of the intention to propose such person for appointment or
re-appointment, stating the particulars which would, if he were so
appointed or re-appointed, be required to be included in the Company's
register of directors, accompanied by a notice executed by that person of
his willingness to be appointed or re-appointed.
72. Rotational retirement at annual general meeting
(A) At each annual general meeting one-third of the Directors who are subject
to retirement by rotation or, if their number is not three nor a multiple
of three, the number nearest to but not exceeding one-third, shall retire
from office. If there are fewer than three Directors who are subject to
retirement by rotation, one Director shall retire from office.
(B) Subject to the Act and these Articles, the Directors to retire by
rotation at each annual general meeting shall be, so far as
necessary to obtain the number required, first, any Director who
wishes to retire and not offer himself for re-election and secondly,
those Directors who have been longest in office since their last
appointment or re-appointment. As between two or more Directors who
have been in office an equal length of time, the Director to retire
shall, in default of agreement between them, be determined by lot.
The Directors to retire on each occasion (both as to number and
identity) shall be determined by the composition of the Board at the
start of business seven days before the date of the notice convening
the annual general meeting notwithstanding any change in the number
or identity of the Directors after that time but before the close of
the meeting.
73. Position of retiring Director
(A) A Director who retires at an annual general meeting (whether by rotation
or otherwise) may, if willing to act, be re-appointed. If he is not
re-appointed or deemed to have been re-appointed, he shall retain office
until the meeting appoints someone in his place or, if it does not do so,
until the end of the meeting.
(B) At any general meeting at which a Director retires by rotation the
Company may fill the vacancy and, if it does not do so, the retiring
Director shall, if willing, be deemed to have been re-appointed unless it
is expressly resolved not to fill the vacancy or a resolution for the
re-appointment of the Director is put to the meeting and lost or such
Director has attained any retiring age applicable to him as Director
pursuant to the Act.
74. No age limit
(A) No person shall be disqualified from being appointed or re-appointed as a
Director and no Director shall be requested to vacate that office by
reason of his attaining the age of seventy or any other age.
(B) It shall not be necessary to give special notice under the Act of any
resolution appointing, re-appointing or approving the appointment of a
Director by reason of his age.
(C) Where a general meeting is convened at which a Director will be proposed
for appointment or re-appointment who, to the knowledge of the Directors,
will be seventy or more at the date of the meeting, the Board shall give
notice of his age in the notice convening the meeting or in any document
sent with it. The accidental omission to give such notice shall not
invalidate any proceedings at the meeting or any appointment or
re-appointment of such Director.
75. Removal by ordinary resolution
In addition to any power of removal under the Act, the Company may:
(i) by ordinary resolution remove any Director before the expiration of his
period of office, but without prejudice to any claim for damages which he
may have for breach of any contract of service between him and the
Company; and
(ii) by ordinary resolution appoint another person who is willing to act to be
a Director in his place (subject to these Articles).
Any person so appointed shall be treated, for the purposes of determining
the time at which he or any other Director is to retire, as if he had
become a Director on the day on which the person in whose place he is
appointed was last appointed or re-appointed a Director.
76. Vacation of Director's office
(A) Without prejudice to the provisions in these Articles for retirement (by
rotation or otherwise) the office of a Director shall be vacated if:
(i) he resigns by notice in writing delivered to the Secretary at the
Registered Office or tendered at a Board meeting;
(ii) holding office as a Director for a fixed term only, such term
expires;
(iii) he ceases to be a Director by virtue of any provision of the Act, is
removed from office pursuant to these Articles or the Act or becomes
prohibited by law from being a Director;
(iv) he becomes bankrupt, has an interim receiving order made against him,
makes any arrangement or compounds with his creditors generally or
applies to the court for an interim order in connection with a voluntary
arrangement under any legislation relating to insolvency;
(v) an order is made by any court of competent jurisdiction on the ground
(however formulated) of mental disorder for his detention or for the
appointment of a guardian or receiver or other person to exercise powers
with respect to his property or affairs or he is admitted to hospital in
pursuance of an application for admission for treatment under any
legislation relating to mental health and the Board resolves that his
office be vacated;
(vi) he is absent, without permission of the Board, from Board meetings for
six consecutive months (whether or not an alternate Director attends in
his place) and the Board resolves that his office be vacated;
(vii) he is removed from office by notice in writing addressed to him at his
address as shown in the Company's register of directors and signed by not
less than three-quarters of all the Directors in number and being at
least three in number (without prejudice to any claim for damages which
he may have for breach of contract against the Company); or
(viii) in the case of a Director who holds executive office, his appointment to
such office is terminated or expires and the Board resolves that his
office be vacated.
(B) A resolution of the Board declaring a Director to have vacated office
pursuant to this Article shall be conclusive as to the fact and grounds
of vacation stated in the resolution.
ALTERNATE DIRECTORS
77. Appointment
A Director (other than an alternate Director) may appoint any other
Director or any person approved for that purpose by the Board and willing
to act, to be his alternate by notice in writing delivered to the
Secretary at the Registered Office, or in any other manner approved by
the Board. No appointment of an alternate Director who is not already a
Director shall be effective until his consent to act as a Director in the
form prescribed by the Act has been received at the Registered Office. An
alternate Director need not hold a share qualification and shall not be
counted in reckoning any maximum or minimum number of Directors allowed
by these Articles.
78. Responsibility
Every person acting as an alternate Director shall be an officer of the
Company, shall alone be responsible to the Company for his own acts and
defaults and shall not be deemed to be the agent of the Director
appointing him.
79. Participation at Board meetings
An alternate Director shall (subject to his giving to the Company an
address within the United Kingdom at which notices may be served on him)
be entitled to receive notice of all meetings of the Board and all
committees of the Board of which his appointor is a member and, in the
absence from such meetings of his appointor, to attend and vote at such
meetings and to exercise all the powers, rights, duties and authorities
of his appointor. A Director acting as alternate Director shall have a
separate vote at Board meetings for each Director for whom he acts as
alternate Director, but he shall count
as only one for the purpose of determining whether a quorum is present.
80. Interests
An alternate Director shall be entitled to contract and be interested in
and benefit from contracts or arrangements with the Company and to be
repaid expenses and to be indemnified in the same way and to the same
extent as a Director. However, he shall not be entitled to receive from
the Company any fees for his services as alternate, except only such part
(if any) of the fee payable to his appointor as such appointor may by
notice in writing to the Company direct. Subject to this Article, the
Company shall pay to an alternate Director such expenses as might
properly have been paid to him if he had been a Director.
81. Termination of appointment
An alternate Director shall cease to be an alternate Director:
(i) if his appointor revokes his appointment by notice delivered to the
Secretary at the Registered Office or in any other manner approved
by the Board; or
(ii) if his appointor ceases for any reason to be a Director, provided that if
any Director retires but is re-appointed or deemed to be re- appointed at
the same meeting, any valid appointment of the alternate Director which
was in force immediately before his retirement shall remain in force; or
(iii) if any event happens in relation to him which, if he were a Director,
would cause his office as Director to be vacated.
BOARD POWERS
82. Board powers
Subject to the Act, the Company's memorandum of association and these
Articles and to any directions given by special resolution of the
Company, the business of the Company shall be managed by the Board, which
may exercise all the powers of the Company whether relating to the
management of the business or not. No alteration of the memorandum of
association or of these Articles nor any such direction shall invalidate
any prior act of the Board which would have been valid if such alteration
had not been made or such direction had not been given. The provisions in
these Articles giving specific powers to the Board shall not limit the
general powers given by this Article.
83. Directors below the minimum number
If the number of Directors is less than the minimum prescribed in
accordance with these Articles, the remaining Director or Directors shall
act only for the purposes of appointing an additional Director or
Directors to make up such minimum or of convening a general meeting of
the Company for the purpose of making such appointment. If there are no
Director or Directors able or willing to act, any two members may summon
a general meeting for the purpose of appointing Directors. Any additional
Director so appointed shall hold office (subject to these Articles) only
until the dissolution of the annual general meeting next following such
appointment unless he is re-elected during such meeting.
84. Delegation to executive Directors
The Board may delegate to a Director holding executive office any of its
powers, authorities and discretions for such time and on such terms and
conditions as it shall think fit. The Board may grant to a Director the
power to sub-delegate, and may retain or exclude the right of the Board
to exercise the delegated powers, authorities or
discretions collaterally with the Director. The Board may at any time
revoke the delegation or alter its terms and conditions.
85. Delegation to committees
The Board may delegate any of its powers, authorities and discretions
(including, without limitation, those relating to the payment of monies
or other remuneration to, and the conferring of benefits on, a Director)
for such time and on such terms and conditions as it shall think fit to a
committee consisting of one or more Directors and (if thought fit) one or
more other persons. The Board may grant to the committee the power to
sub-delegate, and may retain or exclude the right of the Board to
exercise the delegated powers, authorities or discretions collaterally
with the committee. The Board may at any time revoke the delegation or
alter its terms and conditions or discharge the committee in whole or in
part. Where a provision of the Articles refers to the exercise of a
power, authority or discretion by the Board and that power, authority or
discretion has been delegated by the Board to a committee, the provision
shall be construed as permitting the exercise of the power, authority or
discretion by the committee.
86. Local management
The Board may establish local or divisional boards, agencies or branch
offices for managing the affairs of the Company in a specified locality,
either in the United Kingdom or elsewhere, and may appoint persons to be
members of a local or divisional board, agency or branch office and may
fix their remuneration. The Board may delegate to a local or divisional
board, agency or branch office any of its powers, authorities and
discretions for such time and on such terms and conditions as it thinks
fit. The Board may grant to such local or divisional board, agency or
branch office the power to sub-delegate, may retain or exclude the right
of the Board to exercise the delegated powers, authorities or discretions
collaterally with the local or divisional board, agency or branch office
and may authorise the members of a local or divisional board, agency or
branch (or any of them) to fill a vacancy or to act despite a vacancy.
The Board may at any time revoke or alter the terms and conditions of the
appointment or delegation. Subject to the terms and conditions imposed by
the Board, the proceedings of a local or divisional board, agency or
branch office with two or more members are governed by those Articles
that regulate the proceedings of the Board, so far as applicable.
87. Delegation to agents
The Board may, by power of attorney or otherwise, appoint a person to be
the agent of the Company and may delegate to such person any of its
powers, authorities and discretions for such purposes, for such time and
on such terms and conditions (including as to remuneration) as it thinks
fit. The Board may grant the power to sub-delegate and may retain or
exclude the right of the Board to exercise the delegated powers,
authorities or discretions collaterally with the agent. The Board may at
any time revoke or alter the terms and conditions of the appointment or
delegation.
88. Exercise of voting power
The Board may exercise or cause to be exercised the voting power
conferred by shares in any other company held or owned by the Company, or
any power of appointment to be exercised by the Company, in any manner it
thinks fit (including the exercise of the voting power or power of
appointment in favour of the appointment of any Director as a director or
other officer or employee of such company or in favour of the payment of
remuneration to the directors, officers or employees of such company).
89. Provision for employees
The Board may exercise any power conferred on the Company by the Act
to make provision for the benefit of persons employed or formerly
employed by any Group Undertaking (or any member of his family or any
person who is dependent on him) in connection with the cessation or the
transfer to any person of the whole or part of the undertaking of such
Group Undertaking.
90. Overseas registers
Subject to the Act and the Uncertificated Securities Regulations, the
Board may exercise the powers conferred on the Company with regard to the
keeping of an overseas branch, local or other register in relation to
members and may make and vary such regulations as it thinks fit
concerning the keeping of any such register.
91. Associate directors
The Board may appoint any person (not being a Director) to any office or
employment having a designation or title including the word "director" or
attach to any existing office or employment with the Company such
designation or title and may terminate any such appointment or the use of
such designation or title. The inclusion of the word "director" in the
designation or title of any such office or employment shall not imply
that such person is, or is deemed to be, or is empowered in any respect
to act as, a Director for any of the purposes of the Act or these
Articles.
92. Borrowing powers
(A) Subject to this Article, the Board may exercise all the powers of the
Company to borrow money and to mortgage or charge all or part of the
undertaking, property and assets (present or future) and uncalled capital
of the Company and, subject to the Act, to create and issue debentures
and other securities, whether outright or as collateral security for a
debt, liability or obligation of the Company or of a third party.
(B) The Board shall restrict the borrowings of the Company and shall
exercise all voting and other rights or powers of control
exercisable by the Company in relation to its subsidiary
undertakings so as to ensure (as regards subsidiary undertakings, to
the extent possible by such exercise) that the aggregate principal
amount outstanding in respect of Monies Borrowed by Group
Undertakings does not at any time, without the previous sanction of
an ordinary resolution, exceed a sum equal to the higher of (i)
pound sterling250,000,000, (ii) 400,000,000 United States dollars
and (iii) three times the Adjusted Capital and Reserves.
(C) In this Article:
(i) "ADJUSTED CAPITAL AND RESERVES" means a sum equal to the aggregate
of:
(a) the amount paid up on the Company's share capital; and
(b) the amount standing to the credit or debit of the Group's consolidated
reserves (including any share premium account, capital redemption reserve
and revaluation reserve),
all as shown in the consolidated balance sheet but after:
(c) making all adjustments which are in the opinion of the Board,
necessary or appropriate to take account of:
(1) a change in the amount paid up on the Company's share capital
or the amount standing to the credit or debit of the Group's
consolidated reserves arising out of the allotment of shares
(for this purpose if a proposed allotment of shares for cash
has been underwritten, those shares shall be deemed to have
been allotted and the amount, including any premium, of the
subscription monies payable in respect of those shares by the
date six months
following allotment shall be deemed to have been paid up to the
extent underwritten on the date on which the issue of those
shares was underwritten or, if the underwriting was
conditional, the date on which it became unconditional); and
(2) other changes in circumstances since the date of the
consolidated balance sheet; and
(d) excluding (so far as not already excluded):
(1) amounts attributable to such issued equity capital of any
subsidiary undertaking as is not attributable, directly or
indirectly, to the Company;
(2) any sum set aside for taxation (other than deferred
taxation);
(e) adding back the amount of goodwill that would have remained on the
consolidated balance sheet (as adjusted) if all goodwill arising on
acquisitions of Group Undertakings since the date of incorporation of the
Company which has been written off against reserves had been carried on
the balance sheet as an asset;
(ii) "MONIES BORROWED" means all monies borrowed by Group Undertakings
including, without limitation:
(a) any amount raised by acceptance under an acceptance credit facility
(other than acceptances relating to the purchase of goods or services in
the ordinary course of trading and outstanding for six months or less);
(b) any amount raised under a note purchase facility;
(c) the amount of any liability in respect of a lease or hire purchase
contract which would, in accordance with generally accepted accounting
standards in the United Kingdom, be treated as a finance or capital
lease; and
(d) any amount raised under another transaction (including, without
limitation, a forward sale or purchase agreement) having the commercial
effect of a borrowing;
but excluding:
(e) borrowings by one Group Undertaking from another;
(f) borrowings for the purpose of, and applied within six months of being
made in, repaying the whole or part of borrowings that constitute Monies
Borrowed, pending their application for such purpose within such period;
and, in calculating Monies Borrowed, there shall be deducted:
(g) an amount equal to the aggregate of:
(1) all cash in hand and cash deposits repayable on demand with any
bank or financial institution (not itself a Group Undertaking);
and
(2) investments which are readily convertible into known amounts of
cash with notice of 48 hours or less,
in each case beneficially owned, directly or indirectly, by a Group
Undertaking and whether denominated in sterling or in a currency
other than sterling; and
(iii) references to a "CONSOLIDATED BALANCE SHEET" or "CONSOLIDATED PROFIT AND
LOSS ACCOUNT" are references the Group's latest published audited
consolidated balance sheet and profit and loss account or, if the Company
has no subsidiary undertakings, the Company's latest
published audited balance sheet and profit and loss account.
(D) To calculate the amount of Monies Borrowed on a particular day,
monies denominated or repayable in a currency other than sterling
shall be converted for the purpose of calculating the sterling
equivalent under sub-paragraphs (i) and (iii) of paragraph (B) of
this Article, and monies denominated or repayable in a currency
other than United States dollars shall be converted for the purpose
of calculating the United States dollar equivalent under
sub-paragraph (ii) of paragraph (B) of this Article, either:
(i) at the rate of exchange specified in a forward purchase contract,
currency option, back-to-back loan, swap or other arrangements taken out
or entered into to reduce the risk associated with fluctuations in rates
of exchange in respect of repayment of those monies (a "HEDGING
AGREEMENT"); or
(ii) if those monies were borrowed on or before the date of the consolidated
balance sheet and repayment of those monies has not been covered by a
hedging agreement, at the more favourable to the Company of:
(a) the rate of exchange used for the conversion of that currency in the
consolidated balance sheet; or
(b) the middle-market rate of exchange quoted by a clearing bank specified by
the Board at the close of business in London on the business day
immediately preceding the day on which the calculation is made; or
(iii) if those monies were borrowed after the date of the consolidated balance
sheet and repayment of those monies has not been covered by a hedging
agreement, at the more favourable to the Company of:
(a) the middle-market rate of exchange quoted by a clearing bank specified by
the Board at the close of business in London on the date of the
consolidated balance sheet; or
(b) the middle-market rate of exchange quoted by a clearing bank specified by
the Board at the close of business in London on the business day
immediately preceding the day on which the calculation is made.
(E) The Auditors' written confirmation for the purpose of this Article
as to the amount of the Adjusted Capital and Reserves or the
aggregate amount of Monies Borrowed shall be conclusive and binding
on all concerned. The Board may act in reliance on a bona fide
estimate of the amount of the Adjusted Capital and Reserves or the
aggregate amount of Monies Borrowed without having requested or
obtained such written confirmation from the Auditors. If in
consequence the limit on Monies Borrowed set out in this Article is
inadvertently exceeded, the amount of Monies Borrowed equal to the
excess may be disregarded for 90 days after the date on which by
reason of a determination of the Auditors or otherwise the Board
became aware that this situation has or may have arisen.
(F) No debt incurred or security given in respect of Monies Borrowed in
excess of the limit imposed by this Article shall be invalid or
ineffectual, except where express notice that the limit has been or will
be exceeded has been given to the leader or recipient of the security at
the time when the debt is incurred or security given. No lender or other
person dealing with the Company shall be concerned to see or enquire
whether such limit is observed.
DIRECTORS' REMUNERATION, EXPENSES AND BENEFITS
93. Fees
The Company shall pay to the Directors (but not alternate Directors) for
their services as Directors such amount of aggregate fees as the
Board decides (not exceeding pound sterling250,000 per annum or such
larger amount as the Company may by ordinary resolution decide). The
aggregate fees shall be divided among the Directors in such proportions
as the Board decides or, if no decision is made, equally. A fee payable
to a Director pursuant to this Article shall be distinct from any salary,
remuneration or other amount payable to him pursuant to other provisions
of these Articles and accrues from day to day.
94. Expenses
A Director may also be paid all travelling, hotel and other expenses
properly incurred by him in connection with his attendance at meetings of
the Board or of committees of the Board or general meetings or separate
meetings of the holders of any class of shares or otherwise in connection
with the discharge of his duties as a Director, including (without
limitation) any professional fees incurred by him (with the approval of
the Board or in accordance with any procedures stipulated by the Board)
in taking independent professional advice in connection with the
discharge of such duties.
95. Remuneration of executive Directors
The salary or remuneration of a Director appointed to hold employment or
executive office in accordance with the Articles may be a fixed sum of
money, or wholly or in part governed by business done or profits made, or
as otherwise decided by the Board, and may be in addition to or instead
of a fee payable to him for his services as Director pursuant to these
Articles.
96. Special remuneration
A Director who, at the request of the Board, goes or resides abroad,
makes a special journey or performs a special service on behalf of or for
the Company (including, without limitation, services as a chairman or
vice-chairman of the Board, services as a member of any Board committee
and services which the Board considers to be outside the scope of the
ordinary duties of a Director) may be paid such reasonable additional
remuneration (whether by way of salary, bonus, commission, percentage of
profits or otherwise) and expenses as the Board may decide.
97. Pensions and other benefits
The Board may exercise all the powers of the Company to provide pensions
or other retirement or superannuation benefits and to provide death or
disability benefits or other allowances or gratuities (by insurance or
otherwise) for a person who is or has at any time been a Director or a
director of a company which is or was a Group Undertaking, a company
which is or was allied to or associated with the Company or with a Group
Undertaking or a predecessor in business of the Company or of a Group
Undertaking (and for any member of his family, including a spouse or
former spouse, or a person who is or was dependent on him). For this
purpose the Board may establish, maintain, subscribe and contribute to
any scheme, trust or fund and pay premiums. The Board may arrange for
this to be done by the Company alone or in conjunction with another
person. A Director or former Director is entitled to receive and retain
for his own benefit any pension or other benefit provided in accordance
with this Article and is not obliged to account for it to the Company.
DIRECTORS' PROCEEDINGS
98. Board meetings
Subject to these Articles, the Board may regulate its proceedings as it
thinks fit.
99. Notice of Board meetings
A Director may, and the Secretary at the request of a Director shall,
call a meeting of the Board. Notice of a Board meeting shall be deemed to
be duly given to a Director if it is given to him personally or by word
of mouth or sent in writing to his last known address within the United
Kingdom or any other address within the United Kingdom given to the
Company by him for such purpose. It shall not be necessary to give notice
of a Board meeting to a Director who is absent from the United Kingdom
unless the Director has notified the Company in writing of an address in
the United Kingdom at which notice of such meetings is to be given to him
when he is absent from the United Kingdom. A Director may waive the
requirement that notice of any Board meeting be given to him, either
prospectively or retrospectively.
100. Quorum
No business shall be transacted at any meeting of the Board unless a
quorum is present. The quorum may be fixed by the Board and unless so
fixed at any other number shall be two. An alternate Director who is not
himself a Director shall, if his appointor is not present, be counted in
the quorum. A duly convened Board meeting at which a quorum is present
shall be competent to exercise any and all of the authorities,
discretions and powers vested in or exercisable by the Board.
101. Board chairman
The Board may appoint any Director to be, and may remove, a chairman and
a vice-chairman of the Board. The chairman or, in his absence, the
vice-chairman, shall preside at all Board meetings. If there is no
chairman or vice-chairman, or if at a Board meeting neither the chairman
nor the vice-chairman is present within five minutes after the time
appointed for the meeting, or if neither of them is willing to act as
chairman, the Directors present may choose any Director present to be
chairman of the meeting.
102. Voting
Questions arising at a meeting shall be decided by a majority of votes.
In the case of an equality of votes, the chairman shall have a second or
casting vote.
103. Telephone participation
A Director or his alternate Director may participate in a meeting of the
Board or a committee of the Board through the medium of conference
telephone or any other form of communication equipment if all persons
participating in the meeting are able to hear and speak to each other
throughout the meeting. A person participating in this way shall be
deemed to be present in person at the meeting and shall be counted in a
quorum and entitled to vote. Subject to the Act, all business transacted
in this way by the Board or a committee of the Board shall be deemed for
the purposes of the Articles to be validly and effectively transacted at
a meeting of the Board or a committee of the Board although fewer than
two Directors are physically present at the same place. The meeting shall
be deemed to take place where the largest group of those participating is
assembled or, if there is no such group, where the chairman of the
meeting then is.
104. Written resolutions
(A) A resolution in writing executed by all the Directors for the time
being entitled to receive notice of a Board meeting and in number
not being less than a quorum, or by all the members of a committee
of the Board for the time being entitled to receive notice of the
meetings of such committee and in number not being less than a
quorum of such committee, shall be as valid and effective for all
purposes as a resolution duly passed at a meeting of the Board (or
committee, as the case may be).
(B) Such a resolution:
(i) may consist of several documents in the same form each executed by one or
more of the Directors or members of the relevant committee, including
executions evidenced by facsimile transmission;
(ii) need not be signed by an alternate Director if it is signed by his
appointor;
(iii) if signed by an alternate Director, need not also be signed by his
appointor; and
(iv) to be effective, need not be signed by a Director who is prohibited by
these Articles from voting on it, or by his alternate.
105. Committee proceedings
Proceedings of committees of the Board shall be conducted in accordance
with regulations prescribed by the Board (if any). Subject to those
regulations, such proceedings shall be conducted in accordance with
applicable provisions of these Articles regulating the proceedings of the
Board. Where the Board resolves to delegate any of its powers,
authorities and discretions to a committee and such resolution states
that the committee shall consist of any one or more unnamed Directors, it
shall not be necessary to give notice of a meeting of such committee to
any Directors other than the Director or Directors who form the
committee.
106. Minutes
(A) The Board shall cause minutes to be made of:
(i) all appointments of officers and committees made by the Board and of
any such officer's remuneration; and
(ii) the names of Directors present at every meeting of the Board, a committee
of the Board, the Company or the holders of any class of shares or
debentures, and all orders, resolutions and proceedings of such meetings.
(B) Any such minutes, if purporting to be signed by the chairman of the
meeting at which the proceedings were held or by the chairman of the next
succeeding meeting or the Secretary, shall be prima facie evidence of the
matters stated in them.
107. Validity of proceedings
All acts done by a meeting of the Board, or of a committee of the Board,
or by a person acting as a Director, alternate Director or a committee
member shall, notwithstanding that it may be discovered afterwards that
there was a defect in the appointment of any person so acting or that any
of them were disqualified from holding office, or had vacated office, or
were not entitled to vote, be as valid as if every such person had been
duly appointed and was qualified and had continued to be a Director,
alternate Director or committee member and entitled to vote.
INTERESTS OF DIRECTORS
108. Permitted interests
(A) Subject to the Act and compliance with the next Article, a Director,
notwithstanding his office:
(i) may enter into or otherwise be interested in any contract, arrangement,
transaction or proposal with the Company or in which the Company is
otherwise interested, either in connection with his tenure of any office
or place of profit or as vendor, purchaser or otherwise;
(ii) may hold any other office or place of profit under the Company (except
that of auditor) in conjunction with the office of Director and may act
by himself or through his firm in a professional capacity for the
Company, and in any such case on such terms as to remuneration and
otherwise as the Board may arrange, either in addition to or in lieu of
any remuneration provided for by any other Article;
(iii) may be a director or other officer of, or employed by, or a party to any
contract, arrangement, transaction or proposal with or otherwise
interested in, any body corporate promoted by the Company or in which the
Company is otherwise interested or as regards which the Company has any
powers of appointment; and
(iv) shall not be liable to account to the Company for any profit,
remuneration or other benefit realised by any such office, employment,
contract, arrangement, transaction or proposal,
and no such contract, arrangement, transaction or proposal shall be
avoided on the grounds of any such interest or benefit.
109. Disclosure of interests to Board
A Director who, to his knowledge, is in any way (directly or indirectly)
interested in any contract or arrangement or any other proposal with the
Company shall declare the nature of his interest at the meeting of the
Board at which the question of entering into the contract, arrangement or
proposal is first considered, if he knows his interest then exists or, in
any other case, at the first meeting of the Board after he knows that he
is or has become so interested. For the purposes of this Article:
(i) a general notice given to the Board by a Director that he is to be
regarded as having an interest (of the nature and extent specified in the
notice) in any contract, arrangement or proposal in which a specified
person or class of persons is interested shall be deemed to be a
sufficient disclosure under this Article in relation to such contract,
arrangement or proposal of the nature and extent so specified; and
(ii) an interest of which a Director has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as his
interest.
110. Interested Director not to vote or count for quorum
A Director shall not vote on, or be counted in the quorum in relation to,
any resolution of the Board or of a committee of the Board concerning any
contract or arrangement or any other proposal to which the Company is or
is to be a party and in which he has an interest which is to his
knowledge a material interest (otherwise than by virtue of his interests
in shares or debentures or other securities of, or otherwise in or
through, the Company), other than a resolution:
(i) relating to the giving of any security, guarantee or indemnity to him in
respect of money lent or obligations incurred by him or by any other
person at the request of or for the benefit of a Group Undertaking;
(ii) relating to the giving of any security, guarantee or indemnity in respect
of a debt or obligation of a Group Undertaking for which he himself has
assumed responsibility in whole or in part under a guarantee or indemnity
or by the giving of security;
(iii) relating to, or in the context of, an offer of securities by a Group
Undertaking in which he is or may be entitled to participate as a holder
of securities or in the underwriting or sub-underwriting of which he is
to participate;
(iv) relating to another company in which he does not have to his
knowledge an interest in shares (as that term is used in sections 198 to
211 of the Act) representing one per cent. or more of either any class of
the equity share capital, or the voting rights in, such company;
(v) relating to an arrangement for the benefit of employees of any Group
Undertaking which does not award him any privilege or benefit not
generally awarded to the employees to whom such arrangement relates; or
(vi) concerning insurance which the Company proposes to maintain or purchase
for the benefit of Directors or for the benefit of persons including
Directors.
111. Director's interest in own appointment
A Director shall not vote or be counted in the quorum on any resolution
of the Board or committee of the Board concerning his own appointment
(including fixing or varying or recommending the terms of his appointment
or its termination) as a holder of any office or place of profit with the
Company or any company in which the Company is interested. Where
proposals are under consideration concerning the appointment (including
fixing or varying or recommending the terms of appointment or the
termination thereof) of two or more Directors to offices or places of
profits with the Company or any company in which the Company is
interested, such proposals may be divided and a separate resolution
considered in relation to each Director. In such case each of the
Directors concerned (if not debarred from voting under these Articles)
shall be entitled to vote (and be counted in the quorum) in respect of
each resolution except that concerning his own appointment.
112. Conclusive rulings on Directors' interests
(A) If any question arises at any meeting as to the materiality of the
interest of a Director (other than the chairman of the meeting) or
as to the entitlement of any Director (other than the chairman) to
vote or be counted in the quorum and such question is not resolved
by his voluntarily agreeing to abstain from voting or being counted
in the quorum, such question shall be referred to the chairman of
the meeting. The chairman's ruling in relation to such Director
shall be conclusive and binding on all concerned.
(B) If any question arises at any meeting as to the materiality of the
interest of the chairman of the meeting or as to his entitlement to
vote or be counted in the quorum and such question is not resolved
by his voluntarily agreeing to abstain from voting or being counted
in the quorum, such question shall be decided by a resolution of the
Directors or committee members present at the meeting (excluding the
chairman), whose majority vote shall be conclusive and binding on
all concerned.
113. Connected persons
For the purposes of the provisions of these Articles concerning a
Director's interests in relation to the Company, the interest of a person
who is for the purposes of the Act connected (within the meaning of
section 346 of the Act) with a Director shall be (if known by the
Director to be an interest of any such connected person) treated as the
interest of the Director and, in relation to an alternate Director, the
interest of his appointor shall be treated as the interest of the
alternate Director in addition to an interest which the alternate
Director otherwise has. This Article applies to an alternate Director as
if he were a Director.
114. Suspension or relaxation of provisions concerning Directors'
interests
Subject to the Act, the Company may by ordinary resolution suspend, vary
or relax any provision in these Articles concerning a Director's
interests in relation to the Company, either generally or
in respect of any particular matter, or ratify any contract, arrangement
or other proposal not authorised by reason of a contravention of any such
provision.
SECRETARY
115. Secretary
(A) Subject to the Act, the Board shall appoint a Secretary and may appoint
one or more persons to be a joint, deputy or assistant Secretary on such
terms and conditions as it thinks fit. The Board may remove a person
appointed pursuant to this Article from office and appoint another or
others in his place.
(B) Any provision of the Act or of these Articles requiring or authorising a
thing to be done by or to a Director and the Secretary shall not be
satisfied by its being done by or to the same person acting both as a
Director and as, or in the place of, the Secretary.
SEALS AND DOCUMENT AUTHENTICATION
116. Application of Seal
(A) Any Seal may be used only by the authority of the Board or of a committee
of the Board. The Board may decide who is to sign an instrument to which
the Seal is to be affixed either generally or in relation to a particular
instrument or type of instrument. The Board may decide, either generally
or in a particular case, that a signature may be dispensed with or
affixed by mechanical means. Unless otherwise decided by the Board:
(i) share certificates and certificates issued in respect of debentures or
other securities (subject to the provisions of the relevant instrument)
need not be signed or, if signed, a signature may be applied by
mechanical or other means or may be printed; and
(ii) every other instrument to which the Seal is affixed shall be signed by
one Director and by the Secretary or a second Director.
(B) Every share certificate or share warrant shall be issued either under the
Seal (which may be affixed to it or printed on by mechanical or other
means) or in such other manner as the Board, having regard to the terms
of issue, the Act and the regulations of the London Stock Exchange, may
authorise. All references in these Articles to the Seal shall be
construed in relation to share certificates and share warrants
accordingly.
117. Official seal for use abroad
The Company may exercise the powers conferred by the Act with regard to
having an official seal for use abroad, and those powers shall be vested
in the Board.
118. Directors or Secretary to authenticate or certify
A Director or the Secretary or any person appointed by the Board for the
purpose may authenticate any documents affecting the constitution of the
Company (including the memorandum of association and these Articles) and
any resolutions passed by the Company or holders of a class of shares or
the Board or any committee of the Board and any books, records, documents
and accounts relating to the business of the Company, and may certify
copies of or extracts from any such items as true copies or extracts.
DIVIDENDS AND OTHER PAYMENTS
119. Declaration
Subject to the Act and these Articles, the Company may by ordinary
resolution declare a dividend to be paid to members according to their
respective rights and interests in the profits of the Company. No such
dividend shall exceed the amount recommended by the Board.
120. Interim dividends
Subject to the Act, the Board may pay such interim dividends (including
any dividend payable at a fixed rate) as appears to the Board to be
justified by the profits of the Company available for distribution. If at
any time the share capital is divided into different classes, the Board
may pay such interim dividends on shares which rank after shares
conferring preferential rights with regard to dividend as well as on
shares conferring preferential rights, unless at the time of payment any
preferential dividend is in arrear. If the Board acts in good faith, it
shall not incur any liability to the holders of shares conferring
preferential rights for any loss that they may suffer by the lawful
payment of an interim dividend on any shares ranking after those with
preferential rights.
121. Entitlement to dividends
Except as otherwise provided by these Articles or the rights attached to
shares:
(i) a dividend shall be declared and paid according to the amounts paid up
(otherwise than in advance of calls) on the nominal value of the shares
on which the dividend is paid;
(ii) dividends shall be apportioned and paid proportionately to the amounts
paid up on the nominal value of the shares during any portion or portions
of the period in respect of which the dividend is paid, but if any share
is issued on terms that it shall rank for dividend as from a particular
date, it shall rank for dividend accordingly; and
(iii) a dividend may be paid in any currency decided by the Board.
122. Payment methods
(A) The Company may pay a dividend, interest or other amount payable in
respect of a share in cash or by cheque, warrant or money order or by a
bank or other funds transfer system or (in respect of any uncertificated
share) through the Uncertificated System. Any joint holder or other
person jointly entitled to a share may give an effective receipt for a
dividend, interest or other amount paid in respect of such share.
(B) The Company may send a cheque, warrant or money order by post:
(i) in the case of a sole holder, to his registered address;
(ii) in the case of joint holders, to the registered address of the
person whose name stands first in the Register of Members;
(iii) in the case of a person or persons entitled by transmission to a share,
as if it were a notice given in accordance with Article 139 (notice to
persons entitled by transmission); or
(iv) in any case, to a person and address that the person or persons entitled
to the payment may in writing direct.
(C) Every cheque, warrant or money order shall be sent at the risk of
the person or persons entitled to the payment and shall be made
payable to the order of the person or persons entitled or to such
other person or persons as the person or persons entitled may in
writing direct. The payment of the cheque, warrant or money order
shall be a good discharge to the Company. If payment is made by a
bank or other funds transfer or through the Uncertificated System,
the Company shall not be responsible for amounts lost or delayed in
the course of transfer. If payment is made by or on behalf of the
Company through the Uncertificated System the Company shall not be
responsible for any default in accounting for such payment to the
member or other person entitled to such payment by a bank or other
financial intermediary of which the member or other person is a
customer for settlement purposes in connection with the
Uncertificated System.
(D) The Board may:
(i) lay down procedures for making any payments in respect of
uncertificated shares through the Uncertificated System;
(ii) allow any holder of uncertificated shares to elect to receive or not
to receive any such payment through the Uncertificated System; and
(iii) lay down procedures to enable any such holder to make, vary or revoke any
such election.
(E) The Company may make, or procure the making of, any payment in respect of
a member's uncertificated shares through the Uncertificated System in
accordance with any authority given to the Company to do so (whether in
writing, through the Uncertificated System or otherwise) by or on behalf
of the member in a form satisfactory to the Board. The making of such
payment in accordance with such authority shall be a good discharge to
the Company.
(F) The Board may withhold payment of a dividend (or part of a dividend)
payable to a person entitled by transmission to a share until he has
provided any evidence of his entitlement that the Board may reasonably
require.
123. Deductions
The Board may deduct from any dividend or other amounts payable to any
person in respect of a share all such sums as may be due from him to the
Company on account of calls or otherwise in relation to any shares.
124. Interest
No dividend or other money payable in respect of a share shall bear
interest against the Company, unless otherwise provided by the rights
attached to the share.
125. Unclaimed dividends
All unclaimed dividends or other monies payable by the Company in respect
of a share may be invested or otherwise made use of by the Board for the
benefit of the Company until claimed. The payment of any unclaimed
dividend or other amount payable by the Company in respect of a share
into a separate account shall not constitute the Company a trustee in
respect of it. Any dividend unclaimed after a period of twelve years from
the date the dividend became due for payment shall be forfeited and shall
revert to the Company.
126. Uncashed dividends
If, in respect of a dividend or other amount payable in respect of a
share:
(i) a cheque, warrant or money order is returned undelivered or left
uncashed; or
(ii) a transfer made by a bank or other funds transfer system is not
accepted,
on two consecutive occasions, or one occasion and reasonable enquiries
have failed to establish another address or account of the person
entitled to the payment, the Company shall not be obliged to send or
transfer a dividend or other amount payable in respect of
such share to such person until he notifies the Company of an address or
account to be used for such purpose.
127. Dividends in kind
A general meeting declaring a dividend may, upon the recommendation of
the Board, direct that it shall be satisfied wholly or partly by the
distribution of assets (including, without limitation, paid up shares or
securities of any other company). Where any difficulty arises concerning
such distribution, the Board may settle it as it thinks fit. In
particular (without limitation), the Board may:
(i) issue fractional certificates or ignore fractions;
(ii) fix the value for distribution of any assets, and may determine that cash
shall be paid to any member on the footing of the value so fixed in order
to adjust the rights of members; and
(iii) vest any assets in trustees on trust for the persons entitled to the
dividend.
128. Scrip dividends
(A) The Board may, with the prior authority of an ordinary resolution and
subject to such terms and conditions as the Board may determine, offer
any holders of Ordinary Shares the right to elect to receive Ordinary
Shares, credited as fully paid, instead of cash in respect of the whole
(or some part, to be determined by the Board) of any dividend specified
by the ordinary resolution, subject to the Act and to the provisions of
this Article.
(B) An ordinary resolution under paragraph (A) of this Article may specify a
particular dividend (whether or not declared), or may specify all or any
dividends declared within a specified period, but such period may not end
later than the beginning of the fifth annual general meeting next
following the date of the meeting at which the ordinary resolution is
passed.
(C) The entitlement of each holder of Ordinary Shares to new Ordinary
Shares shall be such that the relevant value of the entitlement
shall be as nearly as possible (without rounding up fractions) equal
to (but not greater than) the cash amount (disregarding any tax
credit) that such holder would have received by way of dividend. For
this purpose, "RELEVANT VALUE" shall be calculated by reference to
the average of the middle market quotations for the Ordinary Shares
on the London Stock Exchange as derived from the London Stock
Exchange Daily Official List for the day on which the Ordinary
Shares are first quoted "ex" the relevant dividend and the four
subsequent dealing days, or in such other manner as may be
determined by or in accordance with the ordinary resolution. A
written confirmation or report by the Auditors as to the amount of
the relevant value in respect of any dividend shall be conclusive
evidence of that amount.
(D) The Board may make any provision it considers appropriate in relation to
an allotment made or to be made pursuant to this Article (whether before
or after the passing or the ordinary resolution referred to in paragraph
(A) of this Article), including (without limitation):
(i) the giving of notice to holders of the right of election offered to
them;
(ii) the provision of forms of election (whether in respect of a
particular dividend or dividends generally);
(iii) determination of the procedure for making and revoking elections;
(iv) the place at which, and the latest time by which, forms of election and
other relevant documents must be lodged in order to be effective;
(v) the disregarding or rounding up or down or carrying forward of fractional
entitlements, in whole or in part, or the accrual of the benefit of
fractional entitlements to the Company (rather than to the holders
concerned); and
(vi) the exclusion from any offer of any holders of Ordinary Shares where the
Board considers that the making of the offer to them would or might
involve the contravention of the laws of any territory or that for any
other reason the offer should not be made to them.
(E) The dividend (or that part of the dividend in respect of which a
right of election has been offered) shall not be payable on Ordinary
Shares in respect of which a valid election has been made ("THE
ELECTED ORDINARY SHARES"). Instead additional Ordinary Shares shall
be allotted to the holders of the elected Ordinary Shares on the
basis of allotment determined under this Article. For such purpose,
the Board may capitalise out of any amount for the time being
standing to the credit of any reserve or fund of the Company
(including any share premium account, capital redemption reserve and
profit and loss account), whether or not available for distribution,
a sum equal to the aggregate nominal amount of the additional
Ordinary Shares to be allotted on that basis and apply it in paying
up in full the appropriate number of unissued Ordinary Shares for
allotment and distribution to the holders of the elected Ordinary
Shares on that basis.
(F) The additional Ordinary Shares when allotted shall rank pari passu in all
respects with the fully paid Ordinary Shares in issue on the record date
for the dividend in respect of which the right of election has been
offered, except that they will not rank for any dividend or other
entitlement which has been declared, paid or made by reference to such
record date.
(G) The Board may:
(i) do all acts and things which it considers necessary or expedient to give
effect to any such capitalisation, and may authorise any person to enter
on behalf of all the members interested into an agreement with the
Company providing for such capitalisation and incidental matters and any
agreement so made shall be binding on all concerned;
(ii) establish and vary a procedure for election mandates in respect of future
rights of election and determine that every duly effected election in
respect of any Ordinary Shares shall be binding on every successor in
title to the holder of such shares; and
(iii) terminate, suspend or amend any offer of the right to elect to receive
Ordinary Shares in lieu of any cash dividend at any time and generally
implement any scheme in relation to any such offer on such terms and
conditions as the Board may from time to time determine and take such
other action as the Board may deem necessary or desirable from time to
time in respect of any such scheme.
129. Reserves
The Board may set aside out of the profits of the Company and carry to
reserve such sums as it thinks fit. Such sums standing to reserve may be
applied, at the Board's discretion, for any purpose to which the profits
of the Company may properly be applied and, pending such application, may
either be employed in the business of the Company or be invested in such
investments as the Board thinks fit. The Board may divide the reserve
into such special funds as it thinks fit and may consolidate into one
fund any special funds or any parts of any special funds into which the
reserve may have been divided as it thinks fit. The Board may also carry
forward any profits without placing them to reserve.
130. Capitalisation of profits and reserves
The Board may, with the authority of an ordinary resolution:
(i) subject to this Article, resolve to capitalise any undivided profits of
the Company not required for paying any preferential dividend (whether or
not available for distribution) or any sum standing to the credit of any
reserve or fund of the Company (including any share premium account,
capital redemption reserve and profit and loss account), whether or not
available for distribution;
(ii) appropriate the sum resolved to be capitalised to the members in
proportion to the nominal amounts of the shares (whether or not fully
paid) held by them respectively which would entitle them to participate
in a distribution of that sum if the shares were fully paid and the sum
were then distributable and were distributed by way of dividend and apply
such sum on their behalf either in or towards paying up the amounts, if
any, unpaid on any shares held by them respectively, or in paying up in
full unissued shares or debentures of the Company of a nominal amount
equal to that sum, and allot the shares or debentures credited as fully
paid to those members or as the Board may direct, in those proportions,
or partly in one way and partly in the other, but so that the share
premium account, the capital redemption reserve, and any profits which
are not available for distribution may, for the purposes of this Article,
only be applied in paying up unissued shares to be allotted to members
credited as fully paid;
(iii) resolve that any shares so allotted to any member in respect of a holding
by him of any partly paid shares shall, so long as such shares remain
partly paid, rank for dividend only to the extent that such partly paid
shares rank for dividend;
(iv) make such provision by the issue of fractional certificates (or by
ignoring fractions or by accruing the benefit thereof to the Company
rather than to the holders concerned) or by payment in cash or otherwise
as the Board may determine in the case of shares or debentures becoming
distributable in fractions;
(v) authorise any person to enter on behalf of all the members concerned into
an agreement with the Company providing for either:
(a) the allotment to them respectively, credited as fully paid, of any
further shares to which they are entitled upon such capitalisation; or
(b) the payment up by the Company on behalf of such holders by the
application thereto of their respective proportions of the reserves or
profits resolved to be capitalised, of the amounts or any part of the
amounts remaining unpaid on their existing shares,
and so that any such agreement shall be binding on all such
members; and
(vi) generally do all acts and things required to give effect to such
resolution.
RECORD DATES
131. Board to fix date
Notwithstanding any other provision of these Articles but without
prejudice to the rights attached to any shares and subject to the Act,
the Company or the Board may fix any date ("THE RECORD DATE") as the date
at the close of business (or such other time as the Board may decide) on
which persons registered as the holders of shares or other securities
shall be entitled to receipt of any dividend, distribution, interest,
allotment, issue, notice, information, document or circular. A record
date may be on or at any time before any date on which such item is paid,
made, given or served or (in the case of any dividend, distribution,
interest, allotment or issue) after any date on which such item is
recommended, resolved, declared or announced.
ACCOUNTS
132. Access to accounting records
No member (other than an officer of the Company) shall have any right of
inspecting any accounting record or other document of the Company unless
he is authorised to do so by statute, by order of the court, by the Board
or by an ordinary resolution.
133. Distribution of annual accounts
(A) In respect of each financial year, a copy of the Company's annual
accounts, Directors' report and Auditors' report on those accounts
shall be sent by post or delivered to every member, every holder of
debentures, and every other person who is entitled to receive
notices of general meetings, in each case not less than 21 clear
days before the date of the meeting at which copies of those
documents are to be laid in accordance with the Act. This Article
does not require copies of such documents to be sent or delivered to
a person who is not entitled to receive notices of general meetings
and of whose address the Company is unaware or to more than one of
the joint holders of shares or debentures.
(B) Where permitted in accordance with the Act, the Company may send a
summary financial statement to any member instead of or in addition to
the documents referred to in paragraph (A) of this Article.
NOTICES
134. Notices to be in writing
Any notice to be given to or by any person pursuant to these Articles
shall be in writing, except that a notice calling a meeting of the Board
need not be in writing.
135. Service on members
(A) A notice or other document may be given by the Company to any member
either personally or by sending it by post in a pre-paid envelope
addressed to such member at his registered address or by leaving it
at that address or by any other means authorised in writing by the
member concerned. Any such notice or document to be given to a
member registered on an overseas branch register may be posted
either from the United Kingdom or in the territory in which such
branch register is maintained.
(B) In the case of joint holders of a share, all notices and documents shall
be given to the person whose name stands first in the Register of Members
in respect of that share. Notice so given shall be sufficient notice to
all the joint holders.
(C) If a member (or, in the case of joint holders, the person first
named in the Register of Members) has a registered address outside
the United Kingdom but has given to the Company an address in the
United Kingdom at which notices may be given to him or has an
address which is registered on an overseas branch register, he shall
be entitled to have notices given to him at that address. Otherwise
no such member (including any such joint holder) shall be entitled
to receive any notice or other document from the Company.
(D) Any notice to be given to a member may be given by reference to the
Register of Members as it stands at any time within the period of 21 days
before the notice is given or (where applicable) any other period in
accordance with the requirements of the London Stock Exchange. No change
in the Register of Members after that time shall invalidate the giving of
such notice.
(E) If on three consecutive occasions notices or other documents have
been sent through the post to any member at his registered address or his
address for the service of notices but have been returned undelivered,
such member shall not be entitled to receive notices or other documents
from the Company until he shall have communicated with the Company and
supplied in writing a new registered address or address within the United
Kingdom for the service of notices.
136. Notices by advertisement
(A) If by reason of the suspension or curtailment of postal services in
the United Kingdom the Company is unable effectively to convene a
general meeting by notices sent through the post, any such meeting
may be convened by notice advertised once in at least one national
newspaper. The Company shall send a copy of the notice to members by
post if at least seven clear days before the meeting the posting of
notices to addresses throughout the United Kingdom again becomes
practicable.
(B) Any notice to be given by the Company to the members or any of them, and
not otherwise provided for by these Articles, shall be sufficiently given
if given by advertisement in at least one national newspaper.
137. Evidence of giving notice
(A) A notice or other document addressed to a member at his registered
address or address for giving notice in the United Kingdom shall be,
if sent by post, deemed to have been given within 24 hours of
posting if pre-paid as first class post and within 48 hours of
posting if pre-paid as second class post. In proving that notice
has been given it shall be sufficient to prove that the envelope
containing the notice or document was properly addressed, pre-paid
and posted.
(B) A notice or document not sent by post but left at a registered address or
address for giving notice in the United Kingdom shall be deemed to be
given on the day it is left.
(C) Any notice given by advertisement in accordance with this Article shall
be deemed to have been served at noon on the day on which the
advertisement first appears.
(D) A member present either in person or by proxy, or in the case of a
corporate member by a duly authorised representative, at any meeting of
the Company or of the holders of any class of shares shall be deemed to
have received due notice of such meeting and, where required, of the
purposes for which it was called.
138. Notice binding on transferees
A person who becomes entitled to a share by transfer, transmission or
otherwise shall be bound by any notice in respect of that share (other
than a notice given by the Company under section 212 of the Act) which,
before his name is entered in the Register of Members, has been given to
the person from whom he derives his title.
139. Notice to persons entitled by transmission
A notice or other document may be given by the Company to a person
entitled by transmission to a share in consequence of the death or
bankruptcy of a member or otherwise by sending or delivering it in any
manner authorised by these Articles for the giving of notice to a member,
addressed to that person by name, or by the title of representative of
the deceased or trustee of the bankrupt or by any similar or equivalent
description, at the address, if any, in the United Kingdom supplied for
that purpose by the person claiming to be so entitled. Until such an
address has been supplied, a notice or other document may be given in any
manner in which it might have been given if the event giving rise to the
transmission had not occurred. The giving of notice in accordance with
this Article shall be sufficient notice to all other persons interested
in the share.
DOCUMENT DESTRUCTION
140. Document destruction
(A) The Company may destroy:
(i) any share certificate or other evidence of title to shares which has been
cancelled at any time after one year from the date of such cancellation;
(ii) any mandate for the payment of dividends or other amounts or any
variation or cancellation of such mandate or any notification of change
of name or address at any time after two years from the date such
mandate, variation, cancellation or notification was recorded by the
Company;
(iii) any instrument or other evidence of transfer of shares or renunciation of
an allotment of shares which has been registered at any time after six
years from the date of registration; and
(iv) any other document on the basis of which an entry in the Register is made
at any time after six years from the date an entry in the Register was
first made in respect of it,
and the Company may destroy any such document earlier than the relevant
date, provided that a permanent record of the document is made (on
microfilm, computer disc or otherwise) which is not destroyed before that
date.
(B) It shall be conclusively presumed in favour of the Company that
every entry in the Register of Members purporting to have been made
on the basis of a document destroyed in accordance with this Article
was duly and properly made, that every instrument of transfer so
destroyed was duly registered, that every share certificate so
destroyed was duly cancelled and that every other document so
destroyed was valid and effective in accordance with the recorded
particulars in the records of the Company, provided that:
(i) this Article shall apply only to the destruction of a document in good
faith and without express notice of any claim (regardless of the parties
to it) to which the document might be relevant;
(ii) nothing in this Article imposes on the Company any liability in respect
of the destruction of any such document otherwise than as provided for in
this Article which would not attach to the Company in the absence of this
Article; and
(iii) references in this Article to the destruction of any document include
references to the disposal of it in any manner.
WINDING UP
141. Division of assets
(A) On a winding up of the Company, the Company's assets available for
distribution shall be divided among the members in proportion to the
nominal amounts of capital paid up or credited as paid up on the shares
held by them, subject to the terms of issue of or rights attached to any
shares.
(B) On a winding up of the Company (whether voluntary, under supervision
or by the Court) the liquidator may, on obtaining any sanction
required by law, divide among the members in kind the whole or any
part of the assets of the Company, whether or not the assets consist
of property of one kind or of different kinds. For this purpose the
liquidator may set the value he deems fair on a class or classes of
property, and may determine on the basis of such valuation and in
accordance with the then existing rights of members how the division
is to be carried out between members or classes of members. The
liquidator may not, however, distribute to a member without his
consent an asset to which there is attached a liability or potential
liability for the owner.
INDEMNITY
142. Right to indemnity
Subject to the Act, but without prejudice to any indemnity to which he
may be otherwise entitled, every Director, alternate Director, Secretary
or other officer of the Company (excluding the Auditor) shall be entitled
to be indemnified out of the assets of the Company against all costs,
charges, losses, damages and liabilities incurred by him in the actual or
purported execution or discharge of his duties or exercise of his powers
or otherwise in relation to such duties, including (without limitation)
any liability incurred in defending any proceedings (whether civil or
criminal) which relate to anything done or omitted or alleged to have
been done or omitted by him as an officer or employee of the Company and
in which judgment is given in his favour or in which he is acquitted or
in connection with any application in which relief is granted to him by
any court of competent jurisdiction or which are otherwise disposed of
without any finding or admission of any material breach of duty on his
part.
143. Power to insure
Subject to the Act, the Board may purchase and maintain insurance at the
expense of the Company for the benefit of any person who is or was at any
time a Director or other officer or employee of any company which is a
Group Undertaking or in which the Company has an interest whether direct
or indirect or who is or was at any time a trustee of any pension fund or
employee benefits trust in which any employee of any such company is or
has been interested indemnifying such person against any liability which
may attach to him or loss or expenditure which he may incur in relation
to anything done or alleged to have been done or omitted to be done as a
Director, officer, employee or trustee.
Exhibit 8.1
List of Subsidiaries
---------------------------------------------------------------------------
Company Name Jurisdiction of Incorporation
---------------------------------------------------------------------------
Bright Station Ventures Ltd England
---------------------------------------------------------------------------
Bright Station Contracts Ltd England
---------------------------------------------------------------------------
KMK DigiTex Co. Ltd Japan
---------------------------------------------------------------------------
OfficeShopper.com Holdings plc England
---------------------------------------------------------------------------
OfficeShopper.com Ltd England
---------------------------------------------------------------------------
Smartlogik Holdings plc England
---------------------------------------------------------------------------
Smartlogik Inc USA
---------------------------------------------------------------------------
Smartlogik Ltd England
---------------------------------------------------------------------------
Sparza Ltd England
---------------------------------------------------------------------------
WebTop.com Holdings plc England
---------------------------------------------------------------------------
WebTop Search Ltd (formerly WebTop.com Ltd) England
---------------------------------------------------------------------------
Exhibit 10.1
ANNUAL REPORT
for the year ended
31 December 2000
[LOGO]
brightstation.
technology born for business
Bright Station plc
CONTENTS
<TABLE>
<S> <C>
1 Chairman's Statement
3 Report of the Chief Executive Officer
4 Operating and Financial Review
8 Corporate Governance and Internal Financial Control
11 Report of the Remuneration Committee
13 Report of the Directors
16 Statement of Directors' Responsibilities
17 Report of the Auditors
19 Consolidated Profit and Loss Account
20 Consolidated Statement of Total Recognised Gains and Losses
21 Consolidated Balance Sheet
22 Company Balance Sheet
23 Consolidated Cash Flow Statement
24 Reconciliation of Net Cash Flow to movement in Net Funds (Debt)
25 Notes to the Financial Statements
64 Five Year Financial Summary
65 Accounting Glossary
66 Notice of Annual General Meeting
68 Shareholder Contacts
70 Information for Investors
</TABLE>
Bright Station plc
CHAIRMAN'S STATEMENT
On 30 April 2001, the Company announced a radical reorganisation of its
operations and capital structure. The reorganised Company will operate as a
focused, "pure play" knowledge management business, under the leadership of
David Jefferies, Stephen Hill and Simon Canham. The Company will be renamed
Smartlogik Group plc and I and the other members of the Bright Station Board
(other than Robert Lomnitz, who will continue to serve as an Executive Director)
will step down. I now am happy to report that as a result of the proposed
Placing and Open Offer, and subject to shareholder approval and completion, the
Company has secured sufficient funding to implement the restructuring and secure
the future of Smartlogik Group plc.
As you will remember, following the disposal of the Information Services
Division ("ISD") to Thomson Corporation in May 2000 and the repayment of its
outstanding indebtedness, the Company was restructured as a technology
infrastructure business. At that time, the strategy of Bright Station was to
utilise the Group's proprietary search, structuring and e-commerce technologies
to build early stage technology businesses. It was intended to supplement Bright
Station's limited internal capital by taking advantage of what the Board then
perceived to be a substantial outside market for investment capital in such
early stage technologies.
During the year, revenues fell short of expectations, and in an effort to drive
revenues, costs were accelerated. This adversely impacted on the Group's cash
position, and in response the Group actively sought additional external
financing. However, the market for outside investment in businesses like those
of the Group moved dramatically away from Bright Station's requirements. It was
not possible to attract outside investment into Bright Station itself, or into
any of its operating subsidiaries. In particular, an advanced initiative to
bring outside capital into WebTop failed in mid-year and an attempt to float
Smartlogik had to be postponed. Other initiatives to secure external funding
similarly failed, despite great effort on the part of the Bright Station
management.
As a result of the increased cash demands of the business and the failure to
secure further external funding the Board was required to adjust its underlying
business models and forecasts several times throughout the year. As a result,
the year 2000 was difficult and disappointing.
On 28 February, the Board confirmed that it would continue to review options to
ensure that additional capital was available for further investment in the
business and to take whatever action was necessary to ensure that the Group
continued to operate within its available cash resources. On 30 April, the Board
announced its conclusion that, given its cash constraints, shareholder value
would be best served by repositioning the Company as a focused, `pure play',
knowledge management business through its Smartlogik subsidiary (incorporating
WebTop) and that it had decided to rationalise immediately the e-commerce
business of the Group by the sale or closure of Sparza and OfficeShopper, and to
reduce corporate overheads. On 31 May, the Board made a preliminary announcement
of its proposed Placing and Open Offer and on 13 June issued a Circular and
Notice of an Extraordinary General Meeting of Shareholders with respect to the
proposed transaction.
Smartlogik (including WebTop)
Smartlogik is a leading provider of search and categorisation solutions,
enabling unstructured information to be presented and accessed with a high
degree of precision and relevance. Smartlogik's principal customers are users
and developers of corporate intranets and portals in the USA and Europe, either
directly or in conjunction with a growing number of strategic partners.
During the year 2000, an experienced senior management team was recruited to
manage the business. That team is led by Stephen Hill, CEO, formerly Managing
Director (Europe) of Inktomi Corporation, and Simon Canham, CFO, formerly FD of
Ridgeway Systems and Software. They are supported by David Jefferies, Chairman,
formerly Chairman of National Grid Group plc, and Jim Bair, Non-executive
Director, Senior Vice President of Strategy Partners International.
The technologies that underpin Smartlogik's product range, Muscat Discovery and
Muscat Structure, are being supplemented with applications and templates geared
to the specific needs of vertical markets. With the incorporation of WebTop into
Smartlogik, Smartlogik has secured a client-based desktop `drag and drop' search
engine tool to include in its product line. These developments are aimed at
ensuring that the Company remains at the forefront of technology in the
knowledge management market.
1
Bright Station plc
CHAIRMAN'S STATEMENT (continued)
Smartlogik has developed a strong and growing client list, including such names
as the BBC, Yell, Virgin Group, the Department of Trade & Industry, NASA and
Thomson Corporation. Smartlogik currently has more than 100 customers.
In addition, during the year and subsequently, Smartlogik has announced
important distribution partnership agreements with Norcontrol, Germinus and
Horizon, and enjoys a technology partnership with Fujitsu.
eCommerce
Following its announced business strategy at the time of the ISD disposal, the
Company invested substantially in the expansion of the Sparza sales and
marketing teams and the development of the Sparza technology, including the
purchase of the boo.com technology. Nevertheless, as the year progressed, it
became clear that the short to medium term industry growth projections regarding
e-commerce would not be met and that retailer spending on infrastructure would
reduce or be delayed. As a result, the financial performance of the eCommerce
division was below expectations which accelerated the need for external funding
and exacerbated the difficulty in securing such funding.
Similarly with OfficeShopper, although a management structure and a customer
base were built during the year, neither could be sustained to profitability
without outside funding, which was not forthcoming in the prevailing market.
Ventures
Towards the end of the year, it became clear that the climate for early stage
technology investment was changing and that there was insufficient cash in the
Company to sustain the Company's strategy for a meaningful Ventures division.
Accordingly, the division reduced in size and at the year end took a provision
of (Pounds)1.2 million against the investments held by the division. Focus then
switched to supporting the Company's existing businesses, particularly
Smartlogik, both operationally and in terms of assisting in the various
fundraising initiatives.
With the benefit of hindsight, it is now clear that in light of the
deteriorating market conditions for early stage technology companies, the Bright
Station model was untimely. Nevertheless, I can assure you that the Board's
judgements were made in good faith, based on the information available to it at
the time.
The efforts of management and staff throughout this difficult period have been
extraordinary. Short staffing in all departments, limited cash resources, and a
constant need to amend the business plan to meet the requirements of a shifting
and deteriorating market, resulted in long hours and heavy pressures upon
management and staff at all levels. For this great effort, I thank each of our
employees and wish them well in the future.
To our shareholders, I thank you for your patience and support. The present
Board has organised a fresh start for the Company under a new management and
Board, with a new focus on a `pure play' knowledge management business, and with
an augmented capital structure. We believe - and I note that we too are
shareholders - that, as restructured, the Company is a company of potential and
that its management, if adequately funded and free from legacy issues associated
with the current Bright Station structure, is capable of delivering value for
shareholders.
/s/ Allen L. Thomas
Allen L. Thomas,
Chairman
13 June 2001
2
Bright Station plc
REPORT OF THE CHIEF EXECUTIVE OFFICER
Dear Shareholder,
2000 was a year of considerable change and development with the sale of the
Information Services Division to Thomson, the simultaneous restructuring as a
technology infrastructure group, and the more recent focus on the `pure play'
knowledge management business.
It has clearly been a challenging year for an investment focused technology
company against the backdrop of the volatile capital markets. However, the
infrastructure developed throughout 2000 has provided Smartlogik with a solid
foundation of technology solutions, international presence and quality
management. The Company is now well placed to take advantage of the multi-
billion dollar knowledge management marketplace.
I have great faith in the Smartlogik management team for delivering shareholder
value and growth over the coming years and therefore feel comfortable, indeed
enthusiastic, in stepping down from my role as CEO to allow the Company to
fulfil its considerable promise in the public arena. As a significant
shareholder myself, I am banking on it.
Yours sincerely,
/s/ Dan Wagner
Dan Wagner
CEO
12 June 2001
3
Bright Station plc
OPERATING AND FINANCIAL REVIEW
Summary
On 4 May 2000, the Company completed the disposal of its Information Services
Division (ISD) to Thomson Corporation for $275 million ((Pounds)176 million) and
raised a further (Pounds)27.9 million through equity subscription. The results
for the year therefore include the operating results of ISD, for the first four
months of the year amounting to revenues of (Pounds)49.1 million and a loss on
disposal of (Pounds)101.7 million. The proceeds from the disposal were used to
repay the Company's indebtedness in its entirety such that no interest has been
payable for the continuing operations after May 2000 and the majority of
interest receivable of (Pounds)762,000 for the year arose after that date.
Following the disposal of ISD, the Company was restructured as a technology
infrastructure business focused on the remaining eCommerce and Web Solutions
Divisions. In addition, the Company established a new investment business,
Bright Station Ventures, to invest in and assist promising Internet and
eCommerce start-ups, leveraging the Company's leading edge technologies,
management experience and capital.
Turnover
Group turnover of (Pounds)57.6 million has fallen significantly compared with
reported turnover in 1999 of (Pounds)174.5 million. The decrease was driven by
the disposal of ISD, which contributed (Pounds)165.1 million in revenues in
1999.
Information Services Division
This division, sold to Thomson on 4 May 2000, represented the core online
information business offered to information professionals and end-users.
Web Solutions Division
This division is the "search and structure" technology division. It owns the
intellectual property rights for the Company's proprietary InfoSort (now renamed
Muscat Discovery) automatic indexing and Muscat probabilistic search
technologies. The focus of the division is to leverage these technology assets
individually or together in the form of various commercial applications such as
its WebTop Internet search engine and Smartlogik's suite of knowledge management
solutions.
Turnover of (Pounds)5.9 million for 2000 shows a 25% decrease against turnover
in 1999 of (Pounds)7.9 million. The main reason for the decrease is that in 1999
the division entered into a strategic partnership with Fujitsu and received
revenue from Fujitsu for a technology licence of (Pounds)4.0 million. Other
revenues in WSD during 2000 arose from the Company's contracts with the British
Broadcasting Corporation (BBC) and Department of Trade and Industry (DTI) as
well as ongoing sales of Smartlogik's suite of knowledge management solutions.
eCommerce division (eCD)
Following on from the Company's acquisition of Write Works Limited in November
1998, the division consists of OfficeShopper, one of the UK's first fully
integrated online providers of over 40,000 office products and Sparza, a
business created to exploit the Group's proprietary e-transaction processing
technologies in order to create an infrastructure solution geared towards the
growing number of e-tailers.
Turnover in 2000 for OfficeShopper and Sparza amounted to (Pounds)1.6 million
(1999: (Pounds)918,000) and (Pounds)852,000 (1999: (Pounds)484,000)
respectively. OfficeShopper was initially limited by the cash constraints under
which the Company was operating with the result that very little cash was made
available for sales and marketing expenditure. Following the disposal of ISD, a
new management team was recruited and OfficeShopper refocused its activities
through the acquisition of Fairway in July 2000, a bricks and mortar office
supplies retailer which was integrated into the OfficeShopper platform by the
year end.
4
Bright Station plc
OPERATING AND FINANCIAL REVIEW (continued)
For Sparza, 2000 was expected to be a fairly modest year in terms of revenue
growth as management focused on consolidating and growing its technical
resources. Sparza generated revenues of (Pounds)852,000 in 2000 (1999:
(Pounds)484,000).
Following the decision by management in April 2001 to refocus the activities of
the Group on WSD, the decision has been taken to curtail the eCommerce division.
The OfficeShopper assets, brand name and customer list were sold and the Sparza
operations are in the process of being closed.
Geographical analysis of turnover
ISD had operations and offices throughout the United States, Europe and Asia.
Following the disposal of ISD to Thomson, substantially all of the Company's
revenues have been generated in the United Kingdom. However, Smartlogik has
invested in the development of its US and European operations and is confident
that these markets will be further developed in 2001.
Cost of sales
Cost of sales decreased from (Pounds)68.2 million in 1999 to (Pounds)24.1
million in 2000 although cost of sales for continuing operations increased from
(Pounds)1.3 million in 1999 to (Pounds)2.0 million in 2000.
Cost of sales within ISD consisted primarily of royalties paid by the Company to
content publishers, whose information is downloaded by a user through the
Company's services.
Cost of sales for WSD is much lower than ISD as technology-based sales, which
consist of licence fees and royalties, have minimal associated direct costs.
Costs of sales within eCD relate solely to the costs of goods sold by
OfficeShopper. Sales made by Sparza have negligible associated direct costs.
Distribution costs
Distribution costs consist of salaries and commissions paid to sales staff and
account managers, travel and entertainment and similar expenses incurred by
sales personnel, and marketing expenses, including advertisements, marketing
literature and trade shows.
Distribution costs decreased from (Pounds)22.1 million in 1999 to (Pounds)10.3
million in 2000 largely due to the disposal of ISD. Distribution costs for
continuing operations increased by 131% from (Pounds)1.1 million in 1999 to
(Pounds)2.6 million in 2000 reflecting the increased investment in sales and
marketing personnel throughout all of the Group's continuing businesses.
Administrative expenses
Administrative expenses consist of all facilities costs, remuneration for all
employees other than persons directly involved in selling or account management,
and operating expenses for ISD's data centres (other than telecommunications and
processing charges included in cost of sales as described above). Additionally,
following the change of accounting policy discussed below, administrative
expenses also include all product development costs.
Administrative expenses decreased from (Pounds)55.8 million in 1999 to
(Pounds)37.7 million in 2000 primarily due to the disposal of ISD.
Administrative expenses for continuing operations increased by 164% from
(Pounds)8.3 million in 1999 to (Pounds)21.9 million in 2000, reflecting the
increased headcount (and associated costs such as facilities) across all of the
Group's continuing businesses. Development expenses for Sparza also increased
significantly during the year.
Amortisation of product development costs/goodwill
Historically it has been the Group's policy to capitalise costs associated with
the development of the host computer systems and the development of new
products. Following the disposal of ISD, the Group's business comprised the
eCommerce, Web Solutions and Ventures divisions. In recognition of
5
Bright Station plc
OPERATING AND FINANCIAL REVIEW (continued)
the fact that these divisions are not mature and in light of changing industry
practice, the Group decided to change its accounting policy such that
development costs associated with these divisions are expensed to the profit and
loss account as incurred.
The results for 2000 have been prepared on this revised basis, while the results
for 1999 have been restated to reflect this change in policy.
In addition, following a review of the performance of OfficeShopper during the
year, the Company has made an exceptional provision of (Pounds)4.1 million
against the remaining carrying value of goodwill associated with the Write Works
acquisition. As noted above, the OfficeShopper assets, brand name and customer
list were sold in May 2001.
Amounts written off investments
Amounts written off investments in 2000 totalled (Pounds)1.9 million, a decrease
of 55% on 1999's charge of (Pounds)4.6 million. The charge for 2000 represents a
provision against the carrying value of its portfolio of minority investments
arising following the significant change in market conditions and sentiment
towards early stage Internet companies.
Exceptional items
On 4 May 2000, the Company disposed of ISD realising a loss on disposal of
(Pounds)101.7 million. This loss on disposal takes into account the write-back
of goodwill arising on the acquisition of Knight-Ridder Information, Inc. (KRII)
amounting to (Pounds)227.9 million that had previously been written off to
reserves.
Interest receivable and interest payable
Net interest payable of (Pounds)6.6 million relates almost exclusively to
interest paid on both senior and high-yield debt taken out at the time of the
acquisition of KRII. The net proceeds of the sale of ISD on 4 May 2000 were used
to repay these balances in full.
Interest receivable of (Pounds)762,000 relates to interest earned on cash
deposits.
Taxation
The Company's tax charge for 2000 relates mainly to the tax arising on the
profitable performance of its foreign sales subsidiaries prior to the disposal
of ISD.
No tax arises in the UK, US or Switzerland as a result of past tax losses. The
tax losses in the US and Switzerland were passed to Thomson along with the
disposal of ISD.
A capital loss of approximately (Pounds)51.3 million arose as a result of the
disposal of ISD.
Earnings per share (EPS)
After accounting for discontinued activities, restructuring costs and other
exceptional items, the Company realised a loss per share of 79.2 pence for the
year ended 31 December 2000, compared to a loss per share of 3.9 pence in 1999.
Liquidity and capital resources
The Company's operating activities utilised net cash of (Pounds)11.2 million
during the year ended 31 December 2000, compared to (Pounds)33.6 million
generated in 1999.
The Company incurred net capital expenditure of (Pounds)7.3 million in 2000
compared to (Pounds)15.9 million in 1999, the reduction largely due to cash
constraints experienced by the Company, and the fact that post the disposal of
ISD, the continuing businesses within the Group are not as capital intensive.
6
Bright Station plc
OPERATING AND FINANCIAL REVIEW (continued)
During April 2001 the Board of Directors having reviewed the funding
requirements of the Group, has proposed a radical restructuring to ensure that
the Group has sufficient funds to continue operating for the foreseeable future.
The Group is proposing a placing and open offer of 270,000,000 shares of 1p each
subject to approval by the shareholders at an Extraordinary General Meeting of
the Company to be held on 6 July 2001. The estimated proceeds of the placing and
open offer are approximately (Pounds)12 million net of expenses.
The Company had cash at bank and in hand on 31 December 2000 of (Pounds)16.3
million compared to (Pounds)10.5 million on 31 December 1999. The Company had no
bank facilities in place at 31 December 2000. As at 18 May 2001, the cash
balance stood at (Pounds)2.2 million.
Investments
Bright Station Ventures (BSV) was created in April 2000, as the Corporate
venturing arm of the Group, primarily looking to identify investment and
acquisition opportunities which are synergistic with the operations and growth
strategies of the underlying businesses of the Group.
As noted above, in order to account for changes in the technology market in
general, the Board prudently provided (Pounds)1.9 million against the portfolio
of minority investments managed and acquired by BSV.
7
Bright Station plc
CORPORATE GOVERNANCE AND INTERNAL FINANCIAL CONTROL
The Board's policy is to manage the affairs of the Company in accordance with
the principles set out in the Combined Code on Corporate Governance ("the
Combined Code"), as described in this Report. The Company has been in compliance
with the provisions set out in Section 1 of the Combined Code throughout the
year ended 31 December 2000, save for the exceptions below:
. Following the appointment of Allen Thomas as Chairman in May 1999, the
Company does not currently have a nominated Senior Non-executive Director
(other than the Chairman).
. Prior to the sale of the ISD, Patrick Sommers was employed on a two-year
rolling contract as an Executive Director. On completion of the sale,
Patrick Sommers became a Non-executive Director of the Company and no
longer has a service contract.
. As disclosed in the Internal Control Section below, the Company became
compliant with the Turnbull recommendations on 26 September 2000.
The Board
The Board normally meets 12 times a year to make and review major business
decisions and to monitor current trading against approved budgets. The Board has
a formal schedule of matters specifically reserved to it for decision, including
the Group's commercial strategy, major capital projects beyond certain
predetermined limits and the approval of contracts not in the ordinary course of
business. Once a year the Board meets in conference to consider long-term
strategy and industrial developments affecting the Company. All Directors have
access to the advice and services of the Company Secretary and may, if necessary
take independent, professional advice at the Company's expense.
Chairman and Chief Executive
The roles of Chairman and Chief Executive are separate. The Chairman is
primarily responsible for running the Board and for ensuring that all Directors
are able to play their full part in its activities. The Chief Executive's task
is to run the Company's business and to implement the policies and strategies
adopted by the Board.
Following the retirement of Michael Mander as Chairman of the Company in May
1999, Allen Thomas, previously Deputy Chairman and Senior Non-executive
Director, was appointed as Chairman. In view of the size and constitution of the
current Board, the Directors have not considered it necessary or appropriate to
nominate a Senior Non-executive Director other than the Chairman.
Board balance
There are three Executive Directors and three Non-executive Directors on the
Board. Patrick Sommers was an Executive Director of the Company until completion
of the sale of the ISD to Thomson, whereupon he became a Non-executive Director.
The Non-executive Directors are independent of management and free from any
business or other relationship with the Company, with the exceptions of share
ownership or as disclosed in note 9 to the financial statements.
Supply of information
The Board is provided with comprehensive reports on the Company's affairs in
order that informed decisions can be reached in a timely manner. Regular reports
by management are supplemented with more detailed information on any important
issues and frequent contact is maintained with the Non-executive Directors
between Board meetings.
Appointments to the Board
There is a Nomination Committee, which is chaired by Allen Thomas and currently
includes Ian Barton and David Mattey as members. A majority of the members are
Non-executive. The Committee is responsible for overseeing the selection process
for Executive and Non-executive Directors and for making recommendations to the
Board on all new appointments.
8
Bright Station plc
CORPORATE GOVERNANCE AND INTERNAL FINANCIAL CONTROL (continued)
Re-election
Pursuant to the Company's Articles, at present the nearest number to, but not
exceeding one third of the Board shall retire each year by rotation. In
practice, all directors are required to offer themselves for re-election at
least every three years, therefore a Special Resolution proposing a
corresponding amendment to the Articles has been included in the Notice of this
year's AGM.
Directors' remuneration
The remuneration policy for the Executive Directors is determined by the
Remuneration Committee, comprising Allen Thomas and Ian Barton, being chaired by
Allen Thomas. The Committee's Report is set out on pages 11 and 12.
Shareholder relations and AGM
The Company is proactive in maintaining a close relationship with its principal
investors and encourages all shareholders to participate in the AGM, whether
voting in person or by proxy. The Company provides copies of all shareholder
communications on request and beneficial owners are welcome to attend the AGM.
Accountability and audit
The responsibilities of the Directors and the Auditors are set out on pages 16
and 17.
Internal Control
The Board is responsible for the Company's system of internal control and for
reviewing its effectiveness. The policies and procedures implemented by the
Board are designed to manage rather than eliminate the risk of failure to
achieve business objectives and can provide reasonable, but not absolute
assurance against material misstatement or loss.
There is an ongoing process to identify, evaluate and manage significant risks
faced by the Company.
During the second half of the year, the Directors conducted a detailed review of
the Company's internal control systems, identifying all of the Group's
significant risk areas and enhancing its internal systems and procedures to
ensure that risk is identified, managed and reported on, in accordance with the
Turnbull recommendations. The Company attained full compliance with the Turnbull
recommendations from 26 September 2000. The review process formed the basis for
new procedures that will be kept under continuous review. The main features of
this process are as follows:
Financial
The respective responsibilities of the Board and business unit management for
financial and operational matters are clearly defined. There are also detailed
rules governing expenditure, incorporating details of procedures and authority
levels. Financial information on trading performance and cash flow is produced
monthly from corporate systems for each business and for the Group, comparing
results with budgets. The Board and business management boards also receive
regular reports on a range of other key performance indicators.
Control Procedures
Control procedures ensure accounting for financial transactions is complete,
accurate and consistent, that reports are reliable and timely, and that risk is
managed. These procedures include the setting of budgets, written authorisation
limits, corporate capital expenditure approval procedures and policies.
Identification of business risk
Managers are required to identify and assess risks that might prevent them
meeting their objectives, and then to take timely action to manage or eliminate
them. The effectiveness of these actions is monitored and reviewed.
9
Bright Station plc
CORPORATE GOVERNANCE AND INTERNAL FINANCIAL CONTROL (continued)
Compliance
The Board assumes overall responsibility for compliance and is briefed on
regulatory requirements and Group compliance matters by the Company Secretary
and the Company's advisors.
Effectiveness of Internal Control
The Board has reviewed the effectiveness of the system of internal financial
control in operation during the year through the monitoring processes set out
above.
In addition, during December, each business unit, including Group head office,
prepared an assessment of its risk exposures and internal control framework. A
summary of the findings was considered by executive management and the
conclusions reported to the Board.
Audit Committee and Auditors
The Audit Committee consists of Ian Barton, Allen Thomas and Patrick Sommers,
being chaired by Ian Barton. The Committee meets with the Chief Financial
Officer in order to review the effectiveness of the system of internal financial
controls, and discusses with the Auditors the control matters identified during
the course of their audit work. It also reviews the annual accounts and the
interim and preliminary announcements prior to submission to the Board,
compliance with accounting standards and the scope and extent of the external
audit programme. The Chairman of the Audit Committee reports to the Board on
matters discussed at the Audit Committee meeting. The Audit Committee is
responsible for selecting the firm of accountants to be recommended to
shareholders for appointment as independent Auditors each year, and reviewing
the overall financial relationship between the company and its Auditors. The
Company does not have an internal audit function at present, although the Board
will keep this matter under review. The Auditors' Report is set out on pages 17
and 18.
Going concern
Company law requires the Group's Directors to consider whether it is appropriate
to prepare financial statements on the basis that the Group is a going concern.
In considering this matter, the Directors have reviewed the Group's performance
for 2000; it's budget for 2001 and 2002. This included consideration of the cash
flow implications of the budget including the proposed capital expenditure and
comparison of these with the Group's existing funds and the funds to be raised
by the placing and open offer referred to in the Chairman's Statement. Subject
to the receipt of the aforementioned funds also referred to in note 1 to the
financial statements the Directors see no reason why the Group and the Company
should not continue in operational existence for the foreseeable future and for
this reason they continue to adopt the going concern basis in preparing the
Group's financial statements.
10
Bright Station plc
REPORT OF THE REMUNERATION COMMITTEE
Remuneration Committee
The Remuneration Committee ("the Committee") consists of Allen Thomas and Ian
Barton, both of whom are Non-executive Directors.
Details of each Director's remuneration package, together with their share
options and interests in Ordinary shares of the Company, are set out in note 9
to the financial statements.
Remuneration policy
The Remuneration Committee seeks to provide remuneration packages of a suitable
structure and value to attract, retain, motivate and reward Executive Directors
of the quality required to manage the business of the Group. The Committee
endeavours to avoid paying more than the market rate for this purpose. In
establishing the level of remuneration for each Director, the Committee pays
careful regard to the packages offered by comparable companies and has access to
external remuneration consultants, enabling wide-ranging comparisons to be made.
Salaries and performance-related remuneration
The salaries of the Executive Directors are reviewed annually. As part of the
review process, the Committee considers individual performance and experience,
the size and nature of the role, the Group's performance as a whole and salaries
offered for similar positions elsewhere.
Wherever possible, the Committee seeks to align the interests of executives with
those of shareholders through performance-related remuneration. Bonuses are
based on successful performance and are only paid on achievement of carefully
considered targets. All bonuses are capped. Bonus payments and any gains under
share option schemes are not pensionable.
Benefits
Executive Directors are eligible for a range of taxable benefits including the
provision of a company car or car allowance (taken in the form of additional
salary) and payment of related operating expenses such as fuel for business use.
Additional benefits include a contributory pension scheme, a private medical
insurance scheme and reimbursement of professional subscriptions and of
business-related home telephone charges up to specified limits.
Pension Contributions
All UK employees of Bright Station plc are eligible to join the Group Personal
Pension Scheme provided by Scottish Equitable, from their 4th month of
employment. The pension is a matched contributory scheme whereby the Company
contributes up to 5% of the employee's basic salary and the employee is required
to make an equivalent matching contribution. Employees may make further
contributions, up to the Inland Revenue limits.
Prior to the disposal of ISD there was a defined contribution pension scheme in
the US. Only one director was a member of this scheme and the scheme was not in
operation at the year end.
Notice periods
The current Executive Directors are employed on rolling contracts with a notice
period of not more than one year.
The Remuneration Committee considers that notice periods of one year are
reasonable and proper, being in the interests of the Company and its Executive
Directors and having regard to prevailing market conditions and current practice
amongst public companies.
11
Bright Station plc
REPORT OF THE REMUNERATION COMMITTEE (continued)
Change of control provisions
The Executive Directors' service agreements contain certain provisions which
would take effect in the event that any person or persons acting in concert
acquires or acquire a Controlling Interest (as defined within Part 1 of Schedule
13 of the Companies Act 1985) in the Company. These provisions include the
payment of salary equivalent to the contractual notice period as well as payment
in lieu of a bonus of 75% of salary in the event of termination of employment
within 12 months following a change of control of the Company.
Share schemes
The Company operates a number of share related schemes for employees, details of
which are set out in notes 21 and 22 to the financial statements. In granting
discretionary share awards to Executive Directors, the Remuneration Committee
has regard to guidelines published by investor protection bodies, the provisions
of the Combined Code and the individual performance of participants, as well as
the particular circumstances of the Company.
Grants under the Bright Station Executive and Unapproved share option schemes
are generally made at the prevailing market share price and are subject to a
vesting period of three years. Awards under the subsidiary share option schemes
are granted at a price which is not less than the market value of the subsidiary
concerned and vest incrementally over a three-year period.
The new Long Term Incentive Plan was adopted by the Company on 5 September 2000.
Key executives selected by the Remuneration Committee received a deferred
promise by the Company to provide shares at no cost. The value of an award is
calculated by reference to the average mid-market price of an Ordinary share in
the Company over a period of no longer than 12 months prior to the date of the
grant and awards do not exceed 200% of a participant's basic salary. Release of
initial awards under the Long Term Incentive Plan is contingent upon the
achievement of certain pre-determined share price targets three years after
grant.
US stock option plan grants are subject to incremental vesting after an initial
one-year period in order to reflect current US market practice.
Non-executive Directors
The remuneration of Non-executive Directors consists of fees for their services
in connection with Board and Board committee meetings. Fee levels are determined
by the Executive Directors with regard to remuneration surveys and levels
offered by comparable companies and, in the case of the Chairman's fees, in
consultation with the other Non-executive Directors. The Non-executive Directors
do not have service contracts, neither do they participate in Group bonus
schemes.
/s/ Allen L. Thomas
Allen L. Thomas,
Chairman
12 June 2001
12
Bright Station plc
REPORT OF THE DIRECTORS
The Directors present their report and the audited financial statements for the
year ended 31 December 2000.
Principal activity and business review
A description of the principal activities of the Company and its subsidiaries,
and a review of the business is set out in the Operating and Financial Review.
Post balance sheet events
As outlined in note 32 to the financial statements, on 30 April the Group
announced its intention to refocus the activities of the Group with the
resultant sale and closure of its eCommerce activities.
The Group is proposing a placing and open offer of 270,000,000 new shares of 1p
each subject to the approval by the shareholders at an Extraordinary General
Meeting of the Company to be held on 6 July 2001. The estimated proceeds of the
placing and open offer are required by the Group to be able to continue in
operational existence for the foreseeable future.
Following the decision by the Group as described above, an impairment review of
the carrying value of fixed assets held in the balance sheet at 31 December 2000
has been performed and an adjustment to the carrying value was made as described
in note 32 to the financial statements. As a result the loss before tax for the
year has been increased by (Pounds)2.2 million as compared to the amount
reported in the preliminary announcement dated 28 February 2000.
Future Developments
On 30 April 2001, the Company announced a radical reorganisation of its
operations and capital structure. The reorganised Company will operate as a
focused, "pure play" knowledge management business. The Company will be renamed
Smartlogik Group plc.
Research and Development
The Group has continued to invest in the development of new products for the
eCommerce and Web Solutions Divisions. Following the disposal of ISD, the
accounting policy for development costs has changed (as disclosed in note 1 to
the accounts) in order to reflect the changing structure of the business and
latest industry practice.
Results and Dividends
The profit and loss account set out on page 19 shows the results for the year.
The Directors do not recommend the payment of a dividend (1999: (Pounds)nil).
The accumulated deficit of (Pounds)132,002,000 has been transferred to reserves.
Fixed assets
The changes in fixed assets are shown in notes 12 to 15 to the financial
statements.
Share capital
The authorised and issued share capital of the Company, together with details of
the shares issued during the year, are shown in note 21 to the financial
statements.
13
Bright Station plc
REPORT OF THE DIRECTORS (continued)
Substantial shareholdings
Other than the Directors' interests (see note 9 to the financial statements),
substantial interests notified to the Company are as follows:
Ordinary % of issued
shares held share capital
at 21 May at 21 May
2001 2001
Prudential plc 12,799,914 7.38
Thomson Finance SA 9,297,290 5.36
Merill Lynch & Co, Inc* 8,099,880 4.67
Newton Investment Management Ltd 6,069,090 3.50
* During the year JIYU Holdings Ltd transferred their holding of 7,038,123
shares to B D Holdings Ltd, another company within the same group. These
shares are presently held in a pool account operated by N Y Nominees Ltd, of
which the ultimate parent company is Merrill Lynch & Co, Inc.
Issued share capital at 31 December 2000 was 172,614,502 (see note 21) and at 21
May 2001 was 173,327,461. For US reporting purposes, it is confirmed that the
Company's major shareholders have the same voting rights.
There are no arrangements known to the Company, the operation of which may at a
subsequent date result in a change of control of the Company.
Directors and their interests
The Directors who served during the year were as follows:
<TABLE>
<CAPTION>
Name Age Position Position held since
<S> <C> <C> <C>
I Barton 55 Non-executive Director 1986
M Hussey 77 Non-executive Director 1996 (resigned 5 September 2000)
R Lomnitz 36 Director 2000 (appointed 22 December 2000)
S Maller 42 Chief Technology Officer (EMEA-AP) 1996*
D Mattey 38 Chief Financial Officer 1992
J Molle 36 President - The Americas 1997*
C Morton 37 President - EMEA AP 1997*
P Sommers 53 Non-executive Director 1998 (Executive director to May 2000)
R Swank 69 Non-executive Director 1999 (resigned 4 December 2000)
A Thomas 61 Non-executive Chairman 1999
D Wagner 37 Chief Executive Officer 1985
</TABLE>
* resigned and transferred with the ISD on 4 May 2000
Having been appointed to the Board during the year, Robert Lomnitz offers
himself for election at the forthcoming EGM on 6 July 2001. On completion of the
proposed placing and open offer, Ian Barton, David Mattey, Patrick Sommers,
Allen Thomas and Daniel Wagner will resign from the Board. It is proposed that
the following Directors of Smartlogik Limited will then be appointed to the
Company's Board:
James Bair, Simon Canham, Stephen Hill and David Jefferies CBE.
The interests of Directors and their immediate families in the Company's share
capital and Directors' share options are disclosed in note 9 to the financial
statements. The interests of Directors in contracts with the Company are also
set out in note 9 to the financial statements.
The Company purchased Directors' and Officers' liability insurance for the year
ended 31 December 2000, which has been renewed for the current financial year.
Employee communication and involvement
It is the Group's policy to communicate regularly and frequently with all
employees, to enable them to take a wider interest in the affairs of their
employing company and the Group. Matters of concern are communicated in a
variety of ways, including announcements, briefing sessions and Company
newsletters.
14
Bright Station plc
REPORT OF THE DIRECTORS (continued)
The majority of employees are either shareholders in the Company or hold options
through the Group share option schemes. This provides employees with the
opportunity to participate directly in the success of the business. The Group
provides training and career development programmes.
Employment policies
The Group is committed to the principle of equal opportunity in employment,
regardless of a person's race, creed, colour, nationality, sex, marital status
or disability. Employment policies have been devised to be fair, equitable and
consistent with the skills and abilities of employees and the needs of the
Group. These policies ensure that everyone is accorded equal opportunity for
recruitment, training and promotion.
Employees with disabilities
It is Group policy that people with disabilities should have full and fair
consideration for all vacancies and thereafter, throughout their employment.
Where an employee becomes disabled whilst employed by a Group company, every
effort is made to assist with and adapt to their needs.
Creditor Payment Terms
It is the Group's normal procedure to have mutually beneficial relationships
with our suppliers and we seek to agree to terms of transactions, including
payment terms, in advance. Payment terms vary depending on local practice
throughout the world, and payment is made on time provided that suppliers
perform in accordance with their agreed terms. As at 31 December 2000, trade
creditors of the Company represented 90 days (1999: 55 days) equivalent of
annual purchases invoiced for the Group.
Charitable and political donations
During the year ended 31 December 2000, the Group made (Pounds)7,500 corporate
donations for charitable purposes (1999: (Pounds)nil). No political donations
were made during the year (1999: (Pounds)nil).
Auditors
PricewaterhouseCoopers have expressed their willingness to continue in office
and a resolution to reappoint them will be proposed at the Annual General
Meeting.
Annual General Meeting
Notice of the Annual General Meeting to be held at 10:00 a.m. on 11 September
2001 at 150 Aldersgate Street, London EC1A 4EJ is set out on pages 66 to 67.
Resolutions 1 and 2 to be proposed at the meeting deal with Ordinary Business.
Resolutions 3 and 4 deal with Special Business as explained below and in further
detail in the notes to the Notice of the Annual General Meeting.
Pursuant to the Company's Articles of Association, currently the nearest number
to, but not exceeding one third of the Board shall retire each year by rotation.
In practice, all Directors are required to offer themselves for re-election at
least every three years. To demonstrate the Company's commitment to the Combined
Code, Resolution 3 seeks authority to amend the Articles to reflect this
practice.
Resolution 4 also seeks authority to make several amendments to the Company's
Articles for the main purpose of enabling the Company to participate in
electronic communications with its shareholders. Having changed the Articles of
Association, the Company would be in a position to issue invitations to all
shareholders offering the opportunity to receive shareholder documents by
electronic means and to participate in electronic proxy voting.
The Directors believe these resolutions should be approved and recommend
shareholders to vote accordingly, as they will in respect of their own
beneficial holdings.
By order of the Board
/s/ Jonathan Ball
Jonathan Ball
Company Secretary
12 June 2001
15
Bright Station plc
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and the Group as at the end of the financial year and of the profit or
loss for that period. In preparing the financial statements, the Directors
consider that they have:
. selected suitable accounting policies and applied them consistently;
. made reasonable and prudent judgements and estimates;
. followed applicable accounting standards, subject to any material
departures disclosed and explained in the financial statements
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Group
website. The Directors understand that uncertainty regarding legal requirements
is compounded as information published on the Internet is accessible in many
countries with different legal requirements relating to the preparation and
dissemination of financial statements.
By order of the Board
/s/ Jonathan Ball
Jonathan Ball
Company Secretary
12 June 2001
16
Bright Station plc
REPORT OF THE AUDITORS
AUDITORS' REPORT TO THE MEMBERS OF BRIGHT STATION PLC
We have audited the financial statements which comprise the profit and loss
account, the balance sheet, the cash flow statement, the statement of total
recognised gains and losses and the related notes, which have been prepared
under the historical cost convention and the accounting policies set out in note
1 to the financial statements.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements, in accordance with applicable United Kingdom law and
accounting standards are set out in the statement of Directors'
responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements, United Kingdom Auditing Standards
issued by the Auditing Practices Board and the Listing Rules of the Financial
Services Authority.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the United Kingdom
Companies Act. We also report to you if, in our opinion, the directors' report
is not consistent with the financial statements, if the company has not kept
proper accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by law or the
Listing Rules regarding directors' remuneration and transactions is not
disclosed.
We read the other information contained in the Annual Report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. The other information
comprises only the Directors' report, the Chairman's Statement, the Operating
and Financial Review and the Corporate Governance Statement.
We review whether the Corporate Governance Statement reflects the company's
compliance with the seven provisions of the Combined Code specified for our
review by the Financial Services Authority, and we report if it does not. We are
not required to consider whether the board's statements on internal control
cover all risks and controls, or to form an opinion on the effectiveness of the
company's or group's corporate governance procedures or its risk and control
procedures.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Fundamental Uncertainty: Going Concern
In forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of preparation. The financial
statements have been prepared on the going concern basis and the validity of
this depends on the successful execution of the restructuring plan and the
Company receiving the anticipated (Pounds)12.0 million of funds (net of
expenses) from the
17
Bright Station plc
REPORT OF THE AUDITORS (CONTINUED)
placing and open offer, which is conditional, inter alia, on approval by the
shareholders at an Extraordinary General Meeting. The financial statements do
not include any adjustments that would result from failure to obtain such funds.
Details of the circumstances relating to this fundamental uncertainty are
described in note 1 to the financial statements. Our opinion is not qualified in
this respect.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 December 2000 and of its loss and
cash flows for the year then ended and have been properly prepared in accordance
with the Companies Act 1985.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
London
12 June 2001
18
Bright Station plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For The Year Ended 31 December 2000
<TABLE>
<CAPTION>
Restated
------------------------------------------
Continuing Discontinued Continuing Discontinued
Notes Operation Operation Total Operation Operation Total
2000 1999
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover 2 8,498 49,144 57,642 9,319 165,133 174,452
Cost of sales (2,044) (22,100) (24,144) (1,389) (66,785) (68,174)
-----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 6,454 27,044 33,498 7,930 98,348 106,278
Distribution costs (2,646) (7,613) (10,259) (1,144) (20,974) (22,118)
Administrative expenses ----------------------------------------- --------------------------------------
Recurring | (21,875) (15,789) (37,664) | | (8,290) (47,483) (55,773)|
Exceptional provision for | | | |
diminution in value of goodwill 4 | (4,084) - (4,084) | | - - - |
Amortisation of development costs | - (3,656) (3,656) | | - (9,142) (9,142)|
----------------------------------------- --------------------------------------
Total administrative expenses (25,959) (19,445) (45,404) (8,290) (56,625) (64,915)
-----------------------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit before ----------------------------------------- --------------------------------------
exceptional item 2,4 | (18,067) (14) (18,081) | | (1,504) 20,749 19,245 |
Exceptional item | (4,084) - (4,084) | | - - - |
----------------------------------------- --------------------------------------
Operating (loss)/profit (22,151) (14) (22,165) (1,504) 20,749 19,245
Loss on disposal of ISD 5 - (101,688) (101,688) - - -
Loss on termination of subsidiary 5 - - - - (911) (911)
-----------------------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities (22,151) (101,702) (123,853) (1,504) 19,838 18,334
------------------------- ---------------------
Interest receivable 762 305
Amounts written off investments 7 (1,944) (4,619)
Interest payable and similar charges 8 (6,659) (18,366)
-----------------------------------------------------------------------------------------------------------------------------------
Loss on ordinary activities before
taxation (131,694) (4,346)
Taxation on loss on
ordinary activities 10 (271) (1,478)
-----------------------------------------------------------------------------------------------------------------------------------
Loss on ordinary activities after
taxation (131,965) (5,824)
Minority equity interests (37) (50)
-----------------------------------------------------------------------------------------------------------------------------------
Retained deficit 25 (132,002) (5,874)
-----------------------------------------------------------------------------------------------------------------------------------
Loss per share (pence) 11 (79.2) (3.9)
</TABLE>
The notes on pages 25 to 63 form part of these financial statements.
19
Bright Station plc
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Loss for the financial year (132,002) (5,874)
Consolidated translation differences on foreign
currency net investments (4,008) (5,491)
--------------------------------------------------------------------------------------------
Total recognised losses for the financial year (136,010) (11,365)
-----------
Prior year adjustment (776)
-------------------------------------------------------------------------
Total losses since last annual report (136,786)
-------------------------------------------------------------------------
</TABLE>
The prior year adjustment results from the change in accounting policy relating
to development costs. (see note 1).
The profit and loss accounts shown above have been prepared on a historical cost
basis.
The notes on pages 25 to 63 form part of these financial statements
20
Bright Station plc
CONSOLIDATED BALANCE SHEET
For the year ended 31 December 2000
<TABLE>
<CAPTION>
Restated
2000 1999
Notes (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Fixed assets
Intangible assets 12 - 26,254
Goodwill 13 2,364 9,805
Tangible assets 14 1,445 14,338
Investments 15 600 9,635
----------------------------------------------------------------------------------------------------
4,409 60,032
----------------------------------------------------------------------------------------------------
Current assets
Stock - 60
Debtors 16 3,310 36,690
Cash and bank deposits 16,334 10,521
----------------------------------------------------------------------------------------------------
19,644 47,271
Creditors (amounts falling due within one year) 17 (7,354) (71,574)
----------------------------------------------------------------------------------------------------
Net current assets/(liabilities) 12,290 (24,303)
----------------------------------------------------------------------------------------------------
Total assets less current liabilities 16,699 35,729
Creditors (amounts falling due after more than one year) 18 (17) (137,370)
Provisions for liabilities and charges 19 - (1,430)
----------------------------------------------------------------------------------------------------
Net assets/(liabilities) 16,682 (103,071)
----------------------------------------------------------------------------------------------------
Capital and reserves - equity
Called up share capital 21 1,726 1,549
Share premium account 23 184,057 154,949
Shares to be issued 24 134 967
Profit and loss account 25 (169,235) (261,079)
----------------------------------------------------------------------------------------------------
Equity shareholders' funds 26 16,682 (103,614)
Minority equity interest 27 - 543
----------------------------------------------------------------------------------------------------
Total equity shareholders' funds 16,682 (103,071)
----------------------------------------------------------------------------------------------------
</TABLE>
The financial statements were approved by the Board of Directors on 12 June 2001
and signed on its behalf by:
/s/ D Wagner /s/ D Mattey
D Wagner D Mattey
Chief Executive Chief Financial Officer
The notes on pages 25 to 63 form part of these financial statements
21
Bright Station plc
COMPANY BALANCE SHEET
For the year ended 31 December 2000
<TABLE>
<CAPTION>
Restated
2000 1999
Notes (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Fixed assets
Intangible assets 12 - 4,340
Tangible assets 14 1,073 2,183
Investments 15 8,746 186,522
----------------------------------------------------------------------------------------------------------------------
9,819 193,045
----------------------------------------------------------------------------------------------------------------------
Current assets
Stock - 27
Debtors 16 4,253 35,258
Cash at bank and in hand 15,751 1,634
----------------------------------------------------------------------------------------------------------------------
20,004 36,919
Creditors (amounts falling due within one year) 17 (5,450) (57,935)
----------------------------------------------------------------------------------------------------------------------
Net current assets/(liabilities) 14,554 (21,016)
----------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 24,373 172,029
Creditors (amounts falling due after more than one year) 18 (17) (135,745)
----------------------------------------------------------------------------------------------------------------------
Net assets 24,356 36,284
----------------------------------------------------------------------------------------------------------------------
Capital and reserves - equity
Called up share capital 21 1,726 1,549
Share premium account 23 184,057 154,949
Shares to be issued 24 134 967
Profit and loss account 25 (161,561) (121,181)
----------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 26 24,356 36,284
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements were approved by the Board of Directors on 12 June 2001
and signed on its behalf by:
/s/ D. Wagner /s/ D. Mattey
D Wagner D Mattey
Chief Executive Chief Financial Officer
The notes on pages 25 to 63 form part of these financial statements
22
Bright Station plc
CONSOLIDATED CASH FLOW STATEMENT
For The Year Ended 31 December 2000
<TABLE>
<CAPTION>
Restated
2000 1999
Notes (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Net cash (outflow)/inflow from operating activities 29 (11,229) 32,807
----------------------------------------------------------------------------------------------------------------------
Returns on investments and servicing of finance
Interest received 782 303
Interest paid on bank loans and overdrafts (7,798) (16,945)
Interest paid on finance leases (25) (106)
----------------------------------------------------------------------------------------------------------------------
(7,041) (16,748)
----------------------------------------------------------------------------------------------------------------------
Taxation paid (248) (911)
----------------------------------------------------------------------------------------------------------------------
Capital expenditure
Payments to acquire and develop intangible assets (2,896) (11,402)
Payments to acquire tangible fixed assets (2,747) (4,536)
Payments to acquire fixed asset investments (1,824) -
Receipts from sale of tangible fixed assets 99 78
----------------------------------------------------------------------------------------------------------------------
(7,368) (15,860)
----------------------------------------------------------------------------------------------------------------------
Acquisitions and disposals
Purchase of subsidiary undertakings (257) -
Payments to acquire minority interests in a subsidiary undertaking - (428)
Investment in joint venture - (1,235)
Proceeds from sale of assets held for resale/investments 2,537 777
Expenses in connection with the sale of assets held for resale - (303)
Payment of deferred consideration (1,430) -
Cash transferred with sale of ISD 6 (4,813) -
Expenses in relation to sale of ISD 6 (4,910) -
Proceeds from sale of ISD 6 185,474 -
----------------------------------------------------------------------------------------------------------------------
176,601 (1,189)
----------------------------------------------------------------------------------------------------------------------
Cash inflow/(outflow) before the use of liquid resources and financing 150,715 (1,901)
----------------------------------------------------------------------------------------------------------------------
Financing
Net proceeds on issue of Ordinary Share Capital 28,299 142
Debt due within one year - Increase in borrowings - 13,187
Debt due within one year - Increase in finance leases - 1,549
Debt due within one year - Repayment of loans (172,559) (22,004)
Debt due after one year - New secured loan - 15,593
Debt due after one year - Increase in finance leases - 1,509
Expenses on raising of Senior Credit Facility and Senior
Subordinated Notes - (1,246)
Repayment of capital element of finance leases (642) (525)
----------------------------------------------------------------------------------------------------------------------
(144,902) 8,205
----------------------------------------------------------------------------------------------------------------------
Increase in cash 5,813 6,304
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 25 to 63 form part of these financial statements
23
Bright Station plc
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT)
For The Year Ended 31 December 2000
<TABLE>
<CAPTION>
Restated
2000 1999
Notes (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Increase in cash in the period 5,813 6,304
Cash used to decrease lease financing 642 525
Cash acquired from issue of debt (net of expenses) - (27,533)
Cash used to repay loans 172,559 22,004
Cash acquired from sale and leaseback - (3,058)
----------------------------------------------------------------------------------------------------------------------
Change in net funds/(debt) from cash flows 179,014 (1,758)
Other non-cash changes (6,125) (1,274)
New finance leases (37) (3,614)
Finance lease obligations transferred to ISD 5,724 -
Effect of foreign exchange rate changes (5,300) (5,242)
----------------------------------------------------------------------------------------------------------------------
Movement in net funds/(debts) in period 173,276 (11,888)
Net debt at beginning of period (156,979) (145,091)
----------------------------------------------------------------------------------------------------------------------
Net funds/(debt) at end of period 30 16,297 (156,979)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 25 to 63 form part of these financial statements
24
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost convention
and in accordance with accounting standards applicable in the United Kingdom.
Going Concern
The financial statements have been prepared on the going concern basis in
anticipation of the receipt of the estimated proceeds of approximately
(Pounds)12.0 million, net of expenses, from the proposed placing and open offer
which was formally approved by the Directors on 12 June 2001. Further details
are contained in the Chairman's Statement and in note 32 to the financial
statements.
The placing and open offer is conditional, inter alia, on approval by
shareholders at an Extraordinary General Meeting to be held on 6 July 2000.
Without the above injection of capital the Group would be unable to continue in
operational existence for the foreseeable future and the going concern basis
would be inappropriate. Adjustments would then have to be made to reduce the
balance sheet amounts of assets to their recoverable amounts, to provide for
further liabilities that might arise and to reclassify fixed assets and long-
term liabilities as current assets and liabilities.
Whilst there is uncertainty at present as to the outcome of the matter mentioned
above, the Directors believe that it is appropriate for the financial statements
to be prepared on the going concern basis.
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Group accounts
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries (the "Group"). All intercompany transactions
and balances have been eliminated. The accounts include the results of
subsidiaries acquired during the year from the relevant date of acquisition
other than those subsidiaries acquired with a view to resale. They also include
the results of subsidiaries disposed of during the year up to the relevant date
of disposal.
Goodwill
Prior to 1 January 1998, goodwill arising as the difference between the cost of
acquisition of a subsidiary and the fair value of its net assets at the date of
acquisition was written off to reserves in the year of acquisition. Goodwill
arising on acquisitions since 1 January 1998 is capitalised and subsequently
written off over its estimated useful life, which currently ranges from 10-20
years. Where necessary, adjustments to provisional fair values of net assets
acquired are adjusted to goodwill in the first full year following the
acquisition. Impairment reviews on the carrying amount of goodwill are performed
on an annual basis and any permanent diminutions in value identified is charged
to the profit and loss account.
Turnover and revenue recognition
Turnover includes licence fees for technology sales, ongoing maintenance fees
and consultancy work. Revenues on such items are recognised when the Company has
fulfilled all of its significant performance obligations.
25
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
Turnover also arises on the provision of long term government contracts and the
sale of office goods and supplies.
Turnover relating to discontinued activities represents database subscription
sales, online and usage charges and design and implementation fees at invoiced
amounts, exclusive of value added and other sales taxes. Subscription revenues
are recognised when contractually due and invoiced. The costs of fulfilling
obligations under the terms of the subscription contract are accrued at the time
the income is recognised. Online and usage charges are recognised as the service
is provided. Most subscriptions are due and invoiced either annually or semi-
annually in advance and recognised in full at the commencement of the
subscription term. Some of the Group's US operations billed monthly under their
`modular pricing' scheme, whereby subscriptions for access to the Group's
services were raised on a monthly basis and accounted for accordingly. Annual
CD-ROM usage fees are deferred and amortised over the life of the contract.
Fixed assets
Fixed assets are stated at cost. Depreciation is provided to write off the cost,
less estimated residual value, of all tangible fixed assets over their expected
useful lives. It is calculated at the following rates:
Equipment including personal computers - 33% straight line
Motor vehicles - 25% straight line
Fixtures and fittings - 20% straight line
Leasehold improvements - shorter of remaining lease period and
20% straight line
Mainframe computers - 20% straight line
Leasehold improvements relate to the cost of refurbishment of the Group's short
leasehold properties.
Stocks
Stocks, which comprise consumable items, are stated at the lower of cost and net
realisable value.
Foreign currency
Transactions denominated in foreign currencies are recorded at the exchange rate
prevailing at the date of the transaction. Transactions to be settled at a
contract rate are recorded at that rate. Any gains or losses from the
translation of transactions denominated in foreign currencies are included in
the results of the operation. Assets and liabilities denominated in foreign
currencies are translated at the exchange rate ruling at the year end. Profit
and losses of overseas companies are translated at average rates of exchange for
the period. Exchange differences arising out of the translation of accounts of
foreign subsidiaries, net of associated borrowings, are taken to reserves.
Financial Instruments
Changes in the value of forward foreign exchange contracts are recognised in the
results in the same period as changes in the values of the assets and
liabilities they are intended to hedge. Any interest receipts arising from the
interest rate cap are matched to those arising from the underlying debt
position.
Intangible fixed assets
Historically it has been the Group's policy to capitalise costs associated with
the development of the host computer systems and the development of new
products. In the year 2000, following the disposal of ISD, the Group's business
comprised the eCommerce, Web Solutions and Ventures divisions. In recognition of
the fact that these divisions are not mature and in light of changing industry
practice, the Group decided to change its accounting policy such that
development costs associated with these divisions are expensed to the profit and
loss account as incurred.
The results for 2000 have been prepared on this revised basis, while the results
for 1999 have been restated to reflect this change in policy. The impact of the
restatement on the comparative profit and
26
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
1. ACCOUNTING POLICIES (continued)
loss account for 1999 is an increase to the loss of (Pounds)489,000 and the
cumulative effect on the Group's reserves as at 1 January 2000 amounts to a
decrease of (Pounds)776,000. No such costs were capitalised during the year
ended 31 December 2000 and it would therefore be inappropriate to estimate the
effect of the restatement on the profit and loss account for this period.
Fixed asset investments
Investments in subsidiaries and other fixed asset investments are stated in the
balance sheet at cost. Provision is made in full for diminution in value if
considered permanent.
Deferred taxation
Provision is made for timing differences between the treatment of certain items
for taxation and accounting purposes, to the extent that it is probable that a
liability or asset will crystallise.
Leased assets
Where assets are financed by leasing agreements that give rights approximating
to ownership (`finance leases'), the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable over the term of the lease. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account, except for that
proportion relating to assets wholly used for ISD product development.
Lease payments are analysed between capital and interest using the actuarial
method. The interest is charged to the profit and loss account, except for that
proportion relating to assets wholly used for ISD product development. The
capital part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the lease
term except where the costs are capitalised as development costs.
Pension costs
For the year ended 31 December 2000, the Group operated defined contribution
pension schemes in the UK, US and Switzerland. The amount of contributions
payable to the pension schemes are charged to the profit and loss account as
incurred.
Finance costs
Borrowings are stated net of the associated costs of raising the finance. Such
finance costs are charged to the profit and loss account over the term of the
related borrowing, increasing the outstanding borrowing to the amount of the
debt at the maturity date.
Warrants
Net proceeds from the issue of warrants are credited to equity upon issue. Where
warrants are issued in conjunction with debt, the net proceeds are allocated
between equity and debt based upon their respective fair values at the time of
issue.
27
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. SEGMENTAL ANALYSIS
Analyses by class of business of turnover, operating (loss)/profit and net
assets/(liabilities) are stated below.
The Information Services Division (ISD) was sold to Thomson Corporation in May
2000 and all segmental information disclosed below in respect of Information
Services is discontinued.
The composition of turnover is analysed as follows:
2000 1999
(Pounds)'000 (Pounds)'000
Information Services:
- Usage sales 41,604 132,631
- Subscription sales 2,605 8,891
- CD-ROM sales 2,005 7,465
- Other sales/(1)/ 2,930 16,146
------------ ------------
49,144 165,133
Web Solutions 5,947 7,917
eCommerce 2,496 1,402
Corporate 55 -
------------ ------------
57,642 174,452
============ ============
(1) Includes (Pounds)12.6 million in respect of the sale of exclusive
distribution rights in 1999.
The composition of operating (loss)/profit is analysed as follows:
Restated
2000 1999
(Pounds)'000 (Pounds)'000
Information Services (14) 18,258
Web Solutions (6,217) 2,220
eCommerce (9,509) (1,233)
Corporate (6,425) -
------------ ------------
(22,165) 19,245
============ ============
In 2000 the `Corporate' category relates to the Ventures division and corporate
overheads. Following the disposal of ISD, corporate overheads, including those
of the Ventures division, have been reported separately from the other
divisions.
The composition of net assets/(liabilities) is analysed as follows:
Restated
2000 1999
(Pounds)'000 (Pounds)'000
Information Services - 57,632
Web Solutions (5,501) 1,294
eCommerce (7,526) (318)
Corporate 13,180 -
------------ ------------
153 58,608
Unallocated net assets/(liabilities) 16,529 (161,679)
------------ ------------
16,682 (103,071)
============ ============
Unallocated net assets/(liabilities) comprise cash deposits and borrowings.
28
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. SEGMENTAL ANALYSIS (continued)
The geographical composition of turnover by source is analysed as follows:
2000 1999
(Pounds)'000 (Pounds)'000
United Kingdom 11,414 22,764
North America 38,697 131,997
Continental Europe 7,531 15,271
Rest of the World - 4,420
------------ ------------
57,642 174,452
============ ============
The geographical composition of turnover by destination is analysed as follows:
2000 1999
(Pounds)'000 (Pounds)'000
United Kingdom 11,892 21,661
North America 30,289 80,626
Continental Europe 9,390 26,234
Rest of the World 6,071 45,931
------------ ------------
57,642 174,452
============ ============
The geographical composition of operating (loss)/profit is analysed as follows:
Restated
2000 1999
(Pounds)'000 (Pounds)'000
United Kingdom (24,279) (9,859)
North America 882 31,559
Continental Europe 1,325 (2,088)
Rest of the World (93) (367)
------------ -----------
(22,165) 19,245
============ ===========
The operating (loss)/profit for the United Kingdom for the periods under review
includes the central costs associated with the Group's worldwide head office
functions.
The composition of net assets/(liabilities) by location is presented on a basis
consistent with the segmental analysis of operating profit/(loss). The assets in
any location are not necessarily matched with the turnover in that location. The
net assets and total assets for the United Kingdom for the periods under review
include those associated with the Group's worldwide head office functions.
29
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
The geographical composition of net assets/(liabilities) is analysed as follows:
Restated
2000 1999
(Pounds)'000 (Pounds)'000
United Kingdom (127) 14,971
North America 293 40,756
Continental Europe (13) 2,460
Rest of the World - 421
----------- -----------
Net operating assets 153 58,608
Unallocated net liabilities 16,529 (161,679)
----------- -----------
16,682 (103,071)
=========== ===========
3. STAFF NUMBER AND COSTS
Staff costs (including Directors) consist of:
2000 1999
(Pounds)'000 (Pounds)'000
Wages and salaries 18,024 34,091
Social security costs 1,887 3,878
Other pension costs 499 945
----------- -----------
20,410 38,914
=========== ===========
The average number of full-time employees during the year was:
2000 1999
Number Number
United Kingdom 250 308
North America 178 560
Continental Europe 37 110
Rest of the World 11 74
----------- -----------
476 1,052
=========== ===========
Pension arrangements
The Group operates defined contribution pension schemes in the UK. The pension
cost charge represents contributions payable by the Group to the funds and
amounted to (Pounds)499,000 (1999: (Pounds)945,000). The assets of all the
schemes are held by independent custodians and kept entirely separate from the
assets of the Group.
30
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
4. OPERATING (LOSS)/PROFIT
This is arrived at after charging/(crediting):
Restated
2000 1999
(Pounds)'000 (Pounds)'000
Hire of plant and machinery - operating leases 1,163 60
Hire of other assets - operating leases 1,990 4,613
Depreciation:
- on owned assets 2,707 6,964
- on leased assets 2 518
- impairment of tangible fixed assets 953 -
Amortisation/write-off:
- of development costs 3,623 9,047
- of goodwill 617 415
- impairment of intangible fixed assets 295 -
Auditors' remuneration 110 252
Exceptional provision for diminution of goodwill 4,084 -
Gain on foreign currency translations 48 (119)
Loss on disposal of fixed assets 195 631
=========== ===========
The auditors' remuneration includes amounts in respect of the parent company for
the year ended 31 December 2000 of (Pounds)60,000 (1999: (Pounds)100,000)
Additional fees paid to PricewaterhouseCoopers for non-audit services amounted
to (Pounds)978,000 in 2000 (1999: (Pounds)52,000)
The exceptional provision of (Pounds)4.1 million is against the carrying value
of goodwill in it's eCommerce division, arising principally in the Write Works
acquisition (see note 13).
The loss for the year attributable to shareholders, dealt with in the accounts
of Bright Station plc, is:
Restated
2000 1999
(Pounds)'000 (Pounds)'000
(35,027) (103,843)
----------- -----------
As permitted by Section 230 of the Companies Act 1985, the profit and loss
account of the company is not presented.
5. EXCEPTIONAL ITEMS CHARGED AFTER OPERATING (LOSS)/PROFIT
2000
The Information Services Division was disposed of on 4 May 2000. The loss on
disposal of this division was (Pounds)101.7 million. Further information on this
loss is provided in note 6 to these financial statements.
It is estimated that this disposal gives rise to a tax capital loss of
approximately (Pounds)51 million.
1999
The provision for closure of business of (Pounds)911,000 booked during the year
ended 31 December 1999 relates to the closure of its former subsidiary
distributor in Japan, KMK DigiTex Co. Limited.
31
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
6. LOSS ON DISPOSAL OF INFORMATION SERVICES DIVISION
On 4 May 2000, the Company disposed of its Information Services Division to
Thomson and realised a loss on disposal of (Pounds)101.7 million. The loss arose
as follows:
2000
(Pounds)'000
Net proceeds 175,428
Less:
Net assets disposed of (see below) (43,637)
Goodwill previously written off to reserves (227,854)
Unamortised finance costs (5,625)
-----------
(101,688)
===========
Net assets disposed of:
Fixed assets 45,569
Current assets 41,302
Current liabilities (34,567)
Long-term liabilities (8,087)
Minority interests (580)
-----------
43,637
===========
7. AMOUNTS WRITTEN OFF INVESTMENTS
2000
For the year ended 31 December 2000, the Company has reviewed the carrying
amount of its investments, and has provided (Pounds)1.9 million against the
carrying value of its portfolio of minority investments.
1999
The amounts written off investments during the year ended 31 December 1999
comprised (Pounds)3.2 million in respect of the Company's remaining investment
in eHotel (formerly 4th Network), reflecting further delays in its proposed
initial public offering. In addition, a provision of (Pounds)1.4 million was
made against the Company's investment in Frost and Sullivan Electronic
Distribution LLC reflecting concerns over the value of certain of its exclusive
online distribution rights.
8. INTEREST PAYABLE AND SIMILAR CHARGES
2000 1999
(Pounds)'000 (Pounds)'000
Bank loans and overdrafts:
- on Senior Subordinated Notes 4,151 12,268
- on Senior Credit Facility 1,769 4,585
- amortisation of debt fees 500 1,274
- on bank overdrafts 46 78
- other 168 59
----------- -----------
6,634 18,264
Finance leases 25 105
Exchange gains on foreign currency deposits - (3)
----------- -----------
6,659 18,366
=========== ===========
32
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
9. DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES
<TABLE>
<CAPTION>
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Aggregate emoluments 2,248 1,233
Compensation to past Directors for loss of office/(1)/ - 154
Amounts paid to third parties/(2)/ - 33
Amounts paid to former Directors for consultancy work/(3)/ 22 11
Contributions to defined contribution pension schemes 14 25
----------- -----------
2,284 1,456
=========== ===========
</TABLE>
/(1)/ Derek Smith resigned on 2 February 1999 and received (Pounds)153,600 in
respect of the termination of his service contract.
/(2)/ The amounts disclosed as paid to third parties were fees for the Non-
executive services of Michael Mander, paid to his primary employer, Close
Brothers Corporate Finance Ltd.
/(3)/ Michael Mander resigned as a Non-executive Director on 1 July 1999. He
was paid (Pounds)22,000 during 2000 for services provided under a
consultancy agreement (1999: (Pounds)11,000).
Details of the full cost of the remuneration package of each of the Director's
for the year ended 31 December 2000 are as follows:
<TABLE>
<CAPTION>
Emoluments Pension
Fees Salary Benefits Bonus contributions 2000 1999
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C> <C> <C>
I Barton 25,000 - - - - 25,000 25,000
M Hussey
(to 5 September 2000) 16,955 - - - - 16,955 25,000
R Lomnitz/(1)/
(from 22 December 2000) - 3,000 140 - 157 3,297 -
S Maller (to 4 May 2000) - 40,000 2,333 50,000 - 92,333 127,026
D Mattey/(1)/ - 166,666 17,676 236,500 6,892 427,734 183,262
J Molle (to 4 May 2000) - 62,285 2,304 96,000 - 160,589 176,296
C Morton/(1)/
(to 4 May 2000) - 50,000 3,688 100,000 2,000 155,688 161,705
P Sommers/(2)(3)(4)/ 27,072 76,651 4,460 673,120 2,044 783,347 228,868
R Swank
(to 4 December 2000) 27,670 - - - - 27,670 20,233
A Thomas 65,000 - - - - 65,000 51,664
D Wagner/(1)/ - 196,666 25,096 280,000 2,500 504,262 214,407
-------- -------- -------- --------- -------- --------- ---------
161,697 595,268 55,697 1,435,620 13,593 2,261,875 1,213,461
======== ======== ======== ========= ======== ========= =========
</TABLE>
/(1)/ Four Directors were members of the Company's defined contribution pension
scheme in the UK.
/(2)/ One Director was a member of the Company's defined contribution pension
scheme in the US.
The Company made contributions totalling (Pounds)11,549 to the UK scheme and
(Pounds)2,044 to the US scheme on behalf of Directors in 2000.
On 4 May 2000 the Company completed the sale of the ISD to Thomson Corporation.
On this date, Stephen Maller, Jason Molle and Ciaran Morton transferred to
Thomson Corporation and resigned as Directors of the Company. At the same date,
Patrick Sommers became a Non-executive Director of the Company upon the transfer
of his employment to Thomson Corporation. During the year, bonuses were paid to
the Executive Directors in respect of the sale of the ISD, the successful
repayment of the Company's debt and, where applicable, the restructuring and
formation of Bright Station plc. Bonuses payable in 2001 but relating to 2000
are also included in the table, being (Pounds)90,000 to Daniel Wagner and
(Pounds)76,500 to David Mattey.
/(3)/ Patrick Sommers' bonus includes a sum of (Pounds)480,800 paid on
completion of the ISD sale. In addition, he was issued with 71,361 ADSs,
credited as fully paid at a price of $10.51 per ADS.
33
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
This is equivalent to 285,444 Ordinary shares. Patrick Sommers was
restricted from disposing of these shares for a period of 12 months from
the date of issue.
(4) Patrick Sommers was the highest paid Director on the Board during the year
ended 31 December 2000.
Benefits include P11D benefits (non-cash compensation) for the UK Directors, as
discussed in the Remuneration Committee Report.
The following beneficial interests of the Directors of the Company are shown in
the register maintained by the Company in accordance with the Companies Act
1985:
Interests in Ordinary Shares
<TABLE>
<CAPTION>
1 January 31 December % of issued
2000 or, if 2000, or if shares as at
later, on earlier, on 31 December
Name of beneficial owner appointment Acquisitions retirement 2000
<S> <C> <C> <C> <C>
I Barton/(1)/ 479,139 - 479,139 0.28
M Hussey (to 5 September 2000) 242,610 - 242,610 0.14
R Lomnitz/(1)/ (from 22 December 2000) 94,500 - 94,500 0.05
S Maller (to 4 May 2000) 25,441 - 25,441 0.02
D Mattey/(1)/ 2,335,200 - 2,335,200 1.35
J Molle (to 4 May 2000) 135,116 - 135,116 0.08
C Morton (to 4 May 2000) 202,001 - 202,001 0.12
P Sommers/(1)/(2)/ 48,000* 290,496 338,496 0.20
R Swank (to 4 December 2000) 32,000* - 32,000 0.02
A Thomas/(1)/ 100,000 - 100,000 0.06
D Wagner/(1)/ 17,434,780 - 17,434,780 10.10
----------- ----------- ----------- ------------
Total 21,128,787 290,496 21,419,283 12.42
----------- ----------- ----------- ------------
</TABLE>
* held as American Depositary Shares, one ADS being equivalent to four Ordinary
shares
(1) The interests of the current Directors in the Company's share capital
remained unchanged at 12 June 2001.
(2) On exercise of his options under offers 3 and 4 of the Employee Stock
Purchase Plan, Patrick Sommers had unrealised net gains of (Pounds)248 and
(Pounds)1,225 respectively.
Apart from Daniel Wagner, Prudential plc and Thomson Finance S.A., to the
Company's knowledge, no other person is the owner of more than 5% of the
outstanding Ordinary Shares nor is the Company directly or indirectly owned or
controlled by any other corporation or any government.
The percentages of shares held by each Director are shown based on the Ordinary
Share Capital outstanding of 172,614,502 as at 31 December 2000.
34
Bright Station Plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
9. DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES (continued)
Options over Ordinary Shares
<TABLE>
<CAPTION>
At
At 1 January 31 December
2000, or if 2000, or if
later, on Granted earlier, on Exercise Exercis- Exercis-
Scheme appointment (Cancelled) Exercised retirement price able from able to
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I Barton - - - - - - - -
M Hussey - - - - - - - -
R Lomnitz Executive Scheme 32,000 - - 32,000 (Pounds)0.935 04/05/03 04/05/10
Unapproved Scheme 23,000 - - 23,000 (Pounds)0.935 04/05/03 04/05/07
S Maller SAYE Scheme/(3)/ 7,040 - - 7,040 (Pounds)0.490 01/12/99 31/05/00
SAYE Scheme/(3)/ 2,156 - - 2,156 (Pounds)0.640 04/05/00 04/11/00
SAYE Scheme/(3)/ 308 - - 308 (Pounds)2.240 04/05/00 04/11/00
SAYE Scheme/(3)/ 766 - - 766 (Pounds)1.800 04/05/00 04/11/00
SAYE Scheme/(3)/ 569 - - 569 (Pounds)1.370 04/05/00 04/11/00
SAYE Scheme/(3)/ 1,174 - - 1,174 (Pounds)0.990 04/05/00 04/11/00
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.885 14/03/00 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.730 04/05/00 30/04/02
Unapproved Scheme/(4)/ 120,000 - - 120,000 (Pounds)1.500 04/05/00 08/10/02
Executive Scheme/(4)/ 62,727 - - 62,727 (Pounds)1.100 24/03/97 04/05/01
Executive Scheme/(4)/ 20,000 - - 20,000 (Pounds)0.800 25/04/98 04/05/01
Executive Scheme/(4)/ 17,500 - - 17,500 (Pounds)2.480 04/10/98 04/05/01
Unapproved Scheme/(4)/ 250,000 - - 250,000 (Pounds)4.000 04/05/00 02/07/03
D Mattey SAYE Scheme 17,045 (17,045) - - (Pounds)0.990 01/07/04 31/12/04
SAYE Scheme - 31,839 - 31,839 (Pounds)0.530 01/12/00 31/05/06
Unapproved Scheme 30,000 - - 30,000 (Pounds)1.730 30/04/01 30/04/05
Unapproved Scheme 120,000 - - 120,000 (Pounds)1.500 08/10/01 08/10/05
Unapproved Scheme - 50,000 - 50,000 (Pounds)0.935 04/05/03 04/05/07
Executive Scheme 122,727 - - 122,727 (Pounds)1.100 24/03/97 24/03/04
Unapproved Scheme 325,000 - - 325,000 (Pounds)4.000 02/07/02 02/07/06
J Molle Unapproved Scheme/(4)/ 54,545 - - 54,545 (Pounds)1.100 24/03/97 04/05/01
Unapproved Scheme/(4)/ 17,500 - - 17,500 (Pounds)2.480 04/10/98 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.885 14/03/00 04/05/01
US Stock Option Plan/(1)/ 30,000 - - 30,000 (Pounds)1.730 30/04/99 30/04/02
US Stock Option Plan/(1)/ 120,000 - - 120,000 (Pounds)1.500 08/10/99 08/10/02
Employee Stock Purchase
Plan/(2)/ 5,276 - - 5,276 (Pounds)0.560 05/05/00 05/05/00
US Stock Option Plan/(1)/ 250,000 - - 250,000 (Pounds)4.000 04/05/00 02/07/03
Unapproved Scheme/(4)/ 50,000 - - 50,000 (Pounds)4.000 04/05/00 02/07/03
C Morton SAYE Scheme/(3)/ 35,204 - - 35,204 (Pounds)0.490 01/12/99 31/05/00
Unapproved Scheme/(4)/ 17,500 - - 17,500 (Pounds)2.480 04/10/98 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.885 14/03/00 04/05/01
Unapproved Scheme/(4)/ 30,000 - - 30,000 (Pounds)1.730 04/05/00 30/04/02
Unapproved Scheme/(4)/ 120,000 - - 120,000 (Pounds)1.500 04/05/00 08/10/02
Executive Scheme/(4)/ 61,364 - - 61,364 (Pounds)1.100 24/03/97 04/05/01
Unapproved Scheme/(4)/ 300,000 - - 300,000 (Pounds)4.000 04/05/00 02/07/03
P Sommers US Stock Option Plan/(1)/ 200,000 - - 200,000 (Pounds)1.500 08/10/99 08/10/08
US Stock Option Plan/(1)/ 200,000 - - 200,000 (Pounds)0.900 02/07/00 02/07/09
US Stock Option Plan/(1)/ - 200,000 - 200,000 (Pounds)0.935 04/05/01 04/05/10
Employee Stock Purchase
Plan/(2)/ 2,352 (428) (1,924) - (Pounds)0.820 05/05/00 05/05/00
Employee Stock Purchase
Plan/(2)/ 5,276 (2,148) (3,128) - (Pounds)0.560 05/05/00 05/05/00
Unapproved Scheme/(4)/ 600,000 - - 600,000 (Pounds)4.000 04/05/00 02/07/03
Individual arrangement - 285,444 - 285,444 (Pounds)1.700 05/05/01 05/05/07
R Swank Individual arrangement 26,844 - - 26,844 (Pounds)2.200 14/11/98 14/11/04
Individual arrangement 16,928 - - 16,928 (Pounds)1.850 08/09/99 08/09/05
A Thomas - - - - - - - -
D Wagner SAYE Scheme 17,045 (17,045) - - (Pounds)0.990 01/07/04 31/12/04
SAYE Scheme - 31,839 - 31,839 (Pounds)0.530 01/12/00 31/05/06
Unapproved Scheme 30,000 - - 30,000 (Pounds)1.730 30/04/01 30/04/05
Unapproved Scheme 130,000 - - 130,000 (Pounds)1.500 08/10/01 08/10/05
Unapproved Scheme - 50,000 - 50,000 (Pounds)0.935 04/05/03 04/05/07
Executive Scheme 163,636 - - 163,636 (Pounds)1.100 24/03/97 24/03/04
--------- -------- ------- ---------
Grand Total 3,755,482 612,456 (5,052) 4,362,886
========= ======== ======= =========
</TABLE>
35
Bright Station Plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
/(1)/ Under the terms of the US Stock Option Plan, options are granted in the
form of ADSs at an exercise price expressed in US Dollars. Options
granted under the US Stock Option Plan become exercisable in cumulative
increments as determined by the Remuneration Committee of the Board of
Directors. For the purpose of uniformity, all options detailed above are
expressed in Ordinary shares and in Pounds Sterling.
On 4 May 2000, when Jason Molle transferred to Thomson, his options held under
the US Stock Option Scheme became immediately exercisable, remaining so until
the later of:
. 12 months after the date of transfer, being 4 May 2001, or;
. the fourth anniversary after the date of grant
/(2)/ Under the terms of the Employee Stock Purchase Plan, rights were granted
for eligible US employees to acquire beneficial ownership of Ordinary
shares of the Company by purchasing ADSs. The purchase price may not be
less than the lower of 85% of the fair market value of the ADSs on:
. the offering date, or;
. the purchase date
The total purchase price is met by accumulated payroll deductions over the
course of the offering. All rights to purchase ADSs under the ESPP matured on
completion of the ISD sale, whereupon they lapsed. For the purpose of
uniformity, all rights to purchase ADSs under the ESPP detailed above are
expressed in Ordinary shares and in Pounds Sterling. On exercise of his options
under the ESPP3 and ESPP4 plans, Patrick Sommers made net gains of (Pounds)248
and (Pounds)1,225 respectively.
/(3)/ Following the transfer of Stephen Maller and Ciaran Morton to Thomson,
all outstanding options under the SAYE Scheme became immediately
exercisable (to the value of accumulated savings at the date of transfer)
and remained exercisable for six months, whereupon they lapsed.
/(4)/ On completion of the ISD sale, options held under the Executive Scheme
and Unapproved Scheme by Stephen Maller, Jason Molle, Ciaran Morton and
Patrick Sommers became immediately exercisable and remain so for a period
of 12 months commencing on the later of:
. the date of transfer, being 4 May 2000, or;
. the third anniversary after the date of grant
<TABLE>
<CAPTION>
Long Term Incentive Plan Awards
Granted At 31
during December Exercisable Exercisable
2000 2000 from to
<S> <C> <C> <C> <C>
R Lomnitz 382,353 382,353 29/09/03 29/10/03
D Mattey 500,000 500,000 29/09/03 29/10/03
D Wagner 588,235 588,235 29/09/03 29/10/03
</TABLE>
The first grant under the Long Term Incentive Plan was made on 29 September
2000. Release of the Restricted Share Awards detailed above is contingent on
achievement of the pre-determined performance criteria set out in note 21 and on
payment by the LTIP-holder to the Company of any employer's National Insurance
liability arising thereon.
The mid market price of the Company's Ordinary shares on 29 December 2000, the
last trading day in 2000, was 23.5(pence) per share and the range during 2000
was 23.5(pence) to 232.5(pence) per share. Further details of the Company's
share option schemes are set out in note 21 to the financial statements.
None of the Directors have notified the Company of a beneficial interest in any
other shares, transactions or arrangements that would require disclosure in the
financial statements.
36
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
10. TAXATION ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
UK Corporation tax at 30% (1999: 31%) 10 (65)
Overseas tax 166 1,413
Adjustment relating to earlier years 71 156
Deferred tax charge/(credit) 24 (26)
----------- -----------
Tax charge 271 1,478
============ ===========
11. (LOSS)/EARNINGS PER SHARE
Restated
2000 1999
Attributable loss ((Pounds)) (132,002,000) (5,874,000)
Weighted average number of ordinary shares in issue (no.) 166,572,662 151,928,606
=========== ===========
Loss per share (pence) (79.2) (3.9)
=========== ===========
12. INTANGIBLE FIXED ASSETS
Group Company
(Pounds)'000 (Pounds)'000
Cost
At 31 December 1999 - as previously reported 55,840 17,360
Prior year adjustment (see note 12a) (1,152) (818)
----------- -----------
As restated at 31 December 1999 54,688 16,542
Additions 2,896 489
Disposed of with ISD (58,346) (16,665)
Exchange adjustments 1,128 -
----------- -----------
At 31 December 2000 366 366
=========== ===========
Amortisation
At 31 December 1999 - as previously reported 28,810 12,461
Prior year adjustment (see note 12a) (376) (259)
----------- -----------
As restated at 31 December 1999 28,434 12,202
Provision for year 3,918 926
Disposed of with ISD (32,583) (12,762)
Exchange adjustments 597 -
----------- -----------
At 31 December 2000 366 366
=========== ===========
Net book amount
At 31 December 2000 - -
=========== ===========
As restated at 31 December 1999 26,254 4,340
=========== ===========
</TABLE>
(a) During the year the Company changed its accounting policy for the
eCommerce, Web Solutions and Ventures divisions, as disclosed in note 1 to
these financial statements, such that development costs associated with
these divisions are expensed to the profit and loss account as incurred.
The results for 2000 have been prepared on this revised basis, while the
results for 1999 have been restated to reflect this policy change.
(b) The Company continues to capitalise intangible fixed assets that are
acquired from outside of the Group together with their associated purchase
costs.
37
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
13. GOODWILL
<TABLE>
Group
(Pounds)'000
<S> <C>
Cost
At 31 December 1999 10,281
Additions 257
Disposed of with ISD (1,841)
Deferred consideration adjustment (1,342)
Exchange Adjustment 73
-----------
At 31 December 2000 7,428
===========
Amortisation
At 31 December 1999 476
Disposed of with ISD (113)
Provision for year 617
Exceptional provision for diminution in value 4,084
-----------
At 31 December 2000 5,064
===========
Net book amount
At 31 December 2000 2,364
===========
At 31 December 1999 9,805
===========
</TABLE>
Write Works
On 18 November 1998, the Company acquired 100% of the share capital of Write
Works Limited in an agreement that capped the maximum consideration (payable in
cash and new Ordinary shares) at (Pounds)6,015,000, based on the achievement of
certain earnings targets over the following two financial years (see note 24).
An initial payment of (Pounds)2,152,000 was made on 18 November 1998 (consisting
of cash of (Pounds)1,000,000 and the issue of 694,025 new Ordinary shares at a
price of (Pounds)1.66 per share).
Due to the failure to meet certain of the earnings targets, the remaining
deferred consideration was reduced and further consideration of
(Pounds)1,674,000 (consisting of (Pounds)1,260,000 in cash and the issue of
428,796 new Ordinary shares at a price of (Pounds)0.96 per share) was paid on 11
May 2000. A supplemental agreement was made with the vendors on 20 July 2000
leading to a further cash payment of (Pounds)156,000 on 20 July 2000 and a final
consideration of (Pounds)584,000 (consisting of (Pounds)450,180 in cash and the
issue of 712,959 new Ordinary shares at a price of 18.8 pence per share) on 15
April 2001.
These adjustments to the consideration gave rise to a reduction of
(Pounds)1,342,000 to goodwill.
In view of the trading performance of the eCommerce division, subsequently
supported by the decision to terminate the eCommerce operations, the Company has
made an exceptional provision of (Pounds)4,084,000 against the carrying value of
the remaining goodwill balance associated with the acquisition of Write Works
Limited.
Muscat
The residual goodwill relates to Muscat Limited, which was acquired on 14 August
1997. On 1 December 1999, the Company announced that it had acquired the
remaining 30% minority interest in its UK subsidiary, Muscat Limited. The
consideration of (Pounds)2,500,737 was satisfied by the issue of 3,012,936
Ordinary Shares at (Pounds)0.83 per share.
The resultant goodwill of (Pounds)2,490,000 has been capitalised and will
subsequently be written off over 10 years as set out in Note 1.
38
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
14. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
GROUP (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
COST
At 31 December 1999 3,219 29,914 2,774 362 36,269
Exchange adjustments 49 270 49 (3) 342
Additions 10 2,526 9 - 2,545
Disposals (376) (798) (158) (142) (1,474)
Disposed of with ISD (1,857) (26,842) (2,127) (189) (31,015)
-------- -------- -------- -------- ---------
At 31 December 2000 1,022 5,070 547 28 6,667
======== ======== ======== ======== =========
Depreciation
At 31 December 1999 2,154 18,059 1,420 298 21,931
Exchange adjustments 12 115 16 (3) 140
Provided for the year 106 3,358 171 22 3,657
Disposals (358) (666) (65) (137) (1,226)
Disposed of with ISD (1,177) (16,907) (1,041) (155) (19,280)
-------- -------- -------- -------- ---------
At 31 December 2000 737 3,959 501 25 5,222
======== ======== ======== ======== =========
Net book amount
At 31 December 2000 285 1,111 46 3 1,445
======== ======== ======== ======== =========
At 31 December 1999 1,065 11,855 1,354 64 14,338
======== ======== ======== ======== =========
</TABLE>
The provision for depreciation in the year ended 31 December 2000 includes an
amount of (Pounds)953,000 for the impairment of tangible fixed assets following
a review of the business by the Board of Directors resulting in a decision to
sell or terminate the Group's eCommerce division.
On 10 November 1999, the Company entered into an agreement with International
Computers Limited ("ICL") to outsource the operations of its data center in Palo
Alto, California for a period of seven years. In connection with this
transaction, the Company sold certain assets in the Palo Alto data centre with a
net book value of (Pounds)3,475,000 in return for cash of (Pounds)3,058,000 and
a reduction in outsourcing charges of (Pounds)1,451,000. As part of the disposal
of ISD any obligations arising under this arrangement will be recharged to
Thomson Corporation.
Equipment includes assets under finance leases of (Pounds)49,000 and
(Pounds)12,809,000 at 31 December 2000 and 1999, respectively. Accumulated
depreciation relating to equipment under finance leases totalled (Pounds)2,000
and (Pounds)7,554,000 at 31 December 2000 and 1999, respectively.
39
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
Company (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Cost
At 31 December 1999 1,002 11,357 591 318 13,268
Transfers (to)/from
subsidiary undertakings (401) 126 123 (14) (166)
Additions 4 2,126 15 - 2,145
Disposals - (47) - (128) (175)
Disposed of with ISD (16) (8,814) (158) (163) (9,151)
--------- --------- --------- --------- ---------
At 31 December 2000 589 4,748 571 13 5,921
========= ========= ========= ========= =========
Depreciation
At 31 December 1999 657 9,664 498 266 11,085
Transfers (to)/from
subsidiary undertakings (247) 174 73 (14) (14)
Provided for the year 49 1,879 79 18 2,025
Disposals - (11) - (123) (134)
Disposed of with ISD 7 (7,872) (112) (137) (8,114)
--------- --------- --------- --------- ---------
At 31 December 2000 466 3,834 538 10 4,848
========= ========= ========= ========= =========
Net book amount
At 31 December 2000 123 914 33 3 1,073
========= ========= ========= ========= =========
At 31 December 1999 345 1,693 93 52 2,183
========= ========= ========= ========= =========
</TABLE>
The net book amounts of assets held under finance leases at 31 December 2000 was
(Pounds)47,000 (1999: (Pounds)nil).
15. FIXED ASSET INVESTMENTS
(Pounds)'000
Group
At 31 December 1999 9,635
Additions 1,832
Amounts written off (note 7) (1,944)
Disposals (2,580)
Disposed of with ISD (6,343)
--------
At 31 December 2000 600
========
The additions during the year ended 31 December 2000 relate to minority
investments made by Bright Station Ventures in Internet related businesses.
The Company has provided (Pounds)1,944,000 against the carrying value of its
portfolio of minority investments in the year ended 31 December 2000.
Included within investments is the Company's investment in Sopheon plc, a
company listed on the Alternative Investment Market in London. This holding
arose following the acquisition of Teltech Resources Network Corporation (in
which the Company had an equity interest) by Sopheon plc for gross cash proceeds
of (Pounds)2,699,000 and the issue of 429,127 shares by Sopheon. At 31 December
2000 the carrying amount of the Company's investment in Sopheon was
(Pounds)300,000 and the market value was (Pounds)687,000.
40
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
15. FIXED ASSET INVESTMENTS (continued)
<TABLE>
<CAPTION>
Long term
loans to
group
Investments companies Total
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Company
At 31 December 1999 63,221 123,301 186,522
Amounts written off (4,693) - (4,693)
Additions 3,291 - 3,291
Deferred consideration adjustment (1,342) - (1,342)
Disposals (2,581) (123,301) (125,882)
Disposed of with ISD (48,706) - (48,706)
Provisions for impairment (344) - (344)
Transfers to subsidiary undertakings (100) - (100)
----------- ----------- -----------
At 31 December 2000 8,746 - 8,746
=========== =========== ===========
</TABLE>
The following companies were the Group's principal subsidiary undertakings as at
31 December 2000 and have all been included in the consolidated accounts. Each
subsidiary primarily does business in the country of its
incorporation/registration and all equity is in the form of Ordinary shares or
their equivalent.
<TABLE>
<CAPTION>
Country of
incorporation/ Proportion of Nature of
Company name registration equity held business
<S> <C> <C> <C>
Bright Station Ventures Ltd England 100% 1
Bright Station Contracts Ltd England 100% 2
KMK DigiTex Co. Ltd Japan 100% 3
OfficeShopper.com Holdings plc England 100% 4
OfficeShopper.com Ltd England 100% 5
Smartlogik Holdings plc England 100% 4
Smartlogik Inc USA 100% 6
Smartlogik Ltd England 100% 6
Sparza Ltd England 100% 7
WebTop.com Holdings plc England 100% 4
WebTop Search Ltd (formerly WebTop.com Ltd) England 100% 8
</TABLE>
Key - Nature of business
1 Investment company
2 Dormant company
3 Dormant company in process of liquidation
4 Holding company
5 Provision of on-line office supplies
6 Provision of knowledge management technology
7 Provision of eCommerce procurement systems
8 Provision of indexing and search technology
41
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
16. DEBTORS
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Amounts falling due within one year
Trade debtors 1,268 30,362 435 6,417
Amounts owed by subsidiary undertakings - - 1,491 26,488
Other debtors 922 1,657 712 673
Prepayments and accrued income 1,067 4,671 777 1,680
----------- ----------- ----------- -----------
3,257 36,690 3,415 35,258
Amounts falling due in more than one year
Other debtors 53 - - -
----------- ----------- ----------- -----------
3,310 36,690 3,415 35,258
=========== =========== =========== ===========
</TABLE>
Trade debtors for the Group are stated net of the allowance for doubtful trade
debtor balances which amounted to (Pounds)97,975 at 31 December 2000 (1999:
(Pounds)2,184,000).
Trade debtors for the Company are stated net of the allowance for doubtful trade
debtor balances which amounted to (Pounds)69,975 at 31 December 2000 (1999:
(Pounds)364,000).
17. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Senior Credit Facility - 30,075 - 30,075
Amounts owed to subsidiary undertakings - - - 14,052
Trade creditors 2,914 8,095 1,878 2,806
Obligations under finance leases 20 1,813 20 1,729
Other creditors 952 4,030 945 3,704
Taxation and social security 958 1,008 704 782
Corporation tax - 556 - -
Accruals and deferred income 2,060 24,560 1,453 3,350
Deferred consideration - purchase of subsidiary
(see note 24) 450 1,437 450 1,437
----------- ----------- ----------- -----------
7,354 71,574 5,450 57,935
=========== =========== =========== ===========
</TABLE>
18. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
$180 million 11% Senior Subordinated Notes due 2007 - 108,231 - 108,231
Senior Credit Facility - 22,835 - 22,835
Other creditors - 355 - -
Deferred consideration - purchase of subsidiary
(see note 24) - 1,396 - 1,396
Obligations under finance leases 17 4,553 17 3,283
---------- ----------- ---------- -----------
17 137,370 17 135,745
========== =========== ========== ===========
</TABLE>
42
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
18. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (continued)
Obligations under finance leases are due as follows:
<TABLE>
<CAPTION>
Group Company
2000 1999 2000 1999
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Within 1 year 20 1,813 20 1,729
Within 1 - 2 years 17 3,629 17 3,283
Within 2 - 5 years - 924 - -
----------- ----------- ----------- -----------
37 6,366 37 5,012
=========== =========== =========== ===========
</TABLE>
19. PROVISION FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
Termination
Deferred of property
taxation leases Legal Total
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Group
At 31 December 1999 89 566 775 1,430
Reclassification to creditors - - (545) (545)
Transfer from/(to) profit and loss account 24 - (230) (206)
Disposed of with ISD (113) (566) - (679)
----------- ----------- ----------- -----------
At 31 December 2000 - - - -
=========== =========== =========== ===========
</TABLE>
Deferred taxation
<TABLE>
<CAPTION>
2000 2000 1999 1999
Potential Provided in Potential Provided in
Liability accounts Liability accounts
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Group
Fixed asset related - - 2,704 -
Other timing differences - - 89 89
----------- ----------- ----------- -----------
- - 2,793 89
=========== =========== =========== ===========
</TABLE>
At completion, the Group retains significant tax losses. The quantum of these is
not yet agreed with the Inland Revenue. Subject to the agreement of the Inland
Revenue, the total tax losses accrued at 31 December 2000 and their potential
future benefit can be summarised as follows:
. (Pounds)56 million of capital losses available to offset future capital
profits
. (Pounds)30 million of trading losses available to carry forward against
profits arising from the same trade, as determined by the Inland Revenue
. (Pounds)12 million of non-trading deficits available to offset future non-
trading profits.
<TABLE>
<CAPTION>
2000 2000 1999 1999
Potential Provided in Potential Provided in
Liability accounts Liability accounts
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Company
Fixed asset related - - 1,470 -
Other timing differences - - - -
----------- ----------- ----------- -----------
- - 1,470 -
=========== =========== =========== ===========
</TABLE>
At 31 December 2000, the Company had approximately (Pounds)86.3 million of tax
losses carried forward (1999: (Pounds)13.2 million) giving rise to an unprovided
potential deferred tax asset of (Pounds)27.4 million (1999: (Pounds)3.9
million). Approximately (Pounds)56 million of these tax losses relate to the
capital loss arising on the disposal of ISD (see note 6).
43
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
20. FINANCIAL INSTRUMENTS
The Group's principal financial instruments comprise cash and short-term
deposits and finance leases as well as other financial instruments, such as
trade debtors and trade creditors, that arise directly from its operations.
The Group is exposed to a number of different market risks including interest
rates and foreign currency rates. The Board reviews and agrees policies to
manage each of these risks as follows:
Interest rate risk
The Group deposits surplus funds at fixed rates of interest for relatively short
maturities (less than one month).
Foreign currency risk
Given the relatively small scale of overseas operations, the Group has limited
foreign currency exposure. Foreign currencies are purchased in the spot market
as and when required.
Credit risk
The Group's policy is to place its cash and investments with high-quality
financial institutions in order to limit the amount of credit exposure. The
Group performs ongoing evaluations of its customers' financial condition and
maintains provisions against potential credit losses. Such losses, in the
aggregate, have not exceeded management expectations. Financial instruments
which expose the Group to credit risk are cash, investments and trade debtors,
which generally are not collateralised.
Liquidity risk
The Group maintains a balance between continuity of funding and flexibility
through the use of deposits with a short maturity of less than one month.
Short-term debtors and creditors have been excluded from this note as permitted
under FRS 13.
Interest rate risk profile of financial liabilities
The interest rate risk profile of financial liabilities of the Group at 31
December 2000 was as follows:
<TABLE>
<CAPTION>
Fixed Floating
rate rate
financial financial Finance
liabilities liabilities leases Total
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
At 31 December 2000
Sterling - - (37) (37)
----------- ----------- ----------- -----------
Total - - (37) (37)
=========== =========== =========== ===========
At 31 December 1999
US Dollar 114,550 52,910 - 167,460
Euro related 47 - - 47
----------- ----------- ----------- -----------
Total 114,597 52,910 - 167,507
=========== =========== =========== ===========
</TABLE>
44
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
20. FINANCIAL INSTRUMENTS (continued)
Interest rate risk profile of financial assets
The interest rate risk profile of financial assets of the Group at 31 December
2000 was as follows:
<TABLE>
<CAPTION>
2000 1999
Cash and Cash and
bank bank
deposits deposits
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Currency
Sterling 15,193 4,404
Euro related - 797
Japanese Yen 717 5,055
US Dollar 424 265
----------- -----------
Total 16,334 10,521
=========== ===========
</TABLE>
At 31 December 2000, no deposits had a maturity of greater than one month. As
such, the Company considers the interest rate exposure of cash and bank deposits
to be floating.
The maturity profile of the Group's financial liabilities at 31 December 2000 is
shown in note 18 to the financial statements.
Fair values of financial assets and financial liabilities
In the opinion of the Directors, the carrying amount of cash and bank deposits
is a reasonable estimate of fair value and the market value of the finance lease
obligations approximates the carrying amount, having regard to the interest
rates available to the Group for similar borrowings at the balance sheet date.
45
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. SHARE CAPITAL
<TABLE>
<CAPTION>
2000 1999
Number (Pounds)'000 Number (Pounds)'000
<S> <C> <C> <C> <C>
Authorised:
Ordinary shares of 1 pence each 250,000,000 2,500 199,827,000 1,998
=========== ===== =========== =====
Allotted, called up and fully paid:
Ordinary shares of 1 pence each 172,614,502 1,726 154,943,398 1,549
=========== ===== =========== =====
</TABLE>
During the two years ended 31 December 2000, the following movements occurred in
the Ordinary Shares of the Company:
<TABLE>
<CAPTION>
Shares Shares
Dates Event Number (Pounds)'000 Notes
<S> <C> <C> <C>
As at 31 December 1998 151,467,107 1,514
01/02/99 to 02/12/99 Allotment of shares under the 401(k) Plan 246,620 3 (2)
29/06/99 Employee Stock Purchase Plan 132,248 1 (4)
29/11/99 to 17/12/99 Save As You Earn share option exercises 84,487 1 (5)
30/11/99 Acquisition of outstanding Muscat Ltd
share capital 3,012,936 30 (6)
----------- ------
As at 31 December 1999 154,943,398 1,549
04/01/00 to 05/05/00 Allotment of shares under the 401(k) Plan 68,844 1 (2)
10/01/00 to 19/07/00 Save As You Earn share option exercises 155,335 2 (5)
03/03/00 to 15/03/00 Exercise of share options 194,318 2 (1)
06/03/00 to 06/05/00 Exercise of stock options 31,196 - (7)
27/03/00 Exercise of Muscat share options 84,038 1 (8)
05/05/00 Allotment to JIYU Holdings Ltd 7,038,123 70 (9)
05/05/00 Allotment to Thomson Finance SA 9,297,290 93 (10)
05/05/00 Employee Stock Purchase Plan 87,720 1 (4)
10/05/00 Allotment to Patrick Sommers 285,444 3 (11)
11/05/00 Write Works Ltd acquisition - deferred
consideration 428,796 4 (3)
----------- ------
As at 31 December 2000 172,614,502 1,726
=========== ======
</TABLE>
(1) Exercise of share options
A number of eligible employees exercised their share options at various dates
throughout 2000 in accordance with the Company's share option schemes.
<TABLE>
<CAPTION>
Ordinary Total
Shares issued Price range consideration
<S> <C> <C> <C>
Year
2000 194,318 (Pounds)1.10 to (Pounds)1.885 (Pounds)267,637
=========== ============================= ===============
</TABLE>
(2) 401(k) Investment Savings Plan contributions
Until 2 May 2000, the Company operated a defined contribution pension scheme in
the US (the 401(k) Investment Savings Plan). The Company matched employee
contributions to this Plan at various dates throughout 1998, 1999 and 2000,
partially with the allotment of Ordinary shares valued at market price at the
time of issue and subsequently converted into ADSs.
<TABLE>
<CAPTION>
Ordinary ADS Aggregate
Shares issued equivalent Price range market value
<S> <C> <C> <C> <C>
Year
1999 246,620 61,655 (Pounds)0.66 to (Pounds)1.24 (Pounds)203,596
2000 68,844 17,211 (Pounds)0.92 to (Pounds)1.63 (Pounds)80,108
============= ========== ============================ ===============
</TABLE>
The Plan was terminated on 5 May 2000 due to the transfer of participants to
Thomson Corporation.
(3) Acquisition of Write Works Ltd
On 11 May 2000 interim consideration of (Pounds)1,674,000 (consisting of
(Pounds)1,260,000 in cash and the issue of 428,796 new Ordinary shares at a
price of (Pounds)0.96 per share) was paid (see note 13).
46
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. SHARE CAPITAL (continued)
(4) Employee Stock Purchase Plan
The Company operated an Employee Stock Purchase Plan for US employees as defined
by section 423(b) of the United States Internal Revenue Code of 1986.
<TABLE>
<CAPTION>
Ordinary ADS Aggregate
Shares issued equivalent market value
<S> <C> <C> <C>
Year
1999 132,248 33,062 (Pounds)120,346
2000 87,720 21,930 (Pounds)57,850
========== ========== ===============
</TABLE>
(5) Save As You Earn option exercises
At various dates throughout 1999 and 2000, in accordance with the Company's Save
As You Earn Option Scheme, a number of eligible employees exercised their share
options.
<TABLE>
<CAPTION>
Ordinary Total
Shares issued Price range consideration
<S> <C> <C> <C>
Year
1999 84,487 (Pounds)0.49 (Pounds)41,399
2000 155,335 (Pounds)0.49 to (Pounds)0.64 (Pounds)79,348
=========== ============================ ==============
</TABLE>
(6) Acquisition of outstanding Muscat share capital
On 1 December 1999, the Company announced the acquisition of the remaining 30%
interest in the share capital of Muscat Ltd. The purchase consideration was
(Pounds)2,500,737, satisfied by the issue of 3,012,936 Ordinary shares of the
Company. The Ordinary shares were valued at (Pounds)0.83 each, being the average
mid-market price of Ordinary shares of the Company over the five trading days
prior to 30 November 1999. The Company originally acquired 70% of Muscat Ltd in
1997.
(7) Exercise of stock options
A number of eligible employees exercised their options over ADSs at various
dates throughout 2000 in accordance with the Company's US Stock Option Scheme.
The options were exercised at prices between (Pounds)0.78 and (Pounds)1.87 per
share for a total consideration of (Pounds)31,019.
(8) Exercise of Muscat share options
On 27 March 2000, 84,038 share options were exercised in accordance with the
Muscat Unapproved Share Option Scheme at a price of (Pounds)0.43, representing a
total consideration of (Pounds)36,136.
(9) JIYU Holdings Ltd
On completion of the ISD sale, JIYU Holdings Ltd, a private investment company
unconnected to any of the Company's existing shareholders or investors,
subscribed for 7,038,123 new Ordinary shares at a price of 170.5p per share, for
an aggregate cash consideration of (Pounds)12.0 million. During the year, JIYU
Holdings Ltd transferred their holding to B D Holdings Ltd, another company in
the same Group.
(10) Thomson Finance SA
Following the ISD sale, Thomson Finance SA agreed to subscribe for 9,297,290 new
Ordinary shares in the Company at 170.5p per share, representing an aggregate
cash consideration of (Pounds)15.9 million.
(11) Patrick Sommers
As shown in note 9 to the financial statements, Patrick Sommers was allotted
71,361 ADSs on completion of the ISD sale credited as fully paid at a price of
$10.51 per ADS, being the average mid-market closing price for ADSs during the
period 2 March 2000 to 13 April 2000. This allotment is equivalent to 285,444
ordinary shares. Patrick Sommers was restricted from disposing of these shares
for a period of 12 months from the date of issue.
47
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2000, the Company had in place five option plans; the 1994
Executive Share Option Scheme, the 1994 Savings Related Share Option Scheme, the
1994 Unapproved Executive Share Option Scheme, the 1997 US Stock Option Plan and
the 1998 Employee Stock Purchase Plan. Options over the Company's Ordinary
shares were also granted as part of a rollover arrangement with employees of
Muscat Ltd and options over American Depositary Shares were granted to certain
Non-executive Directors of a US subsidiary under individual arrangements.
Additionally, restricted share awards have been made under the Long Term
Incentive Plan established on 5 September 2000.
At 31 December 2000, the following options are outstanding over the Company's
shares:
Executive Scheme
<TABLE>
<CAPTION>
Date of Exercise Normal exercise ISD employee Options Options
Grant price period exercise period outstanding outstanding
2000 1999
<C> <S> <C> <C> <C> <C>
24/03/1994 (Pounds)1.10 24/03/97 to 24/03/04 350,454 680,863
24/03/1994 (Pounds)1.10 24/03/97 to 04/05/01 263,591 -
25/04/1995 (Pounds)0.80 25/04/98 to 25/04/05 - 20,000
25/04/1995 (Pounds)0.80 25/04/98 to 04/05/01 20,000 -
04/10/1995 (Pounds)2.48 04/10/98 to 04/10/05 40,500 134,500
04/10/1995 (Pounds)2.48 04/10/98 to 04/05/01 91,000 -
14/03/1997 (Pounds)1.89 14/03/00 to 14/03/07 47,980 103,880
14/03/1997 (Pounds)1.89 14/03/00 to 04/05/01 32,500 -
09/04/1998 (Pounds)1.58 09/04/01 to 09/04/08 67,950 214,900
09/04/1998 (Pounds)1.58 04/05/00 to 09/04/02 123,450 -
01/04/1999 (Pounds)1.21 01/04/02 to 01/04/09 36,892 158,832
01/04/1999 (Pounds)1.21 04/05/00 to 01/04/03 96,940 -
02/07/1999 (Pounds)0.91 02/07/02 to 02/07/09 25,000 53,450
02/07/1999 (Pounds)0.91 04/05/00 to 02/07/03 8,450 -
25/08/1999 (Pounds)0.74 25/08/02 to 25/08/09 - 30,000
25/08/1999 (Pounds)0.74 04/05/00 to 25/08/03 20,000 -
04/05/2000 (Pounds)0.94 04/05/03 to 04/05/10 436,550 -
05/09/2000 (Pounds)0.70 05/09/03 to 05/09/10 69,805 -
---------- ----------
Total 1,731,062 1,396,425
========== ==========
</TABLE>
48
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. SHARE CAPITAL (continued)
Unapproved Scheme
<TABLE>
<CAPTION>
Date of Exercise Normal exercise ISD employee Options Options
Grant price period exercise period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C> <C>
24/03/1994 (Pounds)1.10 24/03/97 to 24/03/01 - 128,863
24/03/1994 (Pounds)1.10 24/03/97 to 04/05/01 128,863 -
04/10/1995 (Pounds)2.48 04/10/98 to 04/10/02 7,500 105,500
04/10/1995 (Pounds)2.48 04/10/98 to 04/05/01 90,500 -
02/01/1996 (Pounds)2.29 02/01/99 to 02/01/03 - 21,834
28/02/1996 (Pounds)1.75 28/02/99 to 28/02/03 15,000 15,000
16/08/1996 (Pounds)2.87 16/08/99 to 16/08/03 25,000 120,000
16/08/1996 (Pounds)2.87 16/08/99 to 04/05/01 60,000 -
14/03/1997 (Pounds)1.89 14/03/00 to 14/03/04 137,020 448,620
14/03/1997 (Pounds)1.89 14/03/00 to 04/05/01 265,000 -
26/03/1997 (Pounds)2.00 26/03/00 to 26/03/04 7,500 7,500
09/04/1998 (Pounds)1.58 09/04/01 to 09/04/05 146,050 376,600
09/04/1998 (Pounds)1.58 04/05/00 to 09/04/02 206,050 -
30/04/1998 (Pounds)1.73 30/04/01 to 30/04/05 90,000 150,000
30/04/1998 (Pounds)1.73 04/05/00 to 30/04/02 60,000 -
08/09/1998 (Pounds)1.70 08/09/01 to 08/09/05 10,000 10,000
08/10/1998 (Pounds)1.50 08/10/01 to 08/10/05 400,000 790,000
08/10/1998 (Pounds)1.50 04/05/00 to 08/10/02 240,000 -
01/04/1999 (Pounds)1.21 01/04/02 to 01/04/06 58,108 261,168
01/04/1999 (Pounds)1.21 04/05/00 to 01/04/03 173,060 -
02/07/1999 (Pounds)0.91 02/07/02 to 02/07/06 75,000 86,550
02/07/1999 (Pounds)0.91 04/05/00 to 02/07/03 11,550 -
02/07/1999 (Pounds)4.00 02/07/02 to 02/07/06 925,000 1,525,000
02/07/1999 (Pounds)4.00 04/05/00 to 02/07/03 600,000 -
04/05/2000 (Pounds)0.94 04/05/03 to 04/05/07 517,450 -
04/05/2000 (Pounds)0.94 04/05/00 to 04/05/04 53,000 -
05/09/2000 (Pounds)0.70 05/09/03 to 05/09/07 17,195 -
--------- ---------
Total 4,318,846 4,046,635
========= =========
</TABLE>
Muscat Unapproved Scheme
<TABLE>
<CAPTION>
Date of Exercise Normal exercise Options Options
Grant price period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
01/10/1997 (Pounds)0.44 01/10/00 to 01/10/04 128,270 128,270
20/10/1997 (Pounds)0.43 20/10/99 to 20/10/04 - 168,077
01/01/1998 (Pounds)0.59 01/01/01 to 01/01/05 44,231 88,462
01/04/1998 (Pounds)0.67 01/04/01 to 01/04/05 103,206 132,693
01/09/1998 (Pounds)0.67 01/09/01 to 01/09/05 36,859 36,859
01/11/1998 (Pounds)0.67 01/11/01 to 01/11/05 - 58,974
01/12/1998 (Pounds)0.67 01/12/01 to 01/12/05 - 29,487
--------- ---------
Total 312,566 642,822
========= =========
</TABLE>
49
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
Savings Related Share Option Scheme
<TABLE>
<CAPTION>
Date of
Savings Exercise Normal exercise Options Options
Contract price period outstanding Outstanding
2000 1999
<S> <C> <C> <C> <C>
01/12/1994 (Pounds)0.49 01/12/99 to 31/05/00 - 133,774
01/06/1995 (Pounds)0.64 01/06/00 to 30/11/00 - 99,183
01/12/1995 (Pounds)2.24 01/12/00 to 31/05/01 - 2,464
01/06/1996 (Pounds)1.80 01/06/01 to 30/11/01 5,750 25,680
01/05/1997 (Pounds)1.74 01/05/02 to 31/10/02 - 2,378
01/07/1998 (Pounds)1.37 01/07/01 to 31/12/01 9,820 55,216
01/07/1998 (Pounds)1.37 01/07/03 to 31/12/03 7,554 37,869
01/07/1999 (Pounds)0.99 01/07/02 to 31/12/02 30,724 118,586
01/07/1999 (Pounds)0.99 01/07/04 to 31/12/04 21,135 128,108
01/12/2000 (Pounds)0.53 01/12/03 to 31/05/04 272,696 -
01/12/2000 (Pounds)0.53 01/12/05 to 31/05/06 84,054 -
--------- ---------
Total 431,733 603,258
========= =========
</TABLE>
Long Term Incentive Plan Awards
<TABLE>
<CAPTION>
Restricted Restricted
Share Share
Date of Exercise Normal exercise Awards Awards
Grant price/(1)/ period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
29/09/2000 Fixed at time of exercise 29/09/03 to 29/10/03 2,926,470 -
19/12/2000 Fixed at time of exercise 19/12/03 to 19/01/04 260,000 -
--------- ---------
Total 3,186,470 -
========= =========
</TABLE>
(1) The release of Restricted Share Awards is contingent on the achievement of
pre-determined performance criteria, set out in the latter part of this
note, and on payment by the employee to the Company of any employers'
National Insurance liability arising upon exercise.
At 31 December 2000, the following options are outstanding over the Company's
American Depositary Shares:
Employee Stock Purchase Plan
<TABLE>
<CAPTION>
Date of
Savings Exercise Normal exercise Options Options
Contract price date outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
01/10/1998 $10.49 30/09/2000 - 4,577
23/04/1999 $ 8.50 22/04/2001 - 13,072
05/10/1999 $ 3.79 04/10/2000 - 32,134
--------- ---------
Total - 49,783
========= =========
</TABLE>
50
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. SHARE CAPITAL (continued)
US Stock Option Plan
<TABLE>
<CAPTION>
Date of Exercise Normal exercise ISD employee Options Options
Grant price period/(1)/ exercise period/(2)/ outstanding outstanding
2000 1999
<S> <C> <C> <C> <C> <C>
09/04/1998 $ 11.00 09/04/99 to 09/04/08 8,625 94,375
09/04/1998 $ 11.00 09/04/99 to 09/04/02 3,125 -
30/04/1998 $ 11.88 30/04/99 to 30/04/08 - 7,500
30/04/1998 $ 11.88 30/04/99 to 30/04/02 7,500 -
08/09/1998 $ 11.81 08/09/99 to 08/09/08 - 18,000
08/10/1998 $ 9.90 08/10/99 to 08/10/08 65,000 110,000
08/10/1998 $ 9.90 08/10/99 to 08/10/02 30,000 -
01/04/1999 $ 8.00 01/04/00 to 01/04/09 10,000 147,750
01/04/1999 $ 8.00 01/04/00 to 01/04/03 11,250 -
02/07/1999 $ 5.75 02/07/00 to 02/07/09 50,000 90,000
02/07/1999 $ 25.74 02/07/02 to 02/07/06 37,500 162,500
02/07/1999 $ 25.74 04/05/00 to 02/07/03 62,500 -
25/08/1999 $ 4.75 25/08/00 to 25/08/09 - 6,250
04/05/2000 $ 3.74 04/05/01 to 04/05/10 58,000 -
----------- -----------
Total 343,500 636,375
=========== ===========
</TABLE>
/(1)/ Options become exercisable in stages. After one year, up to 1/4 of the
number of options granted may be exercised. For the next three years 1/48
of the remaining options become exercisable each subsequent month.
/(2)/ Certain ISD employees' stock options became fully vested on 4 May 2000 and
remain exercisable during the periods shown, in accordance with change of
control provisions in their employment contracts. Options held by all
other employees who transferred to ISD became exercisable on completion,
thereafter they lapsed.
Individual US arrangements
<TABLE>
<CAPTION>
Date of Exercise Options Options
Grant price Exercise period outstanding outstanding
2000 1999
<S> <C> <C> <C> <C>
14/11/1997 $ 14.90 14/11/98 to 14/11/04 6,711 6,711
12/12/1997 $ 10.63 12/12/97 to 05/08/00 /(1)/ - 6,250
08/09/1998 $ 11.81 08/09/99 to 08/09/05 4,232 4,232
01/04/1999 $ 8.00 01/04/99 to 05/08/00 /(1)/ - 6,250
05/05/2000 $ 10.51 05/05/01 to 05/05/07 71,361 -
----------- -----------
Total 82,304 23,443
=========== ===========
</TABLE>
/(1)/ Options become exercisable in cumulative monthly increments during the
year following the date of grant.
<TABLE>
<S> <C>
Total outstanding options and awards granted over Ordinary share equivalents 11,683,893
</TABLE>
1994 Executive Share Option Scheme
In March 1994, the Company adopted the Inland Revenue approved 1994 Executive
Share Option Scheme. Under the terms of the Executive Scheme, options to acquire
Ordinary shares may be granted at the discretion of the Remuneration Committee
of the Board of Directors to any employee, including full-time employee
Directors. The exercise price is determined at the date of grant of an option
and shall not be less than the higher of the par value of an Ordinary share and
the closing market price of
51
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
an Ordinary share on the day preceding the date of grant. Options under the
Executive Scheme generally become exercisable on the third anniversary of the
date of grant and lapse on the tenth anniversary of the date of grant. The
number of options which can be granted under the Executive Scheme and the
aggregate exercise price of options available to any individual under an
approved scheme was limited to (Pounds)30,000 in the Finance Act 1996.
Transactions under the Executive Scheme for the year ended 31 December 2000 were
as follows:
<TABLE>
<CAPTION>
Number of
options Exercise Weighted
outstanding price average
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 1,396 0.74-2.48 1.36
Granted 585 0.70-0.94 0.91
Cancelled (176) 0.70-2.48 1.15
Exercised (74) 1.10-1.89 1.18
----------- ----------- -----------
At 31 December 2000 1,731 0.70-2.48 1.24
=========== =========== ===========
Exercisable at 31 December 1999 835 0.80-2.48 1.32
----------- ----------- -----------
Exercisable at 31 December 2000 1,095 0.74-2.48 1.37
=========== =========== ===========
</TABLE>
On completion of the ISD sale, options held by employees who transferred to
Thomson became exercisable and remain so for a period of 12 months commencing on
the later of 4 May 2000 and the third anniversary of the date of grant of the
option.
1994 Unapproved Executive Share Option Scheme
In March 1994, the Company adopted the 1994 Unapproved Executive Share Option
Scheme (the "Unapproved Scheme"). Under the terms of the Unapproved Scheme,
options to subscribe for Ordinary shares may be granted at the discretion of the
Remuneration Committee of the Board of Directors to any employee, including
full-time employee Directors. The exercise price is determined at the date of
grant of an option and shall not be less than the higher of the par value of an
Ordinary share and the closing market price of an Ordinary share on the day
preceding the date of grant. Options under the Unapproved Scheme generally
become exercisable on the third anniversary of the date of grant and lapse on
the seventh anniversary of the date of grant. The number of shares over which
options may be granted under the Unapproved Scheme is consistent with
institutional investor guidelines on overall limits applicable to employee share
schemes. Transactions under the Unapproved Scheme for the year ended 31 December
2000 were as follows:
<TABLE>
<CAPTION>
Number of
options Exercise Weighted
outstanding price average
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 4,046 0.91-4.00 2.53
Granted 589 0.70-0.94 0.93
Cancelled (196) 0.94-2.87 1.92
Exercised (120) 1.50 1.50
----------- ----------- -----------
At 31 December 2000 4,319 0.70-4.00 2.37
=========== =========== ===========
Exercisable at 31 December 1999 514 1.10-2.87 2.00
----------- ----------- -----------
Exercisable at 31 December 2000 737 0.94-4.00 2.35
=========== =========== ===========
</TABLE>
On completion of the ISD sale, options held by employees who transferred to
Thomson became exercisable and remain so for a period of 12 months commencing on
the later of 4 May 2000 and the third anniversary of the date of grant of the
option.
52
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
21. SHARE CAPITAL (continued)
1998 Muscat Unapproved Share Option Scheme
The remaining 30% of the issued share capital of Muscat Ltd (see note 13) was
acquired in December 1999. Prior to the transaction, various Muscat employees
held a total of 436 options at exercise prices ranging from (Pounds)627 to
(Pounds)1,100. Under the 1998 Muscat Unapproved Share Option Scheme, these
employees were offered, and accepted a total of 642,822 replacement options over
Ordinary shares of the Company at exercise prices ranging from (Pounds)0.43 to
(Pounds)0.67 per share. Transactions under the Muscat Scheme for the year ended
31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of
options Exercise Weighted
outstanding price average
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 643 0.43-0.67 0.55
Cancelled (246) 0.43-0.67 0.57
Exercised (84) 0.43 0.43
At 31 December 2000 313 0.44-0.67 0.56
====== ========= ======
Exercisable at 31 December 1999 42 0.43 0.43
------ --------- ------
Exercisable at 31 December 2000 128 0.44 0.44
====== ========= ======
</TABLE>
On completion of the ISD sale, options held by employees who transferred to
Thomson became exercisable for a period of six months, whereupon they lapsed.
1994 Savings Related Share Option Scheme
In March 1994, the Company adopted the 1994 Savings Related Share Option Scheme
("SAYE Scheme"), which was subsequently approved by the Inland Revenue. Under
the rules of the SAYE Scheme, employees and full-time employee Directors with
more than six months' service are eligible to participate. All options are
linked to a contractual savings plan. Participants may save between (Pounds)5
and (Pounds)250 per month over a three or five year period, at the end of which
they are granted a tax-free bonus. Participants may withdraw from their savings
contract at any time (although their options will then lapse) and are not
obliged to exercise their options at the date of maturity. The exercise price is
determined at the date of grant of options and shall not be less than the par
value of an Ordinary share and 85% of the market value of an Ordinary share at
the date of invitation, which ever is the higher. Options under the SAYE Scheme
normally become exercisable on the bonus date and remain exercisable for a
period of six months. The number of shares over which options may be granted
under the SAYE Scheme is consistent with institutional investor guidelines on
overall limits applicable to a company's employee share schemes. Transactions
under the SAYE Scheme for the year ended 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number of
options Exercise Weighted
outstanding price average
000s (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 603 0.49-2.24 0.92
Granted 412 0.53 0.53
Cancelled (428) 0.53-2.24 0.98
Exercised (155) 0.49-0.64 0.51
----------- ----------- -----------
At 31 December 2000 432 0.53-1.80 0.64
=========== =========== ===========
Exercisable at 31 December 1999 134 0.49 0.49
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
53
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
On completion of the ISD sale, options held by employees who transferred to
Thomson became exercisable for a period of six months, whereupon they lapsed.
Long Term Incentive Plan
In September 2000, the Company adopted the Long Term Incentive Plan ("LTIP").
Under the rules of the LTIP, key executives selected by the Remuneration
Committee may receive a deferred promise by the Company to provide shares at no
cost. Awards under the LTIP will normally vest at the end of the "Restricted
Period" of three years, following the achievement of predetermined performance
criteria and on payment by the employee to the Company of any employers'
National Insurance liability arising thereon. There are two performance criteria
associated with all awards made to date:
The performance of the Company's share price over the Restricted Period must
equal or exceed the performance of the techMARK All Share Index for the same
period and the proportion of the award released at the end of the Restricted
Period is determined as detailed:
<TABLE>
<CAPTION>
Company's final average share price
at the end of the Restricted Period Percentage of award released
<S> <C>
Less than (Pounds)1.80 0%
(Pounds)1.80 25%
Between (Pounds)1.80 and (Pounds)2.20 Proportionate release between 25% and 100%
(Pounds)2.20 and above 100%
</TABLE>
Transactions under the LTIP for the year ended 31 December 2000 were as follows:
000's
At 31 December 1999 -
Granted 3,186
-----------
At 31 December 2000 3,186
===========
Exercisable at 31 December 1999 -
-----------
Exercisable at 31 December 2000 -
===========
1998 US Employee Stock Purchase Plan
In June 1998 the Company adopted the 1998 US Employee Stock Purchase Plan (the
"ESPP"), which provides for the grant of "Rights" to purchase ADSs in the
Company. The Rights are intended to qualify as options issued under "employee
stock purchase plans" as defined in Section 423(b) of the Internal Revenue Code
of 1986, as amended ("the Code"). During the period June 1998 to 4 May 2000, all
US resident employees including full-time employee Directors were eligible to
participate. Rights under an offering were linked to accumulated payroll
deductions over the course of an offering. Participants were entitled to
withdraw from the ESPP at any time during an offering, although their Rights
would then lapse. The purchase price of the ADSs was not less than 85% of the
fair market value of ADSs on the offering date or on the purchase date, which
ever was the lower. The purchase price included any UK stamp duty reserve tax
payable in respect of the issue of ADSs.
Under US law, an individual may not purchase more than $25,000 worth of ADSs in
any calendar year (as determined by the fair market value on the offering date).
The number of shares over which Rights may be granted under the ESPP is
consistent with institutional investor guidelines in respect of overall limits
applicable to employee share schemes.
54
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
21. SHARE CAPITAL (continued)
All rights to acquire ADSs under the ESPP matured on completion of the sale of
ISD to Thomson, whereupon 42 employees exercised their options. Transactions
under the ESPP for the year ended 31 December 2000 were as follows:
<TABLE>
<CAPTION>
Number
of options
over ADSs Exercise Weighted
outstanding price average
000s $ $
<S> <C> <C> <C>
At 31 December 1999 41 3.79-10.49 5.64
Cancelled (19) 3.79-10.49 5.49
Exercised (22) 3.46-5.08 4.06
---------- ----------- -----------
At 31 December 2000 - - -
========== =========== ===========
Exercisable at 31 December 1999 - - -
---------- ----------- -----------
Exercisable at 31 December 2000 - - -
========== =========== ===========
</TABLE>
1997 US Stock Option Plan
In November 1997 the Company adopted the 1997 US Stock Option Plan (the
"USSOP"), which provides for the grant of both incentive and non-statutory stock
options to purchase ADSs in the Company. Incentive stock options granted under
the USSOP are intended to qualify as incentive stock options within the meaning
of Section 422 of the US Internal Revenue Code of 1986, as amended (the "Code").
Non-statutory stock options granted under the USSOP are not intended to qualify
as incentive stock options, as defined by the Code. Under the terms of the
USSOP, options to acquire ADSs may be granted by the Remuneration Committee to
any US resident employees including full-time employee Directors.
The exercise price of incentive stock and non-statutory options under the USSOP
may not be less than the fair market value of the ADSs subject to option on the
date of grant and, in some cases, may not be less than 110% of such fair market
value. Options granted under the USSOP vest in cumulative increments, as
determined by the Remuneration Committee, and lapse no later than the tenth
anniversary of the date of grant.
The number of shares over which options may be granted under the USSOP is
consistent with institutional investor guidelines on overall limits applicable
to employee share schemes. Transactions under the USSOP for the year ended 31
December 2000 were as follows:
<TABLE>
<CAPTION>
Number
of options
over ADSs Exercise Weighted
outstanding price average
000s $ $
<S> <C> <C> <C>
At 31 December 1999 637 4.75-25.74 13.11
Granted 58 3.74 3.74
Cancelled (343) 5.75-25.74 11.96
Exercised (8) 4.75-11.81 6.15
----------- ----------- -----------
At 31 December 2000 344 3.74-25.74 12.83
=========== =========== ===========
Exercisable at 31 December 1999 80 9.90-25.74 10.65
----------- ----------- -----------
Exercisable at 31 December 2000 186 5.75-11.88 8.71
=========== =========== ===========
</TABLE>
55
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
Individual US arrangements
Between 1997 and 1999, options over ADSs were granted at the prevailing market
value to certain individuals who were Non-executive Directors of The Dialog
Corporation, the Company's North American subsidiary at the time. Additionally,
on 5 May 2000, Patrick Sommers was granted an option over 71,361 ADSs at a
strike price of $10.51 under an individual arrangement pursuant to an agreement
detailed in Note 9.Transactions under these individual US schemes up to 31
December 2000 were as follows:
Number
of options
over ADSs Exercise Weighted
outstanding price average
000s $ $
At 31 December 1999 23 8.00-14.90 11.36
Granted 71 10.51 10.51
Cancelled (12) 8.00-10.63 9.32
----------- ----------- -----------
At 31 December 2000 82 10.51-14.90 10.93
=========== =========== ===========
Exercisable at 31 December 1999 23 8.00-14.90 11.37
----------- ----------- -----------
Exercisable at 31 December 2000 11 11.81-14.90 13.71
=========== =========== ===========
Warrants
On 17 May 1999, the Company agreed a new term facility of $25 million with Chase
Manhattan Bank International Ltd ("Chase"); between May 1999 and November 1999,
the Company issued a total of 3.0 million warrants to Chase to subscribe for
Ordinary shares in the Company. 1.5 million of those warrants entitle Chase to
subscribe for Ordinary shares at any time before 11 October 2002 (the "2002
Warrants"). The remaining 1.5 million warrants entitle Chase to subscribe for
Ordinary shares at any time up to 14 May 2004 (the "2004 Warrants"). The
subscription price payable for an Ordinary share on exercise of a warrant is
90.6 pence.
The number of 2002 Warrants and 2004 Warrants and/or the exercise price are
adjustable on the occurrence of certain events, including a capital
reorganisation of the Company, a distribution of assets to shareholders or an
issue of Ordinary shares for cash at less than "Fair Market Value", being
defined (whilst the Ordinary shares are listed) as the average of the daily
market prices for an Ordinary share for the 30 consecutive dealing days
commencing 45 dealing days before the relevant date.
On 12 November 1999, warrants to subscribe for an additional 6 million Ordinary
shares (the "2009 Warrants") were issued to the Company's senior lenders, in
consideration of their agreement to relax the covenant arrangements related to
the refinancing of the Company's senior debt. The 2009 Warrants may be exercised
in whole or in part at any time before 12 November 2009, at a subscription price
of 90.6 pence per Ordinary share.
The terms of the 2009 Warrants contain provisions to protect the holders of
those warrants and, for adjusting the subscription price and the number of
warrants in certain circumstances, as discussed above in relation to the 2002
and 2004 Warrants.
At the date of this report, no warrants had been exercised into Ordinary shares
of the Company.
56
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS (continued)
22. SUBSIDIARY COMPANY SHARE OPTIONS
On 5 September 2000, the Company adopted discretionary share option schemes in
respect of four designated subsidiaries; OfficeShopper, Smartlogik, Sparza and
WebTop, for the incentivisation and benefit of key management and staff within
each company.
Under the schemes, which are administered by the Board of Bright Station,
eligible employees may be granted options to acquire Ordinary shares in the
relevant subsidiary at a price no less than the higher of:
(a) the aggregate nominal value of the Ordinary shares under option; or
(b) the aggregate market value of the Ordinary shares under option at the date
of grant as determined by the Board.
1/12 of the number of options granted vest at three monthly intervals following
the date of grant, becoming fully vested on the third anniversary of grant.
Where a participant ceases to hold office within the Group, their vested options
remain exercisable for a period of three years, unless they leave for a
specified reason such as misconduct. However, neither employees nor former
employees may exercise their options unless pre-determined performance criteria
are met.
The aggregate number of shares issued and issuable pursuant to the subsidiary
share option schemes may not exceed 15% of the subsidiary's issued share capital
in any consecutive ten year period. Options not exercised before the expiry of
ten years from the date of grant shall lapse.
At 31 December 2000, the following options were outstanding over Ordinary shares
of subsidiary companies:
<TABLE>
<CAPTION>
OfficeShopper Unapproved Scheme
Options Options
Date of Grant Exercise price outstanding outstanding
2000 1999
<S> <C> <C> <C>
13/10/2000 (Pounds)0.17 3,000,000 -
----------- -----------
Total 3,000,000 -
=========== ===========
<CAPTION>
Smartlogik Unapproved Scheme
Options Options
Date of Grant Exercise price outstanding outstanding
2000 1999
<S> <C> <C> <C>
13/10/2000 (Pounds)2.67 3,287,000 -
30/11/2000 (Pounds)2.67 388,500 -
----------- -----------
Total 3,675,500 -
=========== ===========
<CAPTION>
WebTop.com Unapproved Scheme
Options Options
Date of Grant Exercise price outstanding outstanding
2000 1999
<S> <C> <C> <C>
13/10/2000 (Pounds)0.84 1,916,000 -
13/10/2000 (Pounds)0.75 1,600,000 -
30/11/2000 (Pounds)0.84 972,000 -
----------- -----------
Total 4,488,000 -
=========== ===========
</TABLE>
No grants were made during the year under the Sparza Unapproved Scheme.
57
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
The OfficeShopper.com Holdings plc 2000 Unapproved Share Options Scheme
Transactions under the Scheme for the year ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number
of options Exercise Weighted
outstanding price average
(Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 - - -
Granted 3,000,000 0.17 0.17
----------- ----------- -----------
At 31 December 2000 3,000,000 0.17 0.17
=========== =========== ===========
Exercisable at 31 December 1999 - - -
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
The Smartlogik Holdings plc 2000 Unapproved Share Options Scheme
Transactions under the Scheme for the year ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number
of options Exercise Weighted
outstanding price average
(Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 - - -
Granted 3,911,500 2.67 2.67
Cancelled (236,000) 2.67 2.67
----------- ----------- -----------
At 31 December 2000 3,675,500 2.67 2.67
=========== =========== ===========
Exercisable at 31 December 1999 - - -
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
The WebTop.com Holdings plc 2000 Unapproved Share Options Scheme
Transactions under the Scheme for the year ended 31 December 2000 were as
follows:
<TABLE>
<CAPTION>
Number
of options Exercise Weighted
outstanding price average
(Pounds) (Pounds)
<S> <C> <C> <C>
At 31 December 1999 - - -
Granted 4,516,000 0.75-0.84 0.81
Cancelled (28,000) 0.84 0.84
----------- ----------- -----------
At 31 December 2000 4,488,000 0.75-0.84 0.81
=========== =========== ===========
Exercisable at 31 December 1999 - - -
----------- ----------- -----------
Exercisable at 31 December 2000 - - -
=========== =========== ===========
</TABLE>
58
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
23. SHARE PERMIUM
<TABLE>
<CAPTION>
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Balance at 1 January 154,949 152,128
Premium arising on shares issued 28,085 -
Premium arising on shares issued on exercise of options 1,023 350
Premium arising on shares issued on placing/flotation
and acquisitions of fixed asset investments - 2,471
------------ ------------
Balance at 31 December 184,057 154,949
============ ============
</TABLE>
24. SHARES TO BE ISSUED
On 18 November 1998, the Company acquired 100% of the share capital of Write
Works Limited in an agreement that capped the maximum consideration (payable in
cash and new Ordinary shares) at (Pounds)6,015,000, based on the achievement of
certain earnings targets over the following two financial years.
Due to the failure to meet certain of the earnings targets, the remaining
deferred consideration was reduced and further partial consideration of
(Pounds)1,674,000 (consisting of (Pounds)1,260,000 in cash and the issue of
428,796 new Ordinary Shares at a price of (Pounds)0.96 per share) was paid on 11
May 2000. A supplemental agreement was made with the vendors on 20 July 2000
leading to an interim cash payment of (Pounds)156,000 on 20 July 2000 and a
final consideration of (Pounds)584,000 (consisting of (Pounds)450,180 in cash
and the issue of 712,959 new Ordinary Shares at a price of (Pounds)0.19 per
share) on 17 April 2001. The shares to be issued do not have a dilutive impact
at the year end as they were issued at market value on the 17 April 2001. The
following table details the movement in shares to be issued in the year ended 31
December 2000:
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
At 1 January 2000 967
Revision to deferred consideration (420)
Issue of shares on 11 May 2000 (413)
------------
At 31 December 2000 134
============
</TABLE>
25. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Group
Balance at 1 January (261,079) (249,714)
Loss for the financial year (132,002) (5,874)
Effect of exchange rate movements on net investment in foreign
subsidiaries net of associated borrowings (4,008) 894
Write back of goodwill following disposal of ISD 227,854 -
Effect of exchange rate movements on goodwill written back - (6,385)
----------- -----------
Balance at 31 December (169,235) (261,079)
=========== ===========
</TABLE>
Cumulative goodwill written off at 31 December 2000 amounted to balances
denominated in Pounds Sterling of (Pounds)5,737,000 (1999: (Pounds)226,267,000,
comprising balances denominated in US Dollars of $355,429,000 and balances
denominated in Pounds Sterling of (Pounds)5,737,000).
59
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Company
Balance at 1 January (121,181) (13,720)
Loss for the financial year (35,027) (103,843)
Effect of exchange rate movements on net debt (5,353) (3,618)
----------- -----------
Balance at 31 December (161,561) (121,181)
=========== ===========
</TABLE>
26. RECONCILIATION OF MOVEMENT IN ORDINARY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Group
Loss for the financial year (132,002) (5,874)
Other recognised gains and losses relating to the year (net) (4,008) (5,491)
New share capital subscribed for cash 29,285 355
New share capital subscribed on acquisition of subsidiaries and
other fixed asset investments - 2,501
Decrease in shares to be issued (see note 24) (833) -
Write back of goodwill written back following disposal of ISD 227,854 -
----------- -----------
Net movement in ordinary shareholders' funds 120,296 (8,509)
Ordinary shareholders' funds at 1 January (103,614) (95,105)
----------- -----------
Ordinary shareholders' funds at 31 December 16,682 (103,614)
=========== ===========
<CAPTION>
Restated
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Company
Loss for the financial year (35,027) (103,843)
New share capital subscribed for cash 29,285 355
New share capital subscribed on acquisition of subsidiaries and
other fixed asset investments - 2,501
Effect of exchange rate movements on net debt (5,352) (3,618)
Shares to be issued (833) -
----------- -----------
Net movement in ordinary shareholders' funds (11,928) (104,605)
Shareholders' funds at 1 January 36,284 140,889
----------- -----------
Shareholders' funds at 31 December 24,356 36,284
=========== ===========
</TABLE>
27. MINORITY EQUITY INTERESTS
<TABLE>
<CAPTION>
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Balance at 1 January 543 1,077
Profit attributed to the minorities 37 50
ISD disposal (580) -
Exchange adjustments - 26
Arising from acquisitions during the year - (610)
----------- -----------
- 543
=========== ===========
</TABLE>
60
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
28. COMMITMENTS UNDER OPERATING LEASES AND FINANCE LEASES
As at 31 December 2000, the Group had annual commitments under non-cancellable
operating leases as set out below:
<TABLE>
<CAPTION>
2000 1999
Land and Land and
buildings Other buildings Other
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Operating leases which expire:
Within one year 6 186 31 -
In two to five years 697 57 1,970 40
After five years 332 - 3,700 -
----------- ----------- ----------- -----------
1,035 243 5,701 40
=========== =========== =========== ===========
</TABLE>
29. RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH
(OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Restated
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Operating (loss)/profit (18,081) 19,245
Depreciation charges 2,704 7,482
Impairment of tangible fixed assets 953 -
Amortisation of intangible fixed assets 3,623 9,047
Impairment of intangible assets 295 -
Amortisation of goodwill 617 415
Loss on sale of tangible fixed assets 195 631
Decrease in stocks 1 167
(Increase)/decrease in debtors (2,298) 5,686
Increase/(decrease) in creditors 1,139 (7,607)
Exchange variances 95 401
Cash costs of restructuring (472) (2,660)
----------- -----------
Net cash (outflow)/inflow from operating activities (11,229) 32,807
=========== ===========
</TABLE>
The comparative figures for 1999 have been restated to reflect the change in
disclosure of amounts written off investments.
61
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
30. ANALYSIS OF CHANGES IN NET (DEBT)/FUNDS
<TABLE>
<CAPTION>
Cash and Debt due Debt due
bank within one after one Finance
deposits year year lease Total
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
At 1 January 1999 4,494 (14,678) (133,779) (234) (144,197)
Reclassification of loan from
other creditors - (894) - - (894)
Cash flows 6,304 1,404 (6,933) (2,533) (1,758)
Exchange movements (277) (465) (4,515) 15 (5,242)
Other non-cash changes - - (1,274) (3,614) (4,888)
Other movements - (16,942) 16,942 - -
----------- ----------- ----------- ----------- -----------
At 1 January 2000 10,521 (31,575) (129,559) (6,366) (156,979)
Cash flows 5,813 32,441 140,118 642 179,014
Exchange movements - (866) (4,434) - (5,300)
Other non-cash changes - - (6,125) 5,687 (438)
----------- ----------- ----------- ----------- -----------
At 31 December 2000 16,334 - - (37) 16,297
=========== =========== =========== =========== ===========
</TABLE>
31. CAPITAL COMMITMENTS
Capital commitments as at 31 December were as follows:
<TABLE>
<CAPTION>
2000 1999
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Authorised and contracted for - 403
=========== ===========
</TABLE>
32. POST BALANCE SHEET EVENTS
On 28 February 2001, the Company made its preliminary announcement of its
results for the year ended 31 December 2000. The loss before tax for the year
reported was (Pounds)128,944,000. Certain adjustments to the figures reported in
the preliminary announcement have been made as follows:
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Original loss before tax per preliminary announcement (128,944)
Impairment adjustment (see below) (2,249)
Reclassification of capitalised development costs relating to ISD (501)
-----------
Loss before tax (131,694)
===========
</TABLE>
On 30 April the Group announced its intention to refocus its activities on the
Web Services Division, with the resultant sale and closure of its eCommerce
activities, comprising OfficeShopper and Sparza, and curtailment of head office
activities.
The decision to refocus the activities of the business, as described above,
provided evidence of an impairment in value that had occurred prior to the
balance sheet date. An impairment review of the carrying value of the fixed
assets held in the balance sheet at 31 December 2000 has been performed and an
adjustment to the carrying value was made as follows.
62
Bright Station plc
NOTES TO THE FINANCIAL STATEMENTS(continued)
32. POST BALANCE SHEET EVENTS (continued)
The impairment of fixed assets was calculated as follows:
<TABLE>
<CAPTION>
Original 31 Carrying Revised 31
December value December
2000 adjustments 2000
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Fixed assets
Intangible assets 295 (295) -
Goodwill 2,621 (257) 2,364
Tangible assets 2,398 (953) 1,445
Investments 1,344 (744) 600
----------- ----------- -----------
6,658 (2,249) 4,409
=========== =========== ===========
</TABLE>
A change was also made to the exceptional loss on the disposal of ISD as a
result of a reclassification of capitalised development costs. The effect of
this change has also been detailed above.
The Group is proposing a placing and open offer of 270,000,000 new shares of
1pence each subject to approval by the shareholders at an Extraordinary General
Meeting of the Company to be held on 6 July 2001. The estimated proceeds of the
placing and open offer of approximately (Pounds)12.0 million net of expenses,
are required for the Group to be able to continue in operational existence for
the foreseeable future.
On 12 June 2001, the Company negotiated a secured (Pounds)1.5 million bridging
facility which is to be repaid from the proceeds of the placing and open offer.
63
Bright Station plc
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Discon- Discon-
Continuing tinued Continuing tinued
Operations Operations Total Operations Operations Total
-------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C>
Turnover 8,498 49,144 57,642 9,319 165,133 174,452
Cost of sales (2,044) (22,100) (24,144) (1,389) (66,785) (68,174)
---------------------------------------------------------------------------------------------------------------------
Gross profit 6,454 27,044 33,498 7,930 98,348 106,278
Distribution costs (2,646) (7,613) (10,259) (1,144) (20,974) (22,118)
Administrative expenses
-------------------------------------------------------------------------------
Recurring | (21,875) (15,789) | (37,664) (8,290) (47,483) (55,773) |
Exceptional provision for | | |
diminution in value of goodwill | (4,084) - | (4,084) - - - |
Amortisation of | | |
development costs | - (3,656) | (3,656) - (9,142) (9,142) |
-------------------------------------------------------------------------------
Total administrative expenses (25,959) (19,445) (45,404) (8,290) (56,625) (64,915)
---------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit
-------------------------------------------------------------------------------
Before exceptional item | (18,067) (14) | (18,081) (1,504) 20,749 19,245 |
Exceptional item | (4,084) - | (4,084) - - - |
-------------------------------------------------------------------------------
Operating (loss)/profit (22,151) (14) (22,165) (1,504) 20,749 19,245
Loss on disposal of ISD - (101,688) (101,688) - - -
Loss on termination of subsidiary - - - - (911) (911)
Gain on sale of fixed asset investment - - - - - -
---------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities (22,151) (101,702) (123,853) (1,504) 19,838 18,334
---------- ----------- --------- ----------
Interest receivable 762 305
Amounts written off investments (1,944) (4,619)
Interest payable and similar charges (6,659) (18,366)
---------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities
before taxation (131,694) (4,346)
Taxation on (loss)/profit on
Ordinary activities (271) (1,478)
---------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities
after taxation (131,965) (5,824)
Minority equity interests (37) (50)
---------------------------------------------------------------------------------------------------------------------
Retained (deficit)/profit (132,002) (5,874)
---------------------------------------------------------------------------------------------------------------------
(Loss)/Earnings per share (pence) (79.2) (3.9)
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Discon- Discon- Discon-
Continuing tinued Continuing tinued tinued
Operations Operations Total Operations Operations Total Operations
------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover 3,331 167,431 170,762 367 45,715 46,082 21,443
Cost of sales (82) (71,536) (71,618) (89) (17,077) (17,166) (7,237)
------------------------------------------------------------------------------------------------------------------------------
Gross profit 3,249 95,895 99,144 278 28,638 28,916 14,206
Distribution costs - (21,560) (21,560) - (17,013) (17,013) (9,933)
Administrative expenses
------------------------------------------------------------------------------------------
Recurring | (2,821) (44,354) (47,175) | (297) (22,365) (22,662) | (9,975) |
Exceptional provision for | | | |
diminution in value of goodwill | - - - | - - - | - |
Amortisation of | | | |
development costs | - (7,670) (7,670) | - (11,548) (11,548) | (2,170) |
------------------------------------------------------------------------------------------
Total administrative expenses (2,821) (52,024) (54,845) (297) (33,913) (34,210) (12,145)
------------------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit
------------------------------------------------------------------------------------------
Before exceptional item | 428 22,311 22,739 | (19) (22,288) (22,307) | (7,872) |
Exceptional item | - - - | - - - | - |
------------------------------------------------------------------------------------------
Operating (loss)/profit 428 22,311 22,739 (19) (22,288) (22,307) (7,872)
Loss on disposal of ISD - - - - - - -
Loss on termination of subsidiary - - - - - - -
Gain on sale of fixed asset investment - 2,069 2,069 - 4,035 4,035 -
------------------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities 428 24,380 24,808 (19) (18,253) (18,272) (7,872)
------ -------- -------- ----------
Interest receivable 205 338 1,027
Amounts written off investments (2,300) - -
Interest payable and similar charges (17,436) (2,498) (189)
------------------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities
before taxation 5,277 (20,432) (7,034)
Taxation on (loss)/profit on
Ordinary activities (769) (323) (164)
------------------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities
after taxation 4,508 (20,755) (7,198)
Minority equity interests (356) 11 (28)
------------------------------------------------------------------------------------------------------------------------------
Retained (deficit)/profit 4,152 (20,744) (7,226)
------------------------------------------------------------------------------------------------------------------------------
(Loss)/Earnings per share (pence) 2.8 (20.5) (7.8)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
Bright Station plc
ACCOUNTING GLOSSARY
<TABLE>
<S> <C>
Terms used in Annual Report US equivalent or brief description
Administration expenses General and administration expenses
Allotted Issued
Called up share capital Ordinary shares, issued and fully paid
Capital allowances Tax term equivalent to US tax depreciation
allowances
Cash at bank and in hand Cash
Class of business Industry segment
Creditors Accounts payable
Creditors: Amounts falling due after more Long-term liabilities
than one year
Creditors: Amounts falling due within one year Current liabilities
Debtors Accounts receivable
(Deficit)/retained profit Net (loss)/income
Distribution costs Selling and marketing expenses
Destination (of revenue) The geographical area to which goods or services
are supplied
Finance lease Capital lease
Interest payable and other similar charges Interest expense
Interest receivable Interest income
Operating (loss)/profit (Loss)/income from operations
Profit Income
Profit and loss account Income statement
Profit and loss reserve Retained earnings
(under 'capital and reserves')
Share Capital Ordinary shares, capital stock or common stock
issued and fully paid
Share Premium Account Additional paid-in capital or paid-in surplus (not
distributable)
Shares in issue Shares outstanding
Source (of revenue) The geographical area from which goods or
services are supplied to a third party or another
geographical area
Stocks Inventories
Tangible fixed assets Property and equipment
Taxation on (loss)/profit on ordinary activities (Provision)/benefit for income taxes
Turnover Revenues
</TABLE>
65
Bright Station plc
BRIGHT STATION plc
Notice is hereby given that the Annual General Meeting of Bright Station plc
will be held at the offices of Theodore Goddard, 150 Aldersgate Street, London
EC1A 4EJ on 11 September 2001 at 10:00am for the following purposes:
Ordinary Business
1. To receive and adopt the Accounts of the Company for the year ended 31
December 2000 and the Reports of the Directors and Auditors thereon.
2. To re-appoint Auditors and to authorise the Directors to agree their
remuneration.
Special Business
To consider and, if thought fit, to pass the following resolutions which will be
proposed as Special Resolutions:
3. THAT the Article numbered 72, titled Rotational Retirement at Annual
General Meeting in the printed document submitted to the meeting and, for
the purpose of identification, signed by the Chairman, be approved and
adopted as Article 72 of the Articles of Association of the Company in
substitution for, and to the exclusion of, the existing Article 72.
4. THAT the regulations contained in the printed document submitted to the
meeting and, for the purpose of identification, signed by the Chairman,
such regulations having been adapted from the existing Articles for the
purpose of permitting electronic communications between the Company and its
members, be approved and adopted in substitution for, and to the exclusion
of, the existing Articles.
By order of the Board
JONATHAN BALL
Company Secretary
12 June 2001
Registered Office:
The Communications Building
48 Leicester Square
LONDON WC2H 7DB
Notes
1. Pursuant to Regulation 34 of the Uncertificated Securities Regulations
1995, the Company hereby specifies that a person must be the registered
holder of Ordinary shares of the Company at 10:00am on 9 September 2001 in
order to be entitled to attend and vote at the meeting or adjourned meeting
in respect of those shares. Changes to entries on the Register of Members
after 10:00am on 9 September 2001 will be disregarded in determining the
rights of any person to attend or vote at the meeting. The beneficial
owners of shares held in nominee accounts may attend the meeting on
production of a "S375 letter" from the registered holder, confirming
beneficial ownership.
2. A member entitled to attend and vote at the meeting may appoint a proxy or
proxies, who need not be members of the Company to attend and, on a poll to
vote instead of him or her.
3. If the proxy form accompanying this notice is submitted by a corporation or
executed under a Power of Attorney, in order to be valid, the authority
under which the proxy form is executed (or a copy of the authority
notarially certified) must be lodged together with Computershare Investor
Services plc, PO Box 457, Owen House, 8 Bankhead Crossway North, Edinburgh
EH11 0XG not later than 48 hours before the time appointed for the meeting.
Completion of a form of proxy will not preclude a member from attending and
voting in person at the meeting or any adjournment thereof.
4. In accordance with the Companies Act 1985 and with the requirements of the
London Stock Exchange, copies of the following documents will be available
for inspection at the Company's Registered Office during normal business
hours from the date of this notice until the date of the Annual General
Meeting and will also be available at the place of the meeting for
inspection for at least 15 minutes prior to and during the meeting:
(i) The Register of Directors' Interests in the share capital and
debentures of the Company; and
(ii) Copies of service agreements under which Directors of the Company are
employed and terms of engagement for Non-executive Directors; and
(iii) Copies of the current Articles of Association and of the proposed new
Articles of Association.
66
Bright Station plc
5. Amendment to the Company's Articles with respect to retirement by rotation
of Directors at Annual General Meetings (item 3 on the agenda). The Special
Resolution at item 3 seeks authority to amend the Articles in line with the
Combined Code recommendations on the frequency with which Directors should
offer themselves for re-election. Although the Company complies with the
Combined Code in practice, the Articles would currently permit a Director
to remain in office for more than three years without seeking re-election,
dependent on the size of the Board.
6. Amendments to the Company's Articles permitting electronic communications
(item 4 on the agenda). The Special Resolution at item 4 seeks authority to
make several amendments to the Articles in order to permit electronic
communications between the Company and its members. These amendments have
been drafted in line with the ICSA recommendations. The Company has also
taken the opportunity to make some minor "housekeeping" updates to the
Articles. The sections of the Articles requiring significant alteration are
"Definitions" (clause 1) "Proxies" (clauses 60 to 61), "Notice of Board
Meetings" (clause 99), "Accounts" (clause 133) and "Notices" (clauses 134
to 139).
67
Bright Station plc
SHAREHOLDER CONTACTS
<TABLE>
<S> <C> <C>
Directors and Advisors Allen Thomas Non-executive Chairman
Dan Wagner Chief Executive
David Mattey Chief Financial Officer
Ian Barton Non-executive
Robert Lomnitz Director
Patrick Sommers Non-executive
Company Secretary and Jonathan Ball
Registered Office The Communications Building
48 Leicester Square
London WC2H 7DB
Registered Number 1890236
Auditors PricewaterhouseCoopers
1 Embankment Place
London WC2N 6RH
Principal Bankers The Royal Bank of Scotland plc
London Belgravia Branch
24 Grosvenor Place
London SW1X 7HP
Stockbroker Hoare Govett Ltd
250 Bishopsgate
London EC2M 4AA
Legal Advisors (UK) Theodore Goddard
150 Aldersgate Street
London EC1A 4EJ
Mishcon De Reya
21 Southampton Row
London WC1B 5HS
Legal Advisors (US) Shearman & Sterling
599 Lexington Avenue
New York
NY 10022 USA
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan LLP
2500 First Union Capitol Center
PO Box 2611
Raleigh
North Carolina
NC 27602 USA
</TABLE>
68
Bright Station plc
Investor Relations Campbell Macpherson
Bright Station plc
The Communications Building
48 Leicester Square
London WC2H 7DB
Tel: +44 (0) 20 7930 6900
Fax: +44 (0) 20 7925 7700
campbellmacpherson@brightstation.com
John Olsen
Hogarth Partnership Ltd
The Butlers Wharf Building
36 Shad Thames
London SE1 2YE
Tel: +44 (0) 20 7357 9477
Fax: +44 (0) 20 7357 8533
jolsen@hogarthpr.co.uk
David Collins/Robert Rinderman
Jaffoni & Collins Inc
14th Floor
104 Fifth Avenue
New York
NY 10011 USA
Tel: +1 212 835 8500
Fax: +1 212 835 8525
BSTN@jcir.com
Home pages www.brightstation.com
---------------------
www.smartlogik.com
------------------
www.tradeuk.com
---------------
www.webtop.com
--------------
Registrars (Ordinary shares) Computershare Investor Services plc
PO Box 435
Owen House
8 Bankhead Crossway North
Edinburgh EH11 4BR
Tel: +44 (0) 870 702 0010
Fax: +44 (0) 131 442 4924
Depositary (ADSs) The Bank of New York
Investor Relations Department
PO Box 11258
Church Street Station
New York
NY 10286-1258 USA
Tel: +1 402 963 9394
Fax: +1 212 815 4023
Toll free for US residents only:
Tel: 1-888-BNY-ADRS
(1-888-269-2377)
69
Bright Station plc
INFORMATION FOR INVESTORS
Securities and Exchange Commission filings
The Company from time to time files reports with the United States Securities
and Exchange Commission. A copy of each report filed within the preceding 12
months can be inspected by any shareholder or ADR holder during normal business
hours at the offices of Bright Station plc at The Communications Building, 48
Leicester Square, London WC2H 7DB.
Low-cost dealing service
Hoare Govett Ltd has established a low-cost dealing service which enables
investors to buy or sell holdings of the Company's Ordinary shares in a simple
economic manner. Basic commission is 1% with a minimum charge of (Pounds)10.
Transactions are executed and settled by Pershing Securities Ltd. Forms can be
obtained from Hoare Govett Ltd, 250 Bishopsgate, London EC2M 4AA. Tel: +44 (0)
20 7678 8000
Share price information
The Company's share price is available from the Investor Relations section of
www.brightstation.com
---------------------
Reuters RIC Code - BSN.L
London Stock Exchange Listing
Ordinary Shares
Symbol: BSN
NASDAQ Listing
American Depositary Shares
Symbol: BSTN
Shareholding information on the Internet
Holders of Ordinary shares in Bright Station plc can access details of their
shareholding at our Registrar's website, www.computershare.com (subject to
---------------------
Computershare identity checks) and download documents such as Stock Transfer
Forms and change of address forms. This site also includes information on recent
trends in the Company's share price and a facility for calculating the value of
shares.
Financial Diary for 2001
28 February Results for the year ended 31 December 2000 announced
31 May First quarter trading statement issued
13 June Annual Report posted to shareholders
6 July Extraordinary General Meeting
August Results for the six months to 30 June 2001 announced
11 September Annual General Meeting
November Third quarter trading statement issued
70
www.brightstation.com
[LOGO]
Bright Station Annual Report 1999
EXHIBIT 10.3
Annual Report 1999
[GRAPHICS APPEAR HERE]
(Bright Station logo appears here)
Annual Report 1999
www.brightstation.com
Technology born for business
01
Contents
02 Cross Reference Guide for Form 20-F
03 Description of Business
14 Operating and Financial Review
18 Board of Directors and Company Secretary
19 Corporate Governance and
Internal Financial Control
22 Report of the Directors
24 Statement of Directors' Responsibilities
25 Auditors' Report to the Shareholders
26 Consolidated Profit and Loss Account
27 Consolidated Balance Sheet
28 Company Balance Sheet
29 Consolidated Cash Flow Statement
30 Notes to the Financial Statements
71 Shareholder Information
76 Selected Financial Data
78 Five Year Financial Summary
79 Accounting Glossary
80 Proposed LTIP, Subsidiary Share Option Schemes
and Employee Benefit Trust
85 Notice of Annual General Meeting
87 Shareholder Contacts
88 Information for Investors
IBC Principal Offices
Annual Report 1999
www.brightstation.com
Technology born for business
02
Cross Reference Guide for Form 20-F
The information in this document that is referenced below is included in the
Annual Report on Form 20-F for 1999 (1999 Form 20-F) filed with the United
States Securities and Exchange Commission (SEC). References below to major
headings include all information under such major headings, including
subheadings. References below to subheadings include only the information
contained under such subheadings. Graphs are not included unless specifically
identified below. The 1999 Form 20-F filed with the SEC may contain modified
information and may be updated from time to time. The 1999 Form 20-F has not
been approved or disapproved by the SEC nor has the SEC passed upon the adequacy
of the 1999 Form 20-F.
Item Page
1 Description of business
Description of business 3
2 Description of property
Description of business
Description of property 13
3 Legal proceedings
Notes relating to the financial statements
Note 32 Contingent liabilities 69
4 Control of registrant
Report of the Directors
Substantial shareholdings 22
Notes relating to the financial statements
Note 7 Directors' emoluments and interests in Ordinary shares
Interests in Ordinary shares 38
5 Nature of trading market
Shareholder information
Nature of trading market 71
6 Exchange controls and other limitations affecting security holders
Shareholder information
Exchange controls and other limitations affecting
security holders 72
7 Taxation
Shareholder information
Taxation 72
8 Selected financial data
Selected financial data 76
9 Management's discussion and analysis of financial
condition and results of operations
Operating and financial review 14
Report of the Directors
Year 2000 23
9A Quantitative and qualitative disclosures about market risk
Notes relating to the financial statements
Note 33 Financial instruments 69
10 Directors and officers of registrant
Report of the Directors
Directors and their interests 22
11 Compensation of Directors and officers
Notes relating to the financial statements
Note 7 Directors' emoluments and interests in
Ordinary shares 37
12 Options to purchase securities from registrant or subsidiaries
Notes relating to the financial statements
Note 7 Directors' emoluments and interests in Ordinary shares
Options over Ordinary shares 39
Note 18 Share capital 51
13 Interest of management in certain transactions
Notes relating to the financial statements
Note 31 Subsequent events 68
14 Description of securities to be registered N/A
15 Defaults upon senior securities N/A
16 Changes in securities and changes in security
for registered securities N/A
17 Financial statements N/A
See item 19 for a full list of financial statements included
as part of this Report
18 Financial statements N/A
19 Financial statements
Auditor's report to the Shareholders of Bright Station plc 25
Consolidated profit and loss account for the year
ended 31 December 1999 26
Consolidated balance sheet as at 31 December 1999 27
Company balance sheet as at 31 December 1999 28
Consolidated cash flow statement for the year ended
31 December 1999 29
Notes to the financial statements 30
Cautionary statement regarding forward-looking statements
In order to utilise the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995, Bright Station is providing the
following cautionary statement. This Annual Report and Accounts and 1999 Form
20-F contains certain forward-looking statements with respect to the financial
condition, results of operations and business of Bright Station and certain of
the plans and objectives of Bright Station with respect to these items. In
particular, among other statements, certain statements contained in the Annual
Report and Accounts and certain statements contained in the 1999 Form 20-F,
including the statements in "Item 1 Description of business" with regards to
strategic vision, management objectives, trends in market shares, market
standing and product volumes, certain statements in "Item 3 Legal proceedings"
contained in note 32 to notes relating to the accounts, the statements in "Item
9 Management's Discussion and Analysis of Financial Condition and Results of
Operations" with regard to economic outlook, trends in results of operations,
margins, overall market trends, debt levels, risk management, market risk,
exchange rates, year 2000 and Euro are forward-looking in nature. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and developments
to differ materially from those expressed in such forward-looking statements
including among other things, changes in demand for the Group's products
worldwide, changes in the cost of raw materials, changes in interest rates,
fluctuations in foreign currencies, risk of litigation, the impact of changes in
worldwide and national economies and global production capacity.
Annual Report 1999
www.brightstation.com
Technology born for business
03
Description of Business
Overview
The Company was incorporated and registered in England and Wales in February
1985 as a private limited company and, in February 1994, reregistered as a
public limited company with the name M.A.I.D plc ("M.A.I.D"). On 14 November
1997, M.A.I.D acquired Knight-Ridder Information, Inc. and Knight-Ridder
Information AG (collectively, "KRII") from Knight-Ridder, Inc. (the
"Acquisition"), and M.A.I.D changed its name to The Dialog Corporation plc ("The
Dialog Corporation"). On 4 May 2000, The Dialog Corporation completed a
refinancing and restructuring through the sale of its Information Services
Division (the "ISD"), which has historically accounted for approximately 95% of
its revenues, to The Thomson Corporation ("Thomson") for $275 million
(approximately (pound)173 million) in cash (the "Restructuring"). Net proceeds
of the sale approximated $269 million (approximately (pound)169 million). The
proceeds of the sale to Thomson enabled the Company to repay in full all of its
outstanding senior and high yield debt which totalled approximately $275
million. See "The Restructuring" below.
In conjunction with the Restructuring, The Dialog Corporation changed
its name to Bright Station plc (the "Company"). In addition, in conjunction with
the Restructuring: (i) the Company formed a strategic alliance with Thomson
which resulted in Thomson licensing and acting as a reseller for the
technologies of the Company and the Company acting as a reseller of Thomson's
content; (ii) Thomson subscribed for 9,297,290 new Ordinary shares in the
Company for a cash consideration of (pound)15.9 million, giving Thomson a
holding of 5.4 of the enlarged issued share capital of the Company; and (iii)
Jiyu Holdings subscribed for 7,038,123 new Ordinary shares in the Company for
(pound)12.0 million in cash, giving Jiyu 4.1% of the enlarged issued share
capital of the Company.
The Company's registered office is The Communications Building, 48
Leicester Square, London WC2H 7DB, England, and its telephone number is
+44-20-7930-6900. The Company's web site is www.brightstation.com. As used
herein, the "Company" or the "Group" refers to both Bright Station plc and its
subsidiaries for periods after the consummation of the Restructuring and The
Dialog Corporation plc and its subsidiaries for periods prior to the
Restructuring.
Background
The Company was founded with the objective to develop and operate the first
specialised online database of market research reports in response to the needs
of the advertising and marketing industries. The first database, delivered via a
DOS platform, was developed using M.A.I.D's InfoSort indexing system, and
launched in the UK in October 1985.
M.A.I.D's principal online business information service, Profound, was
launched in June 1995 to provide users - business professionals as well as
information specialists such as corporate librarians - with a powerful, easy to
use, personal computer-based tool to search for and retrieve information from
over 5,000 diverse content publishers.
In August 1997, the Company acquired 70% of Muscat Limited ("Muscat").
Muscat's sophisticated linguistic inference technology provides enhanced
searching capabilities and permits intelligent and natural language queries on
unstructured databases, using a probabilistic strategy that matches ideas rather
than just matching words.
On 14 November 1997, the Acquisition of KRII was completed and The
Dialog Corporation plc was formed. The Acquisition price of $434 million was
funded by a combination of equity ($161.5 million), senior debt ($92.5 million)
and high-yield notes ($180 million). KRII was one of the world's largest
providers of online professional information services, with long standing
relationships with over 20,000 corporations, government organisations and
academic institutions in the US and in over 120 countries world-wide. Through
its core businesses, the US-based Dialog, Canadian-based Infomart and
European-based DataStar services, KRII was a world leader in its core market of
providing online services to research libraries in corporate, government and
academic institutions.
1998 and 1999 witnessed the following highlights for the Company:
- In March 1998, the Company was awarded a five-year contract by the British
Government's Department of Trade and Industry ("DTI") to launch and operate - on
behalf of the DTI - the UK's first ever Internet-based, government-supported
National Exporters Database and Export Sales Leads Service. Bright Station plc
will continue to operate the service, at www.tradeuk.com, which utilises
InfoSort indexing technology and Muscat search technology.
- A suite of powerful information systems, Dialog Select (www.dialogselect.com),
was launched in July 1998. This product range was developed for business
professionals, and is available via the Internet.
- In August 1998, the Company also won a substantial five-year contract from the
British Broadcasting Corporation ("BBC") to provide and run an electronic news
cuttings service delivering essential information to BBC staff, which the
Company will continue to operate as News Information Online ("NEON").
- In October 1998, the Company exercised its option to purchase Responsive
Database Services, Inc. ("RDS") for $2.85 million ((pound)1.7 million). RDS
develops and produces business information and social science databases that are
available to users such as business professionals, public, academic and
specialist libraries through online information services, CD-ROM and the
Internet.
- The Company also strengthened its eCommerce strategy through the acquisition
of Write Works Limited ("Write Works") in November 1998. Write Works, based in
Oxford, England, had developed the UK's first online purchasing and management
control system for businesses. Following the acquisition, the Company's
eCommerce business supplies service, OfficeShopper (www.officeshopper.com), was
launched in December 1998. The Company acquired 100% of the share capital of
Write Works, for an initial consideration of (pound)2.2 million paid in shares
and cash and further consideration of up to a maximum of (pound)3.8 million
(comprised of (pound)2.8 million in cash and shares to the value of (pound)1.0
million) payable on the achievement of certain earnings targets over the first
two years of the agreement.
- In February 1999, the Company restructured its operations into three
divisions:
- the Information Services Division (the "ISD") - containing the
Company's traditional online information products and services;
- the Web Solutions Division (the "WSD") - containing technology
patents and resources; selling and promoting the
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
04
InfoSort structuring and Muscat natural language search technologies
for deployment in client organisations for the management of both
internal and external data, and incorporation into other Internet-based
services.
- the eCommerce Division (the "ECD") - to sell and promote the OfficeShopper
service, and to leverage the underlying eCommerce technologies to provide
eCommerce software solutions.
- Also in February 1999, the Company announced the disposal of its assets held
for resale, the CARL Corporation and The UnCover Company, to Ward Shaw, the
senior member of the management team of both companies, for a consideration of
$2.25 million ((pound)1.35 million). Of the consideration, $1 million was
satisfied in cash, with the balance payable through a loan note, repayable by
January 2001.
- In connection with a new term facility of $25 million agreed between the
Company and Chase Manhattan Bank International Limited ("Chase") on 17 May 1999,
the Company issued to Chase between May 1999 and November 1999 a total of 3
million warrants to subscribe for Ordinary shares in the Company. 1.5 million of
those warrants entitle Chase to subscribe for Ordinary shares at any time before
11 October 2002 (the "2002 Warrants"). The remaining 1.5 million warrants
entitle Chase to subscribe for Ordinary shares at any time up to 14 May 2004
(the "2004 Warrants"). The 2002 Warrants and the 2004 Warrants are exercisable
at a subscription price of 90.6 pence per Ordinary share.
- In June 1999, the Company announced a major strategic alliance with Fujitsu
Limited of Japan, encompassing the rights to sell the Company's online
information services, and licences to utilise in-house and develop a Japanese
version of the Company's InfoSort structuring technology. The first product
utilising this version of InfoSort, called Jsort, was unveiled towards the end
of 1999.
- In August 1999, the Company launched its new eCommerce software sales
business, Sparza Solutions, together with details of Sparza's first major client
win, Spicers Limited.
- End-user Internet portals were introduced in October 1999, in conjunction with
an alliance with Netscape Communications, enabling the ISD to accept credit card
payments for the first time.
- The ISD launched the world's first Web-based trade statistics resource,
TradStat Web (www.tradstatweb.com), in November 1999.
- On 12 November 1999, warrants to subscribe for an aggregate of 6 million
Ordinary shares (the "2009 Warrants") were issued to the Company's senior
lenders (the "Banks") in consideration of the Banks agreeing to relax the
covenant arrangements in connection with the refinancing of the Company's senior
debt. The 2009 Warrants may be exercised, in whole or in part, at any time,
during the period commencing on 12 November 1999 and expiring on 12 November
2009 at a subscription price of 90.6 pence per Ordinary share.
- In November 1999, the Company raised its strategic investment stake in natural
language searching technology company, Muscat Ltd., from 70% to 100%.
- Also in December 1999, the Company launched a new suite of global knowledge
management software products under the "K-working" brand name. K-working
integrates the WSD's proprietary technologies of InfoSort and Muscat. Each
software module in the K-working range is designed to reflect the main processes
of interacting with information, from document generation to information
sharing, all through easy-to-use, intranet-based web-browser interfaces. An
organisation may adopt the full K-working suite, or opt to utilise a selection
of the tools available, depending upon its requirements. As a result of the
Restructuring, the Company retained the technology behind K-working which has
subsequently been rebranded Smartlogik. The Company has also retained the rights
to resell information content due to its strategic alliance with Thomson and
therefore continues to be able to offer knowledge management solutions that
combine a company's internal information with a wide range of premium
information. See "Products and Services" below.
Since the end of 1999, the following events have occurred:
- In January 2000, the ECD entered into an exclusive alliance with leading UK
Internet service provider Freeserve plc (NASDAQ: FREE; LSE: FRE) ("Freeserve"),
to provide a co-branded version of the Company's OfficeShopper service via the
business channel of Freeserve's Internet portal, at www.freeserve.net.
- In March 2000, the Company launched WebTop.com (www.webtop.com), a new
concept-based search engine, revolutionising the way in which people can search
the Internet. WebCheck, a concept-based search tool, featuring "drag and drop"
technology to enable the user to retrieve matches for an entire sentence,
paragraph, document or email, was subsequently introduced as a complementary
desktop application of WebTop.com. See "Products and Services" below.
- In April 2000, the Company announced that it was going to complete a
restructuring (see below) involving the sale of the ISD to Thomson, the
repayment of its corporate debt, the receipt of equity stakes from Thomson and
Jiyu Holdings, and the change of the Company's name to Bright Station plc.
- In May 2000, the Company acquired the underlying technology of boo.com from
the liquidators, KPMG. The Company also retained the services of a significant
number of the technical personnel from boo.com to assist in the development of
the technology and its integration with the Company's Sparza technology.
The Restructuring
Background In November 1997, the Company acquired KRII for $434 million, which
was funded by a combination of equity, senior debt and high yield notes.
In February 1999, following completion of essential restructuring and
cost reduction efforts through 1998, the Company took its first step in focusing
on its three principal areas of opportunity, splitting the Company into three
major divisions - the ISD, the WSD and the ECD.
Throughout 1998 and 1999, the Company focused some of its limited
investment resources on the WSD and ECD businesses, enabling the launch of the
K-working software suite, the WebTop.com search engine, Sparza eCommerce
software solutions and OfficeShopper business supplies eCommerce service.
Nevertheless, the advancement of the growth opportunities across all three
divisions was severely constrained by the Company's capital structure and the
requirements of the lending banks and, as a result, servicing the debt funding
proved a major challenge for a growing business with other significant
requirements to be met from its cash flow.
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
05
In order to consider how best to resolve these constraints and deliver growth in
shareholder value, the Company commenced a formal strategic review in 1999 in
conjunction with its advisers. The process involved a lengthy period of
discussions with various third parties with respect to potential fund raising
proposals (i.e., strategic investment and asset sales).
As a result of the strategic review, the Company concluded that the
sale of the ISD - and the consequent application of the proceeds to repay the
outstanding debt - presented the best way forward to providing appropriate
funding to the Company's technology-based operations, thereby restoring the
opportunity for delivering enhanced shareholder value.
The Transaction On 4 May 2000, the Company completed the Restructuring, which
included the sale of ISD to Thomson. Thomson is a major e-information and
solutions group with significant business interests in media and publishing
which has recognised the value of the Company's online information products,
InfoSort indexing technologies and knowledge management solutions.
Under the terms of the Restructuring, the Company sold to Thomson the
ISD, comprising the entire issued share capital of various subsidiaries of each
of The Dialog Corporation plc and Dotcom Investments BV, including The Dialog
Corporation (the Company's North American subsidiary) in its entirety, together
with the business of the ISD as carried on by The Dialog Corporation plc,
comprising the business of Dialog, Profound and DataStar, for a total
consideration of $275 million, comprising $115 million payable in cash and the
repayment to the Company of intra-group debt of $160 million on completion (the
"Sale"). Net proceeds from the Sale were $269 million (approximately (pound)169
million). In accordance with UK accounting standards, after writing back
goodwill previously written off to reserves upon the acquisition of KRII, the
Company expects to report a loss of approximately (pound)106 million relating to
the Sale, subject to foreign exchange differences. A provision in respect of
this loss will be recognised in the first quarter of 2000. Pursuant to the
Restructuring, the Company agreed for 30 months not to engage in or operate a
business which directly or indirectly aggregates, stores and distributes for
general consumption information similar to that offered by The Dialog
Corporation in relation to the business, or the companies, being sold prior to
the Sale.
On 20 April 2000, the Company purchased for cash all of its outstanding
11% Senior Subordinated Notes due 2007 in the aggregate amount of $180 million
(the "Notes"). The Notes were redeemed at par, together with accrued and unpaid
interest up to, but not including, the date of payment for the Notes accepted
for purchase.
In conjunction with the Sale, the Company and Thomson have formed a
strategic alliance which includes a Reseller Agreement and a Software Licence
and Maintenance Agreement. The Reseller Agreement gives the Company the right to
sell ISD products for a period of not less than three years. The Software
Licence and Maintenance Agreement gives Thomson the right to use software owned
by the Company (e.g., InfoSort) for use in the products of ISD. The Company will
also provide maintenance services in relation to the InfoSort software.
Thomson has also subscribed for 9,297,290 new Ordinary shares in the
Company for a cash consideration of (pound)15.9 million, giving Thomson a
holding of 5.4% of the enlarged issued share capital of the Company. The
subscription price of 170.5 pence per share was based on the closing price for
an Ordinary share on 21 March 2000 less 5%.
Jiyu Holdings has also subscribed for 7,038,123 new Ordinary shares in
the Company for a cash consideration of (pound)12 million, giving Jiyu a holding
of 4.1% of the enlarged issued share capital of the Company. The subscription
price of 170.5 pence per share was based on the closing price for an Ordinary
share on 21 March 2000 less 5%. Jiyu Holdings is a private investment company,
unconnected to any of the Company's existing shareholders or investors. Jiyu
Holdings' principal shareholder already has substantial investments in a group
of high technology companies (operating in Europe, the Far and Middle East)
involved in the manufacture of digital set-top boxes and other satellite
receiving equipment.
The effect of the Sale has been to reposition the Company to focus on
its eCommerce and Web Solutions Divisions. The proceeds of the Sale enabled the
Company to repay in full all of its outstanding senior and high yield debt,
including interest, which totalled approximately $275 million (approximately
(pound)173 million). The net proceeds of the Sale and the subscriptions by
Thomson and Jiyu Holdings also provide the Company, after repayment of the
indebtedness referred to above, with funds to provide growth capital to the
eCommerce and Web Solutions businesses. In addition, the Company has created a
new Bright Station Ventures Division ("BSV"), an investment business that will
focus on developing promising Internet and eCommerce start-ups, leveraging the
Company's leading edge technologies, management experience and capital. The
Company's new name "Bright Station plc" is intended to reflect this
repositioning.
Continuing Businesses A summary of the Company's continuing businesses and their
strategies is as follows:
Web Solutions Division
The WSD is the "search and structure" technology division. It owns the
intellectual property rights for the Company's proprietary InfoSort automatic
indexing and Muscat probabilistic searching technologies. The focus of the
division is to leverage these technology assets individually or together in the
form of various commercial applications such as the WebTop.com Internet search
engine, WebCheck concept-based desktop search application, and Smartlogik
knowledge management technologies, applications and services.
eCommerce Division
The ECD is the eCommerce technology arm of the Company. It owns the intellectual
property rights to its proprietary Sparza eCommerce software. The focus of the
division is to leverage its eCommerce technology assets both in providing
eCommerce software solutions to businesses, manufacturers, wholesalers and
resellers, and through eCommerce services such as OfficeShopper. OfficeShopper
will continue to grow its user base through both direct sales and alliances with
consumer-focused partners such as Freeserve.
Bright Station Ventures
BSV will seek to develop in-house, and assist externally generated, business
opportunities in the Internet and eCommerce areas. It
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
06
will do this with the application of the Company's proprietary search,
structuring and eCommerce technologies, management expertise and investment
capital. The Company has also proposed a strategic relationship with leading UK
Internet incubator Oxygen Holdings plc. Oxygen board member Matthew Freud has
joined the investment panel of BSV and Bright Station's Chief Executive Dan
Wagner has been appointed to the investment committee of Oxygen Holdings. BSV
intends to make such investments in the coming months as and when suitable
opportunities arise. As of the filing date of this document, BSV has taken a 7%
stake in netimperative.com.
Competitive Strengths
The Company - a provider of knowledge management, technology and eCommerce
solutions - has a number of competitive strengths:
- Proprietary Technologies. Developed over the last 14 years, InfoSort is the
Company's proprietary indexing technology. It is a powerful information
management system for the indexing and categorisation of unstructured data.
InfoSort can be deployed on both databases and corporate intranets, enabling
users to index documents as they are created or acquired, using terminology
unique to their organisation. The Company also owns 100 of Muscat, which offers
sophisticated natural language search and retrieval software, and uses
linguistic inference to search unstructured data. This technology matches
'concepts', instead of the simple key-word matching used by most search engines
today. In addition, the Company owns the Sparza eCommerce software, with its
superior management control, and multi-lingual and multi-currency capabilities.
The Company believes that these technologies offer it a competitive advantage in
the Internet services, knowledge management, and business-to-business eCommerce
environment.
- Content Redistribution Rights. The Company benefits from being able to provide
- along with its Smartlogik knowledge management software tools - high-value
external content from the Dialog, DataStar and Profound databanks. The Company
believes this combination of content and technology provides a competitive
advantage in its knowledge management offerings, compared to other companies in
the marketplace.
- Integrated Service Offerings to Entrepreneurs. The Company believes that the
combination of its proprietary eCommerce and search software, hosting services,
and technology expertise distinguishes BSV from other Internet incubator
companies. In offering these capabilities - as well as the traditional offerings
from technology "incubators," such as seed funding, financial management, legal
advice, project management, business modelling, strategic planning, business
development, design, product development, branding, marketing services, market
analysis and research, and recruitment - BSV is able to provide critical
services to entrepreneurs at every stage of their company's development. In
contrast, many of BSV's competitors offer individual services designed to
address a particular need of Internet-based business, such as funding,
management consulting or investment banking.
Products, Services and Strategy
The Company's strategy is to focus on building its Web Solutions and eCommerce
Divisions and on leveraging the anticipated added value derived from the new BSV
Division.
Web Solutions Division
The WSD owns the intellectual property rights for the Company's proprietary
InfoSort automatic indexing and Muscat probabilistic searching technologies. The
focus of the WSD is to leverage these technology assets individually or together
in the form of various commercial applications.
Technologies:
Object Muscat (open source search engine code): Observing the impact of the Open
Source strategy for technologies such as Linux, the WSD has adopted an Open
Source policy for the new Muscat core search code. Open Sourcing is a growing
trend in the technology community whereby core code is made available freely for
use on a "shareware" basis for private use only. When the technology is embedded
into commercial applications, royalties flow back to the intellectual property
owner (as part of the Open Source contract). This policy precipitates rapid
deployment of a technology and generates significant technological enhancements
for the intellectual property owner (as it is adapted to run on different
operating systems, devices, or plug-ins). Programmers, who download the Open
Source code, upload their enhancements into "development community", thereby
improving the source code for other developers. This Open Source policy will
enable the Company to seed the core search engine (named Object Muscat) into
other market sectors and opportunities (leveraging recent academic insights and
new ideas) and then apply these new methods to its own applications and
products. Object Muscat is a core set of algorithms, useful only to the
developer community, and is not a ready-made application or product.
For example, WebTop.com is one commercial application that uses Object
Muscat code. Thanks to new algorithms developed as a result of feedback from the
open source policy, a new version of the global search engine is expected to be
released with a five times improvement in search speeds. Smartlogik is another
application leveraging the Muscat code for the knowledge management market. Both
of these commercial applications generate royalties to Bright Station as the
owner of the intellectual property rights.
InfoSort (automated categorisation technology): The InfoSort technology
applies index terms (or tags) to information (similar to a filing system for
hard copy documents). The technology incorporates a number of elements,
including technology to automatically create indexes, technology to read
documents, a hierarchy of categorisation terms, rule bases and thesauri, and
technology to automatically apply those terms, rule bases and thesauri to
documents. Thus, InfoSort provides a powerful information management system to
automatically and electronically categorise information by identifying key
topics within the text. A team of information scientists and technologists work
on further developing, updating and improving the InfoSort technologies on an
ongoing basis, and on customising the software for special projects. The Company
regards the intelligent use of indexing and categorisation software as one of
its chief strengths.
These key search and retrieval technologies can also be combined to
create applications that are commercialised by the Company's businesses. There
are currently two such entities within the WSD, Smartlogik and WebTop.com.
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
07
Products and Services:
Smartlogik offers a suite of products, incorporating InfoSort, Discovery and
Alert, which address the processes of information categorisation, retrieval, and
alerting to new information. Smartlogik solutions leverage the InfoSort and
Muscat technologies for the knowledge management, corporate intranet and
Internet markets. Smartlogik tools can collect data from external feeds (such as
The Dialog Corporation's databases), internal databases, internal documentation
on corporate intranets, or data from the Web. This information may then be
filtered through its indexing and search tools to deliver the right information
to the right employee at the right time. In addition, Smartlogik offers a range
of applications, and consulting and implementation services to ensure that its
clients can make full use of the technology. An organisation may adopt the full
Smartlogik suite, or opt to utilise a selection of the tools available,
depending upon its requirements.
The Company believes that one of the major advantages of this knowledge
management application is that it automatically indexes and categorises
documents in real time. This means that it can handle the volumes and speeds
seen in data streams such as news feeds that would overwhelm manual processes.
The Company has retained the rights to distribute content from the
Dialog, DataStar and Profound databases, which allows Smartlogik solutions the
unique opportunity to combine valuable external information with a company's own
internal information base. As companies begin to rely more on their intranets to
share and distribute information, the Company believes that there will be a
growing demand for automatic sorting and intelligent search technologies such as
Smartlogik. Current customers include the BBC, BAA, NASA and the British
Library.
WebTop.com/WebCheck - WebTop.com (www.webtop.com) is an Internet search engine
that combines Muscat's "concept based" retrieval technology with InfoSort's
powerful indexing system to return accurate results from the Internet grouped
into different "zones."
Searches can be executed either through traditional means such as
typing or cutting and pasting text into the search box. Perhaps more
importantly, WebTop.com's WebCheck application allows for searches to be
executed without having to launch a web browser. Users simply drag and drop a
word or a body of text either from a document or email onto the WebCheck icon -
or highlight text in Java-enabled e-mail and click a WebCheck button - to get
immediate results. The application is as simple and intuitive as spell checking
a document.
Special Projects and Alliances:
Department of Trade and Industry - March 1998 - The Company was awarded a
five-year contract by the UK government's Department of Trade and Industry, to
build and operate an online export sales lead service. This service incorporates
an online leads matching service enabling business opportunities, identified by
the UK's Foreign & Commonwealth Office ("FCO") posts around the world, to be
brought to the attention of potential UK exporters. The service also includes a
database of archived export sales leads for UK companies to search for
opportunities abroad. In addition, subscribers will be able to access additional
data relevant to export activity, such as company news and country information.
British Broadcasting Corporation - August 1998 - The Company announced a
substantial five-year contract from the BBC to provide and run a News
Information Online (NEON) service, delivering essential information to BBC
staff. The service utilises the Company's proprietary indexing technology,
InfoSort. Articles are indexed to InfoSort standards and are mapped to existing
terms currently used by BBC personnel, thus tailoring InfoSort terms
specifically for BBC usage.
Fujitsu Limited - June 1999 - The Company and Fujitsu established an
alliance whereby Fujitsu will deploy the Company's InfoSort software in existing
and future products and services. Through its extensive world-wide reseller
network, Fujitsu also became a marketing and distribution channel for the
Smartlogik knowledge management solutions and ISD content.
eCommerce Division
The ECD owns the intellectual property rights to its proprietary Sparza
technology. The focus of the ECD is to leverage these technology assets, along
with its start-up management expertise, in the eCommerce arena. Currently the
division operates two core business entities, Sparza Solutions and
OfficeShopper.
Technologies:
Sparza Technology - eCommerce Software Technology - Sparza technology is based
upon a number of elements in addition to the normal eCommerce procurement
software, from comprehensive management reporting functionality to catalogue
creation and maintenance technology, to interface design templates and
multi-lingual and multi-currency options.
Products and Services:
Sparza Solutions - eCommerce Software Solutions - Through its suite of products,
Sparza (www.sparza.com) delivers eCommerce technologies focused on enabling
trade manufacturers, wholesalers, aggregators and retailers to better control
and achieve greater profitability from their industry supply chain and build
closer relationships with resellers, retailers and customers.
Sparza has created a suite of products designed to bring together
buyers and sellers in an efficient electronic chain. This secure hosted
Internet/Intranet solution effectively outsources a company's eCommerce
investment to allow Sparza customers to take advantage of the latest technology
as it emerges.
The Company's recent acquisition of boo.com technology allows Sparza to
offer eCommerce capabilities to retailers by providing a fully hosted solution.
OfficeShopper - Procurement Service - OfficeShopper (www.officeshopper.com) is
an award-winning site that sells leading branded goods at discounted prices,
including office stationery, computer consumables, office equipment, office
furniture and office cleaning products. OfficeShopper enables users to purchase
business supplies either via the Internet or an organisation's corporate
intranet.
Due to the nature of the office supply market, OfficeShopper also
pursues direct mail and traditional catalogue strategies, offering customers the
opportunity to order via the Internet, over the telephone or by fax.
The Company expects to accelerate the growth of business in the UK
through investment in sales staff and by forging
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
08
additional strategic alliances, such as the Freeserve alliance, as a means of
broadening its online user base.
Bright Station Ventures
BSV is a combination of "greenhouse" development resource, seed investment fund
and a panel of industry specialists, bound together by an executive team with
personal experience as Internet entrepreneurs. The division has been established
to help develop new business ideas into successful Internet companies. It will
develop in-house and seek out and take minority stakes in Internet or eCommerce
start-up companies that could benefit from the Company's existing technology,
management experience and capital.
BSV intends to provide entrepreneurs with all the services they need to
launch their Internet idea, so that they can focus on delivering the right
product to market in Internet time. These services include the Company's
proprietary eCommerce and search software, hosting services and technology
expertise, as well as the traditional offerings from technology "incubators"
such as seed funding, financial management, legal advice, project management,
business modelling, strategic planning, business development, design, product
development, branding, marketing services, market analysis and research, and
recruitment.
BSV has relationships with individuals, organisations and partners who
will have a vested interest in the success of each new business idea. The BSV
panel, which is made up of senior executives from within the Internet, media and
investment communities, meet on a regular basis to consider new business ideas
and discuss market opportunities. It is this enterprise network, which the
Company believes gives the BSV its strength and provides the framework within
which entrepreneurs can come together as a powerful and dynamic force in the
global Internet market.
Historic Performance
The following table shows net sales of the Company by operating division in each
of the three years ended 31 December 1997, 1998 and 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Net Sales
-------------------------------------------------------------------------------------------------------------
1997 1997 1998 1998 1999 1999
(pound) million % (pound) million % (pound) million %
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Information Services Division 43.9 95.2 165.3 96.8 165.1 94.7
Web Services Division 0.4 0.9 4.0 2.3 7.9 4.5
eCommerce Division - - 0.1 0.1 1.4 0.8
Other(1) 1.8 3.9 1.4 0.8 - -
-------------------------------------------------------------------------------------------------------------
Total 46.1 100.0 170.8 100.0 174.4 100.00
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The "Other" category relates to royalties earned from the provision of hotel
Internet access.
Industry Background
The Internet is the fastest growing communication medium in history. With over
196 million users in 1999, growing to 502 million by 2003, as estimated by
independent research firm International Data Corporation ("IDC"), the Internet
is dramatically changing how businesses and individuals communicate, share
information, and conduct business. The rapid acceptance of eCommerce, and the
development of content and commercial applications have driven the increased use
of the Internet by businesses and consumers. Forrester Research, Inc.
("Forrester Research") estimates that business-to-business eCommerce will
increase from approximately $109 billion in 1999 to $1.8 trillion in 2003. IDC
estimates that eCommerce software application licensing revenue will grow to
$13.2 billion in 2003, up from $444 million in 1998. The Web, corporate
intranets and extranets are also increasingly becoming the backbone for
accessing, disseminating and managing corporate information. According to IDC,
the growth of Internet content alone, as measured by the number of web pages
worldwide, will grow from 1.7 billion web pages in 1999 to 13.4 billion web
pages in 2003, a compounded annual growth rate of 67%.
Many companies, regardless of their stage of development, have realised
that an effective Internet strategy and solution is paramount to the
competitiveness and sustainability of their businesses. An increasing number of
organisations, including start-up Internet based businesses, are engaging
Internet service firms. IDC projects that spending on Internet-related services
will rise from approximately $13 billion in 1999 to more than $78 billion in
2003, a compounded annual growth rate of 57.
Sales and Marketing
As at 31 December 1999, the Company marketed its services through direct sales
forces in 39 offices and through 24 independent sales agents around the world.
The Company's sales force consisted of approximately 351 full time sales,
marketing and customer support staff in 39 offices worldwide. The telemarketers
contact potential customers by telephone to explain the products and qualify
customer leads which are then given to salespersons for personal follow up. The
salespersons are responsible for calling on potential customers and obtaining
new subscriptions to the products. Once a field salesperson has procured a new
customer subscription, that client is assigned an account manager, who ensures
that the client receives any needed technical support (on site if requested by
the client) and seeks to expand the number of individual users and the amount of
usage within the client organisation. Field sales personnel are paid a minimum
base salary and are otherwise compensated on a commission basis for new
subscriptions. Telemarketers are compensated by a base salary and commissions
based upon qualified leads that subscribe to Dialog, DataStar or Profound
products. Account managers are compensated with a base salary and commission
based upon re-subscription targets and usage fees generated from the accounts
that they manage.
Independent sales representatives/agents are compensated on a
commission calculated as a percentage of subscription and usage fees from
clients they recruit or clients who resubscribe. Independent sales
representatives also provide client service directly to the clients in their
territory.
Following the Restructuring, the Company directly employs approximately
38 personnel in sales, sales support and marketing roles. The Company plans to
extend its sales and marketing resources for its WebTop, Smartlogik, Sparza and
OfficeShopper products in the future in order to enhance market share.
Intellectual Property and Proprietary Rights
The Company considers its InfoSort indexing system, WebTop, and Muscat to be
critical to its future success. The Company regards its InfoSort indexing system
and related software, Smartlogik suite, WebTop search engine and its Muscat
intelligent search engine software as proprietary. It relies primarily on a
combination of statutory and common law copyright, trademark and trade secret
laws, customer licensing agreements, employee and third-
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
09
party non-disclosure agreements and other methods to protect its intellectual
property and proprietary rights. The Company has several patents pending,
primarily relating to its InfoSort technologies and has secured a patent for its
Incremental Viewer.
In addition, the Company may license data from third party providers.
The Company's right to use and distribute information depends almost entirely on
the rights of its third party providers to license such information.
Competition
The Internet and eCommerce industry is intensely competitive and is
characterised by rapid technological change. The Company believes that no single
competitor competes directly across the full range of services and products
offered by its three divisions; however, each division competes or may compete
directly or indirectly with a variety of competitors:
WSD - Smartlogik technologies may compete against advanced Internet
search technology companies such as Autonomy, Infoseek Dataware, Excalibur,
Verity and NetMind; while WebTop.com may compete against Internet search engine
companies such as AltaVista, Ask Jeeves, InfoSpace, Inktomi, Google and
LookSmart.
ECD - OfficeShopper may compete directly or indirectly with
non-Internet based companies such as Staples, OfficeMax and OfficeDepot who have
branched into the eCommerce arena. Sparza Solutions may experience competition,
directly or indirectly, from other Internet companies branching into the
business-to-business eCommerce software sector such as Ariba, Clarus, Commerce
One, Extensity, GE Information Services, Intelysis, Netscape Communications and
TRADE'ex Electronic Commerce Systems. Other current and potential competitors
include OEM providers of shopping technologies and services including Bottom
Dollar, InfoSpace and mySimon, third party merchant aggregators including
Affinia, SnapShot and WizShop, and Internet portals and other captive
marketplace websites, including Amazon.com, America Online, Excite@Home, Yahoo!
and Lycos.
BSV - Numerous public companies such as CMGI, Inc., Internet Capital
Group, Inc., Rare Medium Group, Inc. and Softbank Corp., as well as private
companies such as Idealab! and Divine Interventures, Inc., provide some
combination of the venture funding and development services which may compete
directly or indirectly with BSV.
Employees
As of 31 December 1999, the Company had a total of 1052 full-time employees, of
which 308 were based in the UK, 560 were based in the US and 184 were based
throughout the rest of the world. After the Restructuring, the Company retained
a total of 170 full-time employees, of which 28 are involved in sales and
marketing and 94 in technology and product development. The Company's future
success depends in significant part on the continued service of its key
management, sales, technical and marketing personnel and on its ability to
continue to identify, attract, train, motivate and retain such highly qualified
employees. Competition for such personnel is intense and there can be no
assurance that the Company will be successful in attracting, assimilating,
retaining or motivating such key personnel in the future. None of the Company's
employees are represented by a collective bargaining organisation and the
Company has never experienced any work stoppages.
Risks Associated with the Company
The Company's current line of business has a limited operating history and its
future operating results are uncertain. It is difficult to predict whether the
Company's new divisions will generate future revenues or that the Company will
be profitable.
Following the sale of the ISD to Thomson, the Company was restructured so that
its business operations focused on three divisions, WSD, ECD and BSV. For the
fiscal year ended 31 December 1999, the Company derived approximately 95% of its
revenues from the ISD. The remaining 5% was derived from operations of the WSD
and ECD. Therefore, as it now operates, the Company has a limited operating
history which, together with the relative immaturity of the Company's markets
and other factors described in this Report make the prediction of future
operating results difficult. The Company's past financial performance should not
be considered indicative of future results. Furthermore, despite the strong
revenue growth reported for the WSD and ECD during fiscal 1999, there can be no
assurance that these revenues will continue to increase or will not decrease.
The Company as a whole has not yet achieved the level of revenues necessary to
provide it with operating results that are positive at the earnings level.
In addition, the Company anticipates that additional future revenues
for the WSD and ECD will be derived from Internet advertising, co-branding of
the WebCheck tool and sponsorship of the WebTop.com Zones. The Company's
business could be harmed if Internet advertising does not grow, or if traffic on
its websites is not sufficient to drive business - and therefore revenues - from
sponsors, advertisers and partners.
The Company currently expects to significantly increase its expenses
across each division as it expands its advertising, sales and marketing
expenditures, invests in the development and expansion of its hardware and
technology infrastructure, and dedicates capital and resources to assist the
needs of its portfolio companies. In addition, the Company's future operating
results and prospects must be considered in light of the risks and uncertainties
frequently encountered by companies expanding into new and rapidly evolving
areas such as the Internet and eCommerce industries, including:
- the growth of the market for the Company's products and services and its
ability to develop, extend and market its online service brands, software
products and Internet services;
- the demand for the Company's products and services;
- the level of competition faced by each of the Company's divisions;
- the Company's success in expanding its management team, marketing efforts,
sales force and strategic partnerships;
- the risks associated with providing venture funding and operating
Internet-based businesses; and
- the ability of the Company to control costs.
The markets in which each of the Company's divisions operate are highly
competitive. The Company cannot be certain that its products and services will
be accepted in the market place or capture market share.
The Internet and eCommerce industries are intensely competitive and are
characterised by rapid technological change. The Company believes that no single
competitor competes directly
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
10
across the full range of services and products offered by its three divisions;
however, each division competes or may compete directly or indirectly with a
variety of competitors. See "Description of Business - Competition". The WSD may
compete against advanced Internet search technology and search engine companies.
The ECD may compete directly or indirectly with non-Internet based office
supplies companies that have branched into the eCommerce arena, and from other
Internet companies branching into the business-to-business eCommerce software
sector. BSV may compete with numerous public and private companies that provide
some combination of the venture funding, venture development and venture banking
services which may compete directly or indirectly with BSV.
Most current and many potential competitors have longer company
operating histories, larger customer bases and greater brand recognition in
other business and the Internet and eCommerce markets than the Company. Most of
these competitors also have significantly greater financial, marketing,
technical and other resources. Some may be able to devote more resources to
marketing and promotional campaigns, adopt more aggressive pricing policies and
devote substantially more resources to product, services and systems development
than the Company is able to devote. These competitors may also engage in more
extensive research and development and make more attractive offers to existing
and potential corporate customers, advertisers, syndicators and eCommerce
merchants. There can be no assurance that any such competition, on the basis of
price, scope of products, services and strategic relationships or other factors,
would not have a material adverse effect on the Company's results of operations.
The Company may not be able to secure additional capital or financing to support
its growth and future capital needs.
Each of the Company's three divisions has a limited operating history and little
to no current revenue streams. If the Company is unable to generate sufficient
cash flows from operations to meet the anticipated needs of each division for
working capital and capital expenditures, it will need to raise additional
funds. The Company may be unable to obtain any required additional financing on
favourable terms, if at all. If the Company raises additional funds through the
issuance of equity securities, its equity holders may experience dilution of
their ownership interest, and the newly-issued securities may have rights
superior to those of the Ordinary shares and the ADSs. If the Company raises
additional funds by issuing debt, it may be subject to limitations on its
operations, including limitations on the payment of dividends.
If the Company requires, but is unable to obtain, additional financing
in the future on acceptable terms, or at all, the Company may be unable to:
continue its business strategy; fund the operations of its divisions; develop or
enhance its products and services; make investments in portfolio companies;
respond to competitive pressures, changing business or economic conditions; or
withstand adverse operating results. As a result, the Company's business,
financial condition and operating results may be materially and adversely
affected.
The Company's success depends on its ability to develop new products and
services in response to the rapid technological changes across the industry and
to customer demand. The Company's growth also depends on its ability to develop
brand recognition.
The Internet and eCommerce industries are influenced by rapidly changing
technology, changes in customer needs and frequent introductions of new or
enhanced products and services. Accordingly, the Company believes that its
future success will depend to a great extent upon its ability to meet these
changes by enhancing its existing products and services, increasing its market
presence and the market's awareness of the Company's brand names and developing
and introducing new products and services on a timely basis. Any failure by the
Company to anticipate or respond adequately to technological developments and
customer requirements, or any significant delays in development or introduction
of new products and services, could result in a loss of competitiveness or
revenues and thereby have a material adverse effect on the Company's results of
operations. Additionally, new products, when first released by the Company, may
contain undetected errors or "bugs" that, despite testing by the Company, are
discovered only after a product has been installed and used by customers. There
can be no assurance that errors will not be discovered in the future, causing
delays in product introduction and resulting in negative market reactions to the
new product or service.
Broader brand recognition and a favourable public perception of the
Company's various brands and domain names such as WebTop.com, OfficeShopper and
InfoSort is essential to its future success. Accordingly, the Company intends to
pursue aggressive brand-enhancement strategies, which will include mass market
advertising, promotional programmes and public relations activities. These
expenditures may not result in a sufficient increase in revenues to cover such
advertising and promotional expenses, or if this brand enhancement strategy is
unsuccessful, these expenses may never be recovered and it may be unable to
increase future revenues.
If the Company fails to develop new relationships and enhance existing
relationships with strategic partners and corporate customers, this may
adversely affect its financial results.
In each of the Company's three operating divisions, its ability to achieve
revenue growth in the future will depend on its success in continuing to develop
new relationships and enhance existing relationships with strategic partners,
corporate customers and Internet users. For example, the WSD's strategic
alliance with Fujitsu is a step towards the Company's goal of positioning
InfoSort as an industry standard. The Company also markets its Smartlogik
technology by pursuing strategic alliances with corporations wishing to
integrate its technology into their Internet services. In addition, BSV's
established network of individuals, organisations and partners is important to
its ability to raise capital and provide the operational resources required to
develop successful portfolio companies. Similarly, the success of the ECD's
Sparza Solutions business depends on the Company's ability to attract business
customers, from manufacturers and wholesalers to resellers. The loss of any
strategic partnership or key customer in each of these instances, along with
many others affecting the Company's divisions, could significantly adversely
affect the financial results of the Company as a whole.
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
11
The Company's quarterly operating results are likely to fluctuate. If the
Company fails to meet the expectations of public market analysts or investors,
the market price for its Ordinary shares and ADSs - which is subject to
volatility - may decrease significantly.
The Company's Ordinary shares are listed on the London Stock Exchange and are
publicly traded in the UK. The Company's American Depositary Shares ("ADSs")
have been traded on the Nasdaq National Market since November 1995. The trading
price of the Ordinary shares on the London Stock Exchange, and the ADSs on the
NASDAQ National Market have been subject to wide fluctuations. In addition, in
recent years the stock market in general, and the shares of Internet and
technology companies in particular, have experienced extreme price and volume
fluctuations. This volatility has had a substantial effect on the market prices
of securities issued by many companies for reasons unrelated to their operating
performance. These broad market fluctuations may adversely affect the market
price of the Ordinary shares and ADSs. The market price of the Ordinary shares
and ADSs are directly affected by economic and political conditions in the UK,
in part because the Ordinary shares are listed and traded on the London Stock
Exchange and are subject to local conditions and press comment but also are a
result of differences between operating results reported under US and UK GAAP.
In addition, the quarterly operating results from the ECD and the WSD
have varied significantly in the past and the Company anticipates that its
results as a whole may vary significantly in the future. The Company believes
that period-to-period comparisons of its results of operations may not be
meaningful and should not be relied upon as indicators of future performance.
The Company's operating results may fall below the expectations of securities
analysts or investors in some future quarter or quarters, and this may adversely
affect the market price of the Company's Ordinary shares and ADSs.
Systems failure or delay may cause interruption and disruption of the Company's
services which would harm its business.
The performance of the Company's server and networking hardware and software
infrastructure, whether provided internally or by a third party, is critical to
its business, reputation and ability to attract users, advertisers and partners.
Fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect the
Company's services. The Company's insurance policies may not adequately
compensate it for any losses that may occur due to any failures or interruptions
in its systems.
The Company's systems must accommodate a high volume of traffic and
deliver frequently updated information. The Company's websites may experience
slow response times, or minor or infrequent interruptions. In addition, because
the Company depends upon Internet and other online service providers to provide
consumers with access to the Company's websites, it is limited in its ability to
prevent system failures in the future. Many of these service providers have
sustained significant outages unrelated to the Company's systems in the past and
may experience similar failures in the future. While isolated occurrences of
such events should not have a material impact on the Company's business, if
system failures or slowdowns were sustained or repeated, the Company's revenues
and its reputation could be impaired.
As traffic on the Company's websites continues to increase, it must
expand and upgrade its technology, transaction processing systems and network
hardware and software. The Company may be unable to accurately project the rate
of increase in its traffic and capacity limits on the Company's technology,
network hardware or software or transaction processing systems. If the Company
is unable to expand and upgrade its systems to meet increased use, its business
may be harmed.
The Company may be unable to protect its intellectual property and proprietary
technology and may be liable for infringing the intellectual property rights of
others.
The Company's business is dependent on proprietary technology and other
intellectual property rights - it considers the InfoSort indexing system,
Smartlogik suite, WebTop.com search engine and the Muscat information search and
retrieval technology to be critical to its future success. The Company generally
does not include in its software any mechanisms to prevent or inhibit
unauthorised use, but requires the execution of a license agreement, which
permits use of the Company's products by registered customers. If
misappropriation of the Company's proprietary rights were to occur to any
substantial degree, the Company's results of operations could be materially
adversely affected. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate. In general, the Company
relies primarily on a combination of statutory and common law copyright,
trademark and trade secret laws, customer licensing agreements, employee and
third-party non-disclosure agreements and other methods, rather than patents, to
protect its proprietary rights. In addition, the Company has several patents
pending for its InfoSort technologies.
Despite these precautions, it may be possible for a third party to copy
or otherwise obtain and use the Company's proprietary rights without
authorisation, or to develop similar technology independently. Furthermore, the
laws of certain countries in which the Company makes its products and services
available do not protect the Company's intellectual property rights to the same
extent as the laws of the UK and the US. Litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect its
trade secrets or to determine the validity and scope of the proprietary rights
of others. This type of litigation could result in substantial costs and
diversions of resources, either of which could have a material adverse effect on
the Company's business, financial condition and operating results. While the
Company is not currently engaged in any litigation or legal proceedings with
respect to its intellectual property, there can be no assurance that third
parties will not claim the Company's current or future products infringe on the
proprietary rights of others. The Company expects that software developers
increasingly will be subject to such claims as the number of products and
services in the online information services industry grows. Any such claims,
with or without merit, could result in costly litigation or might require the
Company to enter into royalty or licensing agreements. Such royalty or license
agreements, if required,
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
12
may not be available on terms acceptable to the Company or at all.
In addition, third parties may assert infringement claims against the
Company, alleging infringement of their trademarks and other intellectual
property rights of third parties. These claims and any resulting litigation,
should it occur, could subject the Company to significant liability for damages.
Even if the Company prevails against such claims, litigation of any kind could
be time-consuming and expensive to defend. See "Description of Business -
Intellectual Property and Proprietary Rights."
The legal environment in which the Company operates is uncertain and claims
against it could cause its business to suffer.
It is possible that if any information provided through the WSD's Smartlogik
solutions or WebTop.com search engine contains errors, third parties could make
claims against the Company for losses incurred in reliance on this information.
Further, there is the potential for product liability claims to be asserted
against the Company by end-users who purchase goods and services through the
ECD's business-to-business online shopping solutions. Although the Company
carries general liability insurance, the insurance may not cover potential
claims of this type or be adequate to protect the Company from all liability
that may be imposed.
Risks Associated with the Company's Divisions
Customising the Company's WSD and ECD products and services for corporate
customers is labour intensive.
The Company's strategy in bringing the WSD's Smartlogik technology to market
involves pursuing strategic alliances with corporations wishing to integrate its
technology into their IT systems. Such relationships may involve customisation
of the Smartlogik technology to suit the customer's needs. Likewise, an integral
characteristic of the ECD's Sparza eCommerce solutions is that customers may use
the solution to build fully functional, branded, business-to-business
transaction websites. The customisation of the Company's products may be labour
intensive and it may be difficult to predict the length of the development
cycle, realise revenue goals and manage the Company's internal hiring needs to
meet new projects. Factors affecting the length of the development cycle include
the overall size and complexity of the customer's IT platform, the interaction
with the customer and the dynamic nature of the content.
The Company and its BSV business may incur significant costs to avoid investment
company status and may suffer other adverse consequences if the Company is
deemed to be an investment company.
The Company may incur significant costs to avoid investment company status and
may suffer other adverse consequences if deemed to be an investment company
under the US Investment Company Act of 1940 (the "1940 Act"). Some equity
investments in other businesses made by BSV may constitute investment securities
under the 1940 Act. A company may be deemed to be an investment company if it
owns investment securities with a value exceeding 40% of its total assets,
subject to certain exclusions. Investment companies are subject to registration
under, and compliance with, the 1940 Act unless a particular exclusion or US
Securities and Exchange Commission safe harbor applies. If the Company was
forced to comply with the rules and regulations of the 1940 Act, its BSV
operations may significantly change, and it may be prevented from successfully
executing its BSV business strategy.
BSV's investments will be risky.
A portion of BSV's assets will include equity interests directly and indirectly
acquired in the Company's portfolio companies. It is anticipated that the
portfolio companies will either be developed in-house or be in the early stages
of development. Even though the Company intends to be actively involved in the
affairs of its portfolio companies, it may not be able to control the policies
or directions that these companies take if it owns less than a majority of the
shares of the portfolio companies. The Company makes no assurances that these
companies will be able to successfully achieve their business goals in a timely
manner or at all.
BSV's strategy is to realise a return on its equity interests in
portfolio companies by liquidating its investments through sales of equity, sale
of the portfolio company or otherwise, so its success depends upon the success
of its portfolio companies. Any risk affecting the portfolio companies, whether
such risk be inherent to the Internet and eCommerce industries, driven by a
venture partner's internal operations or reflecting general market conditions,
in turn translates into a risk indirectly affecting the Company. There can be no
assurance that the Company will realise any return on any of its investments, or
that the value of the portfolio companies will not decrease. Moreover, the
trading price of the Company's Ordinary shares and ADSs may be adversely
affected if it does not realise any return on these investments, or if that
return is lower than the market expects. The failure of one or more of the
companies in which the BSV invests, and the timing of any dispositions of its
investments in these companies, could have a material adverse effect on the
Company's business, financial condition and operating results and on the market
price of its equities.
Risks Related to Internet and eCommerce Industry
The Company depends on increasing use of the Internet and on the growth of
eCommerce. If the use of the Internet and of eCommerce solutions do not grow as
anticipated or capacity constraints restrict the use of the Internet as a
commercial marketplace, the Company's business may be seriously harmed.
The Company's WSD and ECD products and services, as well as the success of BSV's
portfolio companies, depend on the increased acceptance and use of the Internet
as a medium of commerce.
The continued growth of the Internet and eCommerce depends on various
factors, many of which are outside the Company's control. These factors include:
- performance and reliability of the Internet may decline as usage grows;
- security, authentication and performance concerns due to hackers; and
- privacy concerns, including those related to the ability of websites to gather
user information without the user's knowledge or consent.
Annual Report 1999
Description of Business
www.brightstation.com
Technology born for business
13
In addition, capacity constraints may cause consumers to reject the Internet as
a viable long-term commercial marketplace. These constraints include:
- potentially inadequate development of the necessary communication and network
infrastructure, particularly if rapid growth of the Internet continues;
- delays in the development or adoption of enabling technologies, performance
improvements, or new standards and protocols; and
- increased governmental regulation.
If acceptance and use of the Internet does not continue to develop at historical
rates or a sufficiently broad base of business customers do not adopt or
continue to use the Internet as a medium for commerce, demand for the Company's
products and services may decline and the financial condition of the Company's
three divisions could be materially adversely affected. Demand and market
acceptance for recently introduced services and products over the Internet and
by eCommerce solutions are subject to a high level of uncertainty, and there
exist few proven services and products.
Any adverse events affecting those industries, whether it be lack of
growth or consumer distrust, would impair the Company's ability to grow its
business.
Privacy concerns relating to the Internet and increasing government regulation
of the Internet could harm the Company's business.
The perception of privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of the Company's products. Legislative or regulatory
requirements may heighten these concerns if businesses must notify website users
that the data captured after visiting certain websites may be used by marketing
entities. Although the Company does not provide details of individual users to
such organisations, its business could be harmed if general consumer privacy
concerns are not adequately addressed.
In addition, as the Internet, eCommerce, and intranet related services
and solutions continue to evolve, the Company expects that local, US, UK and
foreign governments will adopt laws and regulations tailored to the Internet.
This may cover issues like user privacy, taxation of goods and services provided
over the Internet, pricing, content and quality of products and services.
The US Congress recently adopted Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations, and is currently
considering copyright legislation that may extend the right of reproduction held
by copyright holders to include the right to make temporary copies for any
reason.
The imposition of new sales or other taxes could limit the growth of
eCommerce generally and, as a result, demand for the Company's products and
services. Recent federal legislation in the US limits the imposition of state
and local taxes on Internet-related sales, but Congress may choose not to renew
this legislation in 2001, in which case state and local governments in the US
would be free to impose additional taxes on electronically purchased goods. The
Company believes that most companies selling products over the Internet do not
currently collect sales or other taxes on shipments of their products into
states or foreign countries where they are not physically present. However,
these jurisdictions may seek to impose sales or other tax collection obligations
on such companies engaged in eCommerce. Furthermore, there may be calls for more
stringent consumer protection laws that may impose additional burdens on
companies conducting business online.
The law of the Internet remains largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel and taxation apply to the Internet. The adoption or modification of laws
or regulations relating to the Internet, or interpretations of existing law,
could limit the market for eCommerce and Internet related solutions and products
and, therefore, adversely affect the Company's business.
Description of Property
The Company's head office and principal place of business in the UK is The
Communications Building, 48 Leicester Square, London WC2H 7DB where it leases
approximately 14,332 square feet for its executive offices and UK product
development departments.
In addition, the Company leases approximately 4,600 square feet of
office space in Wembley, Middlesex to support the Trade UK service operated in
conjunction with the UK Government's Department of Trade and Industry. The
Company's ECD is currently located in Oxford where it leases approximately 2,700
square feet of office space. The Company also leases approximately 5,500 square
feet of office space in Cambridge to accommodate the WSD.
The Company's field sales and support operations lease facilities in
locations in Europe and the United States. The Company believes that its
existing facilities are adequate for its current needs and that additional space
will be available as needed.
Prior to the sale of the ISD to Thomson which was completed on 4 May
2000, the Company's US operations were based in Cary, North Carolina and in
Mountain View, California. The Company leased approximately 63,743 square feet
of office space in Cary, which served as the sales and administrative
headquarters for the US. The Company also leased approximately 133,500 square
feet of office space in Mountain View (of which 88,532 square feet was leased to
sub-tenants), which housed the US product development group.
During 1999, the Company's principal data centre was in Palo Alto,
California, where it leased approximately 35,500 square feet of space. The
Company also leased approximately 20,900 square feet in Bern, Switzerland which
was both a data centre and a technical support facility for the Datastar
service. The Company's UK mainframe computers were located in Slough, England,
and were managed by a third party specialist company.
On the completion of the sale of the ISD to Thomson, the leases in
Cary, Mountain View, Palo Alto, Bern and Slough, together with all sales and
support leased facilities in the US and Europe, were transferred to Thomson
under the terms of the sale agreement.
Annual Report 1999
www.brightstation.com
Technology born for business
14
Operating and Financial Review
The following review of operating results, liquidity and capital resources has
been prepared in accordance with both the recommendations of the UK Accounting
Standards Board in their statement entitled "Operating and Financial Review",
and recognising the US requirement for a Management's Discussion and Analysis of
Financial Conditions and Results of Operations.
The Company maintains its accounting records and reports its results in
pounds sterling in accordance with UK generally accepted accounting principles
(GAAP). There are significant differences between UK GAAP and US GAAP (see note
30 of Notes to the Financial Statements) and, unless otherwise indicated, all
financial results and analyses in this section refer to the Company's UK GAAP
financial statements and results.
Summary
For much of 1999, due to cash constraints, management's primary focus was on the
resolution of the Company's inappropriate capital structure. This meant that the
Company was managed on a cash basis with little investment in sales and
marketing. Nevertheless, in February 1999, the Company announced the strategic
realignment of its existing operations into three newly formed divisions in
order to provide a greater focus and reporting transparency for its increasing
range of Web-based operations and initiatives. The three new divisions were: (1)
Information Services Division ("ISD"); (2) Web Solutions Division ("WSD"); and
(3) eCommerce Division ("ECD").
On 4 May 2000, the Company completed the disposal of the ISD to Thomson
for $275 million ((pound)176 million) and raised a further (pound)27.9 million
through two equity subscriptions. Following the disposal, the Group has
primarily focused on its remaining eCommerce and Web Solutions Divisions. The
net proceeds of the sale and subscriptions, after repayment in full of the
Group's outstanding senior and high yield debt, will provide the Group with
approximately (pound)44 million in cash to devote to its business. In addition,
the Company has established a new investment business, Bright Station Ventures,
that will focus on developing promising Internet and eCommerce start-ups,
leveraging the Company's leading edge technologies, management experience and
capital.
Divisional turnover and operating profit
Group turnover of (pound)174.5 million compares favourably with reported
turnover in 1998 of (pound)170.8 million. The increase was driven by revenues
resulting from the Company's strategic partnership with Fujitsu, which benefited
both the Company's WSD and the ISD.
Group operating profit for 1999 of (pound)15.1 million shows a decline
of 27% on 1998's operating profit after restructuring costs of (pound)20.7
million.
Information Services Division
This division, sold to Thomson on 4 May 2000, represented the core online
information business offered to information professionals and end-users. The
main product lines included Dialog, DataStar, Profound and CD-ROM which
represented 67%, 9%, 11% and 5% respectively of total divisional sales for 1999.
Reported turnover of (pound)165.1 million for 1999 shows a 0.1% decline
against 1998's turnover of (pound)165.3 million. The ISD, along with the rest of
the business, was hindered by the cash constraints under which the Company was
operating with the result that the Company was unable to invest in sales and
marketing expenditure to the an appropriate degree. These circumstances led to a
decline throughout 1999 that was compensated by the receipt of one-off licence
fees from Fujitsu amounting to (pound)12.6 million.
Operating profit for 1999 of (pound)13.6 million reflects a decline of
36% on 1998's reported operating profit of (pound)21.4 million. The decrease is
largely due to increased staffing levels throughout the division and reflects a
lower level of capitalisation of programming staff used to support the products
successfully released in 1999. Year 2000 compliance costs of approximately
(pound)2 million were an additional drain on resources. Furthermore, there was
an increase in amortisation of development costs of (pound)1.6 million (21%) as
a result of increased product releases.
Under Thomson's ownership, the Company believes that the ISD will
benefit from the greater capital resources that will be devoted to the business
as well as from the synergies inherent in Thomson's existing substantial content
collection and global infrastructure.
Web Solutions Division
The WSD is the "search and structure" technology arm of the Company. It owns the
intellectual property rights for the Company's proprietary InfoSort automatic
indexing and Muscat probabilistic search technologies. The focus of the division
is to leverage these technology assets individually or together in the form of
various commercial applications such as its WebTop.com Internet search engine,
WebCheck concept based desktop search application, and the Smartlogik suite of
knowledge management technologies, applications and services.
Turnover of (pound)7.9 million for 1999 shows a 97% increase against
turnover in 1998 of (pound)4.0 million. The main reason for the increase is the
technology licence from Fujitsu of (pound)4.0 million. Other revenues in the WSD
during 1999 arose from the Company's contracts with the British Broadcasting
Corporation (BBC) and Department of Trade and Industry (DTI) as well as ongoing
sales of Smartlogik's suite of knowledge management technologies, applications
and services.
Operating profit for 1999 of (pound)2.7 million shows an increase of
182% on 1998's operating profit of (pound)1 million due largely to the Fujitsu
technology licence.
eCommerce Division
Following on from the Company's acquisition of Write Works Limited in November
1998, the Company concentrated on OfficeShopper, the UK's first fully integrated
online service for over 40,000 office products and Sparza, the business
responsible for licensing the underlying software to companies wishing to create
their own eCommerce solutions.
Turnover in 1999 for OfficeShopper and Sparza amounted to
(pound)918,000 (1998: (pound)77,000) and (pound)484,000 (1998: (pound)nil)
respectively. OfficeShopper in particular was severely limited by the cash
constraints under which the Company was operating with the result that very
little cash was made available for sales and marketing expenditure. This gave
rise to only modest revenue performance and the Company is confident that, with
sufficient funds provided from the disposal of the ISD, management will be able
to grow revenues significantly.
Similarly, Sparza has suffered from near zero investment in sales and
marketing but nevertheless managed to generate
Annual Report 1999
www.brightstation.com
Technology born for business
15
revenues of (pound)484,000 from its first eight months of trading. Although
revenues are expected to grow as further businesses make use of Sparza's hosted
eCommerce solution, the Company expects 2000 to be a fairly modest year in terms
of revenue growth as management is immediately focused on consolidating and
growing its technical resources.
1999's operating loss of (pound)1.2 million compares to an operating
loss in 1998 of (pound)0.1 million. The increase reflects the inclusion of the
Write Works business for a full year in 1999 as opposed to only the final six
weeks of 1998.
Geographical analysis of turnover
The ISD had operations and offices throughout the United States, Europe and
Asia. During the year ended 31 December 1999, total revenues from overseas
operations outside the United Kingdom increased from (pound)131.8 million in
1998 to (pound)152.8 million in 1999.
Following the disposal of the ISD to Thomson, management expects
substantially all revenues to be generated in the United Kingdom in the near
term.
Cost of sales
Cost of sales decreased by 4.8% from (pound)71.6 million in 1998 to (pound)68.2
million in 1999 and represented 41.9% and 39.1% of turnover respectively.
Due to the significant weighting of revenues to the ISD, cost of sales
within the ISD consists primarily of royalties paid by the Company to content
publishers, whose information is downloaded by a user through the Company's
services. Also relating to the ISD are telecommunications charges and computer
processing costs, and, to a lesser degree, annual fixed fees paid to some
content providers irrespective of the level of usage of that provider's
information. The majority of the ISD's royalties paid to content publishers are
based upon a percentage of net revenue billed to the user which allows the
Company to offer flat-fee packages. However, there is a minority of content
providers to whom royalties are paid on the basis of volume of data accessed,
regardless of the revenue billed to the customer. The number of flat-fee
packages with access to this latter category of content providers increased
slightly during 1999 with a corresponding negative effect on the ISD's gross
margin. The effect of this, however, was more than offset by the benefit of the
Fujitsu licence fees causing the ISD's gross margin to increase slightly from
57.7% in 1998 to 59.9% in 1999.
Cost of sales for the WSD is much lower than the ISD as
technology-based sales, which consist of licence fees and royalties, have
minimal associated direct costs. The majority of 1999's cost of sales consists
of direct costs associated with the Fujitsu technology licence.
Cost of sales within the ECD relate solely to the costs of goods sold
by OfficeShopper. Sales made by Sparza have negligible associated direct costs.
Distribution costs
Distribution costs consist of salaries and commissions paid to sales staff and
account managers, travel and entertainment and similar expenses incurred by
sales personnel, and marketing expenses, including advertisements, marketing
literature and trade shows.
Distribution costs increased slightly from(pound)21.6 million in 1998
to(pound)22.1 million in 1999. Although management had planned to invest
significantly in sales and marketing expenditure across all three divisions,
cash constraints meant that these costs remained largely flat. Following the
disposal of the ISD to Thomson, it is expected that the level of distribution
costs in the WSD and the ECD to rise accordingly.
Administration expenses
Administration expenses consist of all facilities costs (including the Company's
main offices in London, California, North Carolina and Bern, Switzerland, which
house the Company's management, sales, administrative and editorial staff, and
the Company's data centres); remuneration for all employees other than persons
directly involved in selling or account management; and operating expenses for
the Company's data centres (other than telecommunications and processing charges
included in cost of sales as described above).
Administration expenses increased from (pound)44.2 million in 1998 to
(pound)54.7 million in 1999, which represent 25.9% and 31.3% of revenues
respectively. The increase is primarily attributable to increased investment in
staff across all three divisions and also reflects a lower level of
capitalisation of programming staff used to support the products successfully
released in 1999. All Year 2000 issues were successfully resolved but also
necessitated certain additional resources.
Amortisation of product development costs/goodwill
The amortisation of product development costs and goodwill amounted to
(pound)9.7 million, compared to (pound)7.8 million in 1998. The increase is
primarily due to the release in 1999 of a suite of ISD products that further
enabled customers to access content via the Web.
Amounts written off investments
Amounts written off investments in 1999 totalled (pound)4.6 million, an increase
of 100% on 1998's balance of (pound)2.3 million. In 1999 the Company booked a
provision of (pound)3.2 million against its remaining investments in 4th Network
(now renamed eHotel), reflecting further delays in eHotel's proposed initial
public offering. In addition, a further charge of (pound)1.4 million was made
against the Company's investment in Frost & Sullivan Electronic Distribution LLC
reflecting concerns over the value of certain of its exclusive online
distribution rights.
Exceptional items
During 1999, the Company entered into a strategic partnership with Fujitsu
whereby Fujitsu was appointed exclusive reseller of the Company's products in
Japan. The Company has booked a provision of (pound)911,000 relating to the
closure of its former subsidiary distributor in Japan, KMK DigiTex Company
Limited.
Interest receivable and interest payable
Net interest payable of (pound)18.0 million compares to (pound)17.2 million for
1998, an increase of 4.8%, and relates almost exclusively to interest paid on
both senior and high-yield debt taken out at the time of the acquisition of
Knight-Ridder Information, Inc. (KRII). The average balance outstanding during
1999 amounted to $277.8 ((pound)172.4) million as compared to $253.4
((pound)157.2) million in 1998.
The net proceeds of the sale of the ISD on 4 May 2000 were used to
repay these balances in full.
Annual Report 1999
Operating and Financial Review
www.brightstation.com
Technology born for business
16
Included within the net interest expense of (pound)18.0 million is (pound)1.3
million of amortised bank debt fees. Bank and related fees amounting to
(pound)8.2 million were paid in connection with the debt raised to acquire KRII,
and the unamortised value is netted off against the carrying value of the
related indebtedness in accordance with FRS4 (Capital instruments). The
unamortised balance written off to the profit and loss account on 4 May 2000
following the repayment in full of the debt balances amounted to (pound)5.6
million.
Taxation
The Company's tax charge for 1999 relates mainly to the tax arising on the
profitable performance of its foreign sales subsidiaries. In addition,
(pound)400,000 relates to the application of 10% Japanese withholding tax on the
technology licence granted to Fujitsu of (pound)4.0 million.
No tax arises in the UK, US or Switzerland as a result of past tax
losses. It is expected that the tax losses in the US and Switzerland will pass
to Thomson following the disposal of the ISD.
No capital gains liabilities are forecast as a result of the disposal
of the ISD.
Earnings per share (EPS)
The Company achieved a loss per share of 3.5 pence compared to earnings of 4.8
pence per share for 1998.
The dilutive impact of the Company's outstanding warrants and options
did not have a material effect on reported EPS.
Liquidity and capital resources
The Company's operating activities generated net cash of (pound)33.6 million
during the year ended 31 December 1999, compared to (pound)34.1 million in 1998.
The cash generated in 1999 from operating activities is shown net of (pound)2.7
million of costs relating to the one-off restructuring charges arising from the
merger activity of KRII and M.A.I.D, compared to restructuring costs of
(pound)6.9 million in 1998. As at 31 December 1999, nearly all exceptional
restructuring costs had been incurred with the exception of onerous lease
commitments amounting to (pound)0.6 million and potential legal costs of
(pound)0.8 million.
The Company incurred net capital expenditure of (pound)16.6 million in
1999 compared to (pound)18.8 million in 1998, the reduction largely due to cash
constraints experienced by the Company.
The Company's capital expenditure requirements are primarily for
product development, computer equipment for the Company's data centres and other
operations, related software, leasehold improvements and office equipment. In
November 1999, the Company announced that it had entered into an agreement with
ICL to outsource the operations of its data centre in Palo Alto, California for
a period of seven years. This will limit the ISD's future capital expenditure in
relation to the Dialog data centre to approximately (pound)1 million per year
over the life of the agreement. Following the disposal of the ISD to Thomson, it
is expected that the Company's future capital expenditure requirements will
greatly reduce.
In June 1999, the Company acquired the remaining 48% minority
shareholding in its Japanese subsidiary, KMK DigiTex Company Limited, for
(pound)0.4 million. This allowed for the subsequent transfer of the ISD content
distribution rights in the Japanese territory to Fujitsu, which became effective
in January 2000.
On 2 February 1999, the Company announced the disposal of the CARL
library systems and the UnCover document delivery businesses for gross proceeds
of $2.25 ((pound)1.4) million. Both of these businesses were acquired as part of
the acquisition of KRII and were not core to the Dialog product offering. The
disposal proceeds consisted of an upfront cash payment of $1 million together
with an interest bearing loan note of $1.25 million due in January 2001, $0.25
million of which was paid in advance during the year ended 31 December 1999. The
balance owing on the loan note has been transferred to Thomson along with the
disposal of the ISD. The Company incurred expenses of $0.5 ((pound)0.3) million
in connection with the sale of these non-core businesses.
The Company had cash at bank and in hand on 31 December 1999 of
(pound)10.5 million compared to (pound)4.5 million on 31 December 1998. The
Company had a revolving bank facility of $25.0 ((pound)15.5) million available,
$21.5 million ((pound)13.2) million of which was drawn at 31 December 1999. In
addition, during May 1999 the Company announced that it had secured an
additional facility from The Chase Manhattan Bank to enable the release of some
funds previously earmarked for debt repayments to be invested in the operating
businesses. The facility was repayable in October 2002 and carried interest at a
rate of 3.25 percentage points above US Dollar LIBOR through to 1 October 1999
and 4.25 percentage points over US Dollar LIBOR thereafter.
In connection with this additional facility, the Company agreed to
issue Chase warrants to purchase an initial 1.5 million Ordinary shares
exercisable between 17 May 1999 and 11 October 2002, together with additional
warrants to purchase a further 1.5 million Ordinary shares between 1 August and
1 November 1999 since the term facility was still outstanding on these dates,
such warrants to be exercisable up to 14 May 2004. The warrants were originally
exercisable at a price of 120.5 pence per share but were re-priced in November
at an exercise price of 90.6 pence.
In addition, in November 1999, the Company requested, and was granted,
a relaxation of the banking covenants from the senior lenders in order to
facilitate refinancing discussions. In consideration for this covenant
relaxation, the Company granted further warrants to the senior lenders to
purchase 6 million Ordinary shares at a price of 90.6 pence per share. These
warrants remain exercisable until November 2009.
Total debt service costs in 1999 amounted to principal of (pound)22.0
million and interest of (pound)16.9 million compared to principal of (pound)9.6
million and interest of (pound)15.3 million in 1998. The principal repaid in
1999 included $10.3 ((pound)6.4) million in respect of the additional Chase
facility. Since 31 December 1999, the Company paid an amount of $6.0
((pound)3.7) million owing on the additional Chase facility. On 4 May 2000,
following the disposal of ISD, the Company repaid all of its remaining
outstanding indebtedness of $275.0 ((pound)171.9) million, including accrued
interest of $9.7 ((pound)6.0) million.
Investments
Investments include strategic investments in non-quoted companies including:
Frost & Sullivan ((pound)5.0 million), a leading market research company;
Teltech Resources ((pound)3.1 million), a redistributor of Dialog content; and
Frost & Sullivan Electronic Distribution LLC, a joint venture with Frost &
Sullivan ((pound)1.5 million). During the year, the Board provided for the
Company's remaining investment in Fourth Network, Inc. (now renamed eHotel) of
(pound)2.3 million.
Annual Report 1999
Operating and Financial Review
www.brightstation.com
Technology born for business
17
The Company's investments in Frost & Sullivan and Frost & Sullivan Electronic
Distribution LLC were transferred to Thomson along with the disposal of the ISD.
On 7 March 2000, Teltech announced its intention to merge with Sopheon
plc, valuing the Company's investment in Teltech at approximately $7.5 million
((pound)4.3 million). Consummation of the merger is subject to various
conditions that include registering the Sopheon shares and approval of the
transaction by Teltech shareholders at a special shareholders' meeting.
Annual Report 1999
www.brightstation.com
Technology born for business
18
Board of Directors and Company Secretary
Allen Thomas
Non-Executive Chairman, Age 60
Allen Thomas joined the Board as a Non-Executive Director in September 1997. A
qualified solicitor, Allen is Chairman of Ockham Holdings plc, a Director of
Penna Holdings plc and a Non-Executive Director of Eidos plc. From 1972 to 1992
he was a partner in Paul, Weiss, Rifkind, Wharton & Garrison, a leading New York
based law firm, where he was the founding managing partner of the Hong Kong
office and acted as General Counsel to Municipal Assistance Corporation in the
refinancing of New York City. Additionally, he was a Non-Executive Director of
The Mitsubishi Bank Trust Company of New York.
Daniel Wagner
Chief Executive, Age 36
Daniel Wagner founded the Company in 1985, and has been the driving force behind
its growth and development, including listings on both the London Stock Exchange
and the NASDAQ. Throughout his career, he has engineered numerous acquisitions,
and has been responsible for forging a wide array of strategic alliances. In
addition, he has driven the Company's move into the Internet technology and
eCommerce markets, and led the formation of the Company's incubator division. As
one of the key individuals behind the development of the online sector, Daniel
has won various awards for entrepreneurial achievement and is in frequent demand
for high-level speaking engagements both in the UK and overseas.
David Mattey
Chief Financial Officer, Age 37
David Mattey joined the Company as Financial Controller in 1991 and was
appointed Finance Director in December 1992. David was key to the Company's
flotation on both the LSE and NASDAQ, and indeed has been credited as being the
youngest Finance Director to bring a company to market on both sides of the
Atlantic. In the past year, David led negotiations with the Company's lending
banks and bondholders to eliminate the Company's debt, and has been responsible
for restructuring the overall capital and financial structure of Bright Station
plc. Additionally, he is a Non-Executive Director of Easynet Group plc, a
leading European Internet service provider. David is a qualified Chartered
Accountant and was previously a tax consultant with the accountancy firm BDO
Stoy Hayward.
Ian Barton
Non-Executive Director, Age 54
Ian Barton joined the Board as a Non-Executive Director in 1986. During his
career, he has held a number of executive management and other senior positions
in information, technology and investment businesses. Most recently, he was
Managing Director of Octagon Investment Management. Prior to this, he held
senior posts in organisations including the Post Office Telecommunications
Headquarters' Long Range Intelligence Division, and CADCentre Ltd. Ian currently
holds Non-Executive Directorships with the high-technology companies Robot (UK)
Ltd, Pelco (UK) Ltd and Distributed Information Processing Ltd, and with Central
Europe Trust Company Ltd, a consultancy and fund management company specialising
in Central and Eastern Europe.
Marmaduke Hussey
Non-Executive Director, Age 76
Lord Hussey of North Bradley joined the Board as a Non-Executive Director in May
1996. His distinguished media career began in 1949 with Associated Newspapers,
where he became a Director in 1964. In 1967 he was appointed Managing Director
of Harmsworth Publications, and joined the Thomson Organisation as Chief
Executive of Times Newspapers in 1971. Lord Hussey was a Director of Times
Newspapers Ltd and Colonial Mutual Ltd from 1982 to 1986 and served as the
Chairman of the Board of Governors of the BBC from 1986 to March 1996. He was a
Director of William Collins Limited from 1985 to 1989 and Chairman of the Royal
Marsden Hospital from 1985 to 1998. He is Chairman of Ruffer Investment
Management and Cadweb Ltd, and sits on the Council of the King's Fund. Lord
Hussey is retiring from the Board and has determined not to stand for
re-election at this year's AGM.
Patrick Sommers
Non-Executive Director, Age 53
Patrick Sommers joined the Company as Chief Operating Officer in October 1998,
and was a key figure in the sale of the ISD to The Thomson Corporation. Upon
closure of the deal, Patrick resigned his executive responsibilities with the
Company to become President of the Dialog business, with Thomson. He remains on
the Board as a Non-Executive Director. Prior to joining the Company, Patrick was
Chairman and Chief Executive of Medicus Systems Corporation, a NASDAQ-listed
technology company. Between 1986 and 1995, he was President of three companies:
Ceridian Corporation (formerly known as Control Data), GTE Industry Services (an
outsourcing company) and D&B Information Resources Inc. Patrick previously held
various positions in the international division and corporate centre of Dun &
Bradstreet.
Richard Swank
Non-Executive Director, Age 69
Richard Swank joined the Company in November 1997 as an advisor on integration
strategy following the purchase of Knight-Ridder Information Inc. He acted as
Non-Executive Chairman of the North American businesses, until being appointed
as a Non-Executive Director of the Company in March 1999. From April 1989 to
December 1994, Richard was Chairman and Chief Executive Officer of Advanstar
Communications Inc. where he had responsibility for a successful financial
restructuring and implementation of a revised corporate strategy. Prior to
joining Advanstar, Richard was Executive Vice President of Dun & Bradstreet
Corporation and President of its subsidiary, the Rueben H. Donnelly Corporation.
Jonathan Ball
Company Secretary, Age 42
Jonathan Ball joined the Company in 1994 and was appointed Company Secretary in
1996. He has been closely involved in the Company's NASDAQ placing and in the
Company's acquisition, merger and divestiture activities over the past six
years. In his current position as both Secretary to the Board and Director of
Human Resources, Jonathan is responsible for a broad range of administrative
matters within the Group. Prior to joining the Company, he held various
international management posts within the hospitality industry. Jonathan is a
Fellow of the Institute of Chartered Secretaries and Administrators.
Annual Report 1999
www.brightstation.com
Technology born for business
19
Corporate Governance and Internal Financial Control
The Board's policy is to manage the affairs of the Company in accordance with
the Principles of Good Governance and Code of Best Practice as derived from the
Final Report of the Committee on Corporate Governance ("the Combined Code"). The
ways in which the Company applies those principles is contained in the relevant
sections of this Report. The Company complied during the year with all the
provisions of section 1 of the Combined Code with the following exceptions: (i)
Following the appointment of Allen Thomas as Chairman in May 1999, the Company
does not currently have a nominated Senior Non-Executive Director. (ii) Prior to
the sale of the ISD, Patrick Sommers was employed on a two-year rolling contract
as an Executive Director. On completion of the sale, Patrick Sommers became a
Non-Executive Director of the Company and no longer is subject to a service
agreement.
Compliance with the Combined Code
The Board
The Board normally meets 12 times a year to make and review major business
decisions and monitor current trading against approved budgets. Matters
specifically reserved for the Board are set out in a formal schedule. Once a
year the Board meets in conference to consider long-term strategy and industrial
developments affecting the Company.
There is an agreed procedure for Directors to take independent
professional advice, if necessary, at the Company's expense. They also have
access to the advice and services of the Company Secretary, whose appointment is
in accordance with the Combined Code.
Chairman and Chief Executive
The roles of Chairman and Chief Executive are separate. The Chairman is
primarily responsible for the working of the Board, for the balance of its
membership (subject to Board and shareholders' approval), and for ensuring that
all Directors are enabled to play their full part in its activities. The Chief
Executive's task is to manage the business and to implement the policies and
strategies adopted by the Board.
Following the retirement of Michael Mander as Chairman of the Company
in May 1999, Allen Thomas, previously Deputy Chairman and senior Non-Executive
Director, was appointed as Chairman.
The Board considered the issue of nominating a new senior Non-Executive
Director and determined that it was an inappropriate time to make such an
appointment. The Board will reconsider the matter in the near future.
Board balance
There are two Executive Directors and five Non-Executive Directors on the Board.
Patrick Sommers was an Executive Director of the Company until completion of the
sale of the ISD to Thomson whereupon he became a Non-Executive Director. The
Non-Executive Directors are independent of management and free from any business
or other relationship with the Company, other than owning shares or as disclosed
in note 7. Their biographies are set out on page 18.
Supply of information
The Board is provided with comprehensive reports on the Company's affairs in
order that informed decisions can be reached in a timely manner. Periodical
reports are supplemented with more detailed information on all important issues
and regular contact is maintained with the Non-Executive Directors between Board
meetings.
Appointments to the Board
There is a Nomination Committee consisting of Allen Thomas, Ian Barton,
Marmaduke Hussey, Patrick Sommers and Richard Swank which is chaired by Allen
Thomas. The Committee is responsible for overseeing the selection process for
Executive and Non-Executive Directors and for making recommendations to the
Board on all new appointments.
Re-election
Under the Company's articles of association, one third of the Directors are
required to stand for re-election at each Annual General Meeting. All Directors
are subject to election by shareholders at the earliest opportunity following
their appointment to the Board. Biographical details of all Directors, including
those who present themselves for election or re-election at this year's Annual
General Meeting, are set out on page 18.
Directors' remuneration
The remuneration policy for the executive Directors is devised and monitored by
the Remuneration Committee comprising of Allen Thomas, Ian Barton, Marmaduke
Hussey and Richard Swank and chaired by Allen Thomas. The Committee's report is
set out on pages 20-21.
Relations with shareholders and AGM
The Company maintains a close relationship with its principal investors and
encourages all shareholders to participate in the Annual General Meeting,
whether in person or by proxy.
Accountability and audit
The responsibilities of the Directors and auditors are set out on pages 24 and
25.
Going concern
The Directors consider that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future and that it is
therefore appropriate to adopt the going concern basis in preparing the
financial statements. In arriving at this decision, the Directors have reviewed
the Company's budget for 2000 and plan for 2001. This review included
consideration of the cash flow implications of these plans, including proposed
expenditure on tangible and intangible fixed assets. These cash flow
implications were then compared with the Company's cash resources and existing
bank facilities.
Internal control
The Board is committed to identifying all of the Group's significant risk areas
and enhancing its internal systems and procedures to ensure that risk is
identified, managed and regularly reported. Following guidance for directors
published by the Turnbull Committee, the Board acknowledges its need to develop
further a more formal and periodic reporting function
Annual Report 1999
Corporate Governance
and Internal Financial Control
www.brightstation.com
Technology born for business
20
with which to assess and manage the Group's risks. This will enable the Group to
ensure that adequate resources are targeted at controlling the main areas of
risk to which the Group is exposed.
In view of the significant change that the Group has recently
undergone, the Directors will be conducting a detailed review during the
remainder of 2000. The Board is committed to ensuring that by the end of 2000
the Turnbull recommendations with regard to risk management will be fully
implemented. In the meantime, in accordance with current guidelines, the Board
continues to report only internal financial controls.
Internal Financial Control
The Directors have overall responsibility for the Group's system of internal
financial control, which aims to safeguard Group assets, ensure that proper
accounting records are maintained and ensure that the financial information used
within the business and for publication is reliable. Although no system of
internal control can provide absolute assurance against material misstatement or
loss, the Directors have reviewed the effectiveness of the Group's internal
financial control and are satisfied that they provide reasonable assurance that
problems are identified on a timely basis and dealt with appropriately.
The Company does not have an internal audit function at present,
although the Board will keep this matter under review.
Key features of the Group's system of internal financial control
include:
- There are clear responsibilities on the part of the financial management for
the maintenance of good financial controls and the production of accurate and
timely financial management information.
- A comprehensive budgeting system including detailed reviews at all levels of
the Group's operations and formal reviews and approvals of the annual budget by
the Directors.
- The preparation of monthly comparisons of actual results against budget which
are subject to review by the Board.
- A framework of delegated authorities and powers exist such that transactions
of significant size or type are undertaken only after Board review, and that
other significant transactions require the authority of two of the executive
Directors.
- With respect to treasury procedures, the Company's policy is to place its cash
and time deposits with lending banks which are rated AA - or higher in order to
limit the amount of credit exposure.
Audit Committee and external auditors
The Audit Committee is formally constituted and consists of Ian Barton,
Marmaduke Hussey, Allen Thomas and Patrick Sommers, being chaired by Ian Barton.
The Audit Committee meets with the Chief Financial Officer in order to review
the effectiveness of the system of internal financial control, and discusses
with the auditors the control matters identified during the course of their
audit work. It also reviews the annual accounts and the interim and preliminary
announcements prior to submission to the Board, compliance with accounting
standards and the scope and extent of the external audit programme. The Chairman
of the Audit Committee reports to the Board on matters discussed at the Audit
Committee meeting. The Audit Committee is responsible for selecting the firm of
accountants to be recommended to shareholders for appointment as independent
auditors each year, and reviewing the overall financial relationship between the
Company and its auditors.
The report from the auditors is set out on page 25.
Remuneration Committee Report
The members of the Remuneration Committee are:
Allen Thomas (Chairman of the Committee)
Ian Barton
Marmaduke Hussey
Richard Swank
Details of each Director's remuneration package, together with their share
options and interests in Ordinary shares of the Company, are set out in note 7
to the Financial Statements.
Policy statement
The Remuneration Committee (the "Committee") seeks to provide remuneration
packages in form and amount that will attract, retain, motivate and reward
executive Directors of the quality required to manage the business of the Group.
The Committee seeks to avoid paying more than the market rate for this purpose.
In establishing the level of remuneration for each Director, the Committee has
careful regard to the packages offered by comparable companies and has access to
external remuneration consultants which enables wide-ranging comparisons to be
made.
Salaries and performance-related remuneration
The salaries of the executive Directors are reviewed annually. As part of the
review process, the Committee considers individual performance and experience,
the size and nature of the role, the Company's performance and salaries offered
for similar positions elsewhere. Wherever possible, the Committee seeks to align
the interests of executives with those of shareholders through
performance-related remuneration. Bonuses are based on successful performance
and are only paid on achievement of carefully considered targets. All bonuses
are capped. Bonus payments and any gains under share option schemes are not
pensionable.
Benefits
Executive Directors are eligible for a range of taxable benefits which include
provision of a company car or car allowance (taken in the form of additional
salary) and payment of related operating expenses including fuel for business
use. Additional benefits include contributory pension arrangements, membership
of private medical insurance schemes, reimbursement, up to specified limits, of
the annual subscription to an appropriate professional body and of
business-related home telephone charges.
Notice periods
Each of the current Executive Directors is employed on rolling contracts with a
notice period of one year.
The Remuneration Committee considers that notice periods of one year
are reasonable and proper and in the interests of the Company and its Executive
Directors, having regard to prevailing domestic market conditions and current
practice amongst public companies.
Annual Report 1999
Corporate Governance and
Internal Financial Control
www.brightstation.com
Technology born for business
21
Change of control provisions
The Executive Directors' service agreements contain certain provisions which
become effective in the event that any person or persons acting in concert
acquires or acquire a Controlling Interest (as defined within Part 1 of Schedule
13 of the Companies Act 1985) in the Company. These provisions include the
payment of salary equivalent to the contractual notice period as well as payment
in lieu of a bonus of 75% of salary in the event of termination of employment
within 12 months following a change of control of the Company.
Share schemes
The Company operates a number of share related schemes for employees, details of
which are set out on pages 52-58. In awarding share options to executive
Directors, the Remuneration Committee has regard to guidelines published by
investor protection committees, the provisions of the Combined Code and the
individual performance of participants, as well as the particular circumstances
of the Company. Grants under the executive schemes are generally made on a
bi-annual basis at the prevailing market share price and are subject to a
vesting period of three years. Grants under the US stock option plan are subject
to incremental vesting after an initial one year period in order to reflect
current US market practice.
Following the recent reorganisation of the Company, the Committee
believes that it is an appropriate time to establish certain additional equity
incentive arrangements that will strengthen the union of interest between
shareholders and key executives. Details of the proposals, which the Committee
consider to be in the best interests of the Company and its shareholders, are
set out on pages 80-84.
Performance conditions
During the year, share options were granted to the executive Directors at an
exercise price of (pound)4.00 per Ordinary share, a premium of 340% above the
market price of the Company's shares prevailing at the time.
Remuneration policy for Non-Executive Directors
The remuneration of Non-Executive Directors consists of fees for their services
in connection with Board and Board Committee meetings. Fee levels are determined
by the Executive Directors with regard to remuneration surveys and levels
offered by comparable companies and, in the case of the Chairman's fees, in
consultation with the other Non-Executive Directors.
The Non-Executive Directors do not have service contracts, nor do they
participate in Group bonus schemes.
Annual Report 1999
www.brightstation.com
Technology born for business
22
Report of the Directors
The Directors present their report together with the audited financial
statements for the year ended 31 December 1999.
Principal activity
The principal activity of the Company and its subsidiaries is the provision of
Internet-based information, technology and eCommerce solutions to the corporate
market.
Review of the business
A review of the business is set out in the Operating and Financial Review.
Subsequent events
As detailed in note 31 to the financial statements, on 23 March 2000 the Company
announced the restructuring of the Group through the proposed sale of the ISD to
The Thomson Corporation for $275 million in cash. In connection with this
transaction, the Company launched a cash tender offer and consent solicitation
on 24 March 2000 to the holders of its $180 million 11% Senior Subordinated
Notes which was accepted by the bondholders on 20 April 2000. The proposals were
approved by the Company shareholders at an Extraordinary General Meeting held on
27 April 2000, and the transfer was completed on 4 May 2000.
On 5 May 2000 the Company changed its name from The Dialog Corporation
plc to Bright Station plc.
Results and dividends
The profit and loss account set out on page 26 shows the results for the year.
The Directors do not recommend the payment of a dividend (1998: (pound)nil). The
retained deficit of (pound)5.4 million has been transferred to reserves.
Fixed assets
The changes in fixed assets are shown in notes 10-13 to the financial
statements.
Share capital
Movementsin the share capital and share premium account are shown in notes 18
and 19 to the financial statements.
Shares to be issued are detailed in note 20 to the financial
statements.
Directors and their interests
The Directors who served during the year were as follows:
--------------------------------------------------------------------------------
Position
Name Age Position held since
--------------------------------------------------------------------------------
I Barton 54 Director 1986
G Burrows 49 Chief Technology Officer (US) 1998
(resigned 2 February 1999)
M Hussey 76 Director 1996
S Maller 41 Chief Technology Officer (EMEA-AP)* 1996
M Mander 64 Director (resigned 1 July 1999) 1987
D Mattey 37 Chief Financial Officer 1992
J Molle 35 President - The Amercias* 1997
C Morton 36 President - EMEA-AP* 1997
D Smith 54 Executive Vice President 1996
(resigned 2 February 1999)
P Sommers 53 Chief Operating Officer 1998
(Non-Executive Director
from 4 May 2000)
R Swank 69 Director
(appointed 15 March 1999)
A Thomas 60 Chairman 1997
D Wagner 36 Chief Executive Officer 1985
--------------------------------------------------------------------------------
* resigned and transferred with the ISD on 4 May 2000
The Directors' interests in the Ordinary share capital and options over shares
of the Company are disclosed in note 7 to the financial statements. The
interests of Directors in contracts with the Company are also set out in note 7
to the financial statements.
The Company purchased directors' and officers' liability insurance for
the year ended 31 December 1999 which has been renewed for the current financial
year.
At each Annual General Meeting one third of the directors shall retire
from office by rotation. A retiring director shall be eligible for re-election.
The biographies of the Directors are set out on page 18.
Substantial shareholdings
As at 30 June 2000, notification had been received of the following interests,
excluding the interests of Directors of the Company as at 31 December 1999 (as
discussed in note 7 to the financial statements), exceeding 3% of the Company's
Ordinary share capital:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Ordinary % of issued
shares of share capital at
1p each 30 June 2000*
------------------------------------------------------------------------------
<S> <C> <C>
Prudential Corporation 9,585,498 5.55
Thomson Finance SA 9,297,290 5.39
Jiyu Holdings Limited 7,038,123 4.08
------------------------------------------------------------------------------
</TABLE>
* Based upon the total issued share capital of 172,598,331 at 30 June 2000. The
movement in the total issued share capital from 154,943,398 at 31 December 1999
to 172,598,331 at 30 June 2000 resulted from the issue of shares to Thomson and
Jiyu Holdings in conjunction with the transfer of the ISD to Thomson, the
allotment of 428,796 Ordinary shares as deferred consideration for the
acquisition of Write Works, the issue of 285,444 Ordinary shares to P Sommers in
connection with a bonus arrangement on the transfer of the ISD to Thomson
along with the allotment of 68,844 Ordinary shares into the Company's 401(k)
Investment Savings Plan for US employees and the exercise of options over
Annual Report 1999
Report of the Directors
www.brightstation.com
Technology born for business
23
536,436 Ordinary shares under the terms of the Company's share option schemes.
Employee communication and involvement
It is a Group policy to communicate regularly and frequently with all employees
on matters of concern to enable them to take a wider interest in the affairs of
their employing company and the Group. This is done in a variety of ways
including bulletins and briefing sessions.
A significant number of employees are either shareholders in the
Company or hold options through the share option schemes. This provides them
with the opportunity to participate directly in the success of the business.
Employment policies
The Group is committed to the principle of equal opportunity in employment,
regardless of a person's race, creed, colour, nationality, sex, marital status,
or disability. Employment policies are fair, equitable, and consistent with the
skills and abilities of our employees and the needs of our business. These
policies ensure that everyone is accorded equal opportunity for recruitment,
training and promotion. Where an employee becomes disabled whilst employed by a
Group company, every effort is made to allow that person to continue in
employment.
Creditor payment terms
It is the Group's normal procedure to agree to terms of transactions, including
payment terms, with suppliers in advance. Payment terms vary, reflecting local
practice throughout the world. It is the Group's policy that payment is made on
time, provided that suppliers perform in accordance with the agreed terms and
subsequent to available liquid resources. As at 31 December 1999, trade
creditors of the Company represented 55 days equivalent of aggregate amounts
invoiced by suppliers during the year.
Charitable and political donations
During the year ended 31 December 1999, the Group made no corporate donations
for charitable purposes (1998: (pound)28,915). No political donations were made
during the year (1998:(pound)nil).
Year 2000
The Company completed, by early December 1999, a group wide multi-faceted
programme to address Year 2000 compliance issues with the objective of ensuring
that there was no adverse impact on business operations or systems. The total
cost of the programme was approximately (pound)3 million (1998 expense: (pound)1
million; 1999 expense: (pound)2 million).
The Company and the Group did not experience any Year 2000 related
problems. The Directors do not consider that there are any significant matters
in respect of the Year 2000 issue that have had an operational or financial
impact on the Company and the Group. This success can be attributed to the
significant risk analysis performed by Bright Station plc which determined the
impact of the issue on all activities. Prioritised action plans were developed
and designed to address the key risks, and priority was given to those systems
which could cause a significant financial or legal impact on the Group's
business if they were to fail.
The Company has not been adversely affected by the inability of third
parties to successfully manage their Year 2000 problem.
Given the complexity of the problem, it is still not possible for any
organisation to guarantee that no Year 2000 problems will occur, because at
least some level of failure may still occur. However, the Directors believe that
the Company has achieved and maintained an acceptable state of readiness and has
also provided resources to deal promptly with significant subsequent failures or
issues that still might arise.
Auditors
PricewaterhouseCoopers have expressed their willingness to continue in office
and a resolution to re-appoint them will be proposed at the Annual General
Meeting.
Annual General Meeting
Notice of the Annual General Meeting to be held at 10.0 a.m.on Tuesday 5
September 2000 at The Institute of Directors, 116 Pall Mall, London SW1Y 5ED is
set out on pages 85-86.
Resolutions 1-3 to be proposed at the meeting deal with ordinary
business. Resolutions 4-7 deal with special business as explained below and in
further detail in the notes to the Notice of the Annual General Meeting.
Resolution 4 authorises the establishment of subsidiary share option
schemes (the "Schemes") in respect of four designated subsidiaries of Bright
Station - WebTop, OfficeShopper, Smartlogik and Sparza - for the incentivisation
and benefit of key management and personnel within these subsidiaries. The
strategy of the Board is to develop these businesses as separate entities within
the Group with the expectation that they will eventually be floated or sold. The
Board considers that an important factor in ensuring the success of this
strategy is to tie the fortunes of the management teams to the success of the
ventures for which they have specific responsibility by granting options over
shares in the relevant business. Further details of the proposed Schemes are on
pages 80-84.
Resolution 5 seeks authority for the Board to establish a new
discretionary share-based incentive arrangement which the Board believes will
meet its objective of incentivising senior employees to generate a material
increase in the current value of a shareholder's investment. The main features
of the LTIP are summarised on pages 80-84.
Resolution 6 seeks authority for the establishment of an Employee
Benefit Trust for the subscription or purchase of Bright Station shares for the
equity incentive schemes operated by the Company. The main features of the Trust
are summarised on pages 80-84.
Resolution 7 seeks authority for the Board to amend the limits
contained within the rules of the existing share option schemes in order to
ensure continuity amongst all of the Company's equity incentive plans. To this
end, it is proposed that awards made to employees who no longer work for the
Company as a result of the sale of the ISD to The Thomson Corporation shall be
disregarded for the purposes of calculating the maximum scheme limits. Details
of the proposed amendments are set out on pages 80-84.
By order of the Board
/s/ J. BALL
-------------
J Ball
Company Secretary, 14 July 2000
Annual Report 1999
www.brightstation.com
Technology born for business
24
Statement of Directors' Responsibilities
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and of the Group for that period. In preparing the financial statements,
the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Annual Report 1999
www.brightstation.com
Technology born for business
25
Auditors' Report to the Shareholders of Bright Station plc (formerly The Dialog
Corporation plc)
We have audited the financial statements on pages 26-70 which have been prepared
under the historical cost convention.
Respective responsibilities of Directors and Auditors
The Directors are responsible for preparing the Annual Report. As described on
page 24, this includes responsibility for preparing the financial statements, in
accordance with applicable United Kingdom accounting standards. Our
responsibilities, as independent auditors, are established in the United Kingdom
by statute, the Auditing Practices Board, the Listing Rules of the Financial
Services Authority and our profession's ethical guidance.
We report to you our opinion as to whether the financial statements
give a true and fair view and are properly prepared in accordance with the
United Kingdom Companies Act. We also report to you if, in our opinion, the
Directors' report is not consistent with the financial statements, if the
Company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information
specified by law or the Listing Rules regarding Directors' remuneration and
transactions is not disclosed.
We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements.
We review whether the statement on pages 19-21 reflects the Company's
compliance with those provisions of the Combined Code specified for our review
by the Financial Services Authority, and we report if it does not. We are not
required to consider whether the Board's statements on internal control cover
all risks and controls, or to form an opinion on the effectiveness of the
Company's or the Group's corporate governance procedures or its risk and control
procedures.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board of the United Kingdom, which are substantially similar
to generally accepted auditing standards in the United States. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
United Kingdom opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 December 1999 and of the loss and
cash flows of the Group for the year then ended and have been properly prepared
in accordance with the Companies Act 1985.
United States opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Group at 31 December 1999, 1998 and 1997
and the results of its operations and cash flows for each of the three years in
the period ended 31 December 1999, all expressed in Pounds Sterling 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. The application of the latter would have affected the
determination of consolidated net income for each of the three years in the
period ended 31 December 1999 and consolidated shareholders' equity, all
expressed in Pounds Sterling at 31 December 1999 and 1998 as shown in the
summary of differences between UK and US generally accepted accounting
principles set out on pages 64-68.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
1 Embankment Place
London
WC2N 6NN
14 July 2000
Annual Report 1999
www.brightstation.com
Technology born for business
26
Consolidated Profit and Loss Account for the year ended 31 December 1999
<TABLE>
<CAPTION>
====================================================================================================================================
Restructuring Restructuring
costs and costs and
Total other Total Total other Total
before exceptional after before exceptional after
restructuring items restructuring restructuring items restructuring
Total costs (note 5) costs costs (note 5) costs
1999 1998 1998 1998 1997 1997 1997
Notes (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Turnover 2 174,452 170,762 - 170,762 46,082 - 46,082
Cost of sales (68,174) (71,618) - (71,618) (17,166) - (17,166)
------------------------------------------------------------------------------------------------------------------------------------
Gross profit 106,278 99,144 - 99,144 28,916 - 28,916
Distribution costs (22,118) (21,605) 45 (21,560) (15,700) (1,313) (17,013)
Administrative expenses (54,677) (44,170) (2,628) (46,798) (13,415) (9,247) (22,662)
Amortisation/write-off of
development costs 10,11 (9,749) (7,760) - (7,760) (3,558) (7,990) (11,548)
Amounts written
off investments 5 (4,619) - (2,300) (2,300) - - -
------------------------------------------------------------------------------------------------------------------------------------
Operating profit/(loss) 2,4 15,115 25,609 (4,883) 20,726 (3,757) (18,550) (22,307)
Exceptional item - provision
for closure of business 5 (911) - - - - - -
Exceptional item - gain on
sale of fixed
asset investments 5 - - 2,069 2,069 - 4,035 4,035
Interest receivable 305 205 - 205 338 - 338
Interest payable and
similar charges 6 (18,366) (17,436) - (17,436) (2,498) - (2,498)
------------------------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary
activities before taxation (3,857) 8,378 (2,814) 5,564 (5,917) (14,515) (20,432)
Taxation on (loss)/profit
on ordinary activities 8 (1,478) (769) - (769) (323) - (323)
------------------------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary
activities after taxation (5,335) 7,609 (2,814) 4,795 (6,240) (14,515) (20,755)
Minority equity interests 23 (50) (356) - (356) 11 - 11
------------------------------------------------------------------------------------------------------------------------------------
Retained (deficit)/profit 21 (5,385) 7,253 (2,814) 4,439 (6,229) (14,515) (20,744)
====================================================================================================================================
(Loss)/earnings per
share (pence) 9 (3.5) 4.8 - 2.9 (6.2) - (20.5)
Fully diluted (loss)/earnings
per share (pence) 9 (3.5) 4.8 - 2.9 (6.1) - (20.4)
====================================================================================================================================
</TABLE>
Consolidated Statement of Total Recognised Gains and Losses
================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
(Loss)/gain for the financial year (5,385) 4,439 (20,744)
Consolidated translation differences
on foreign currency net investments (5,491) 680 (3,099)
--------------------------------------------------------------------------------
Total recognised gains and losses
for the financial year (10,876) 5,119 (23,843)
================================================================================
The profit and loss accounts shown above have been prepared on a historical cost
basis.
The turnover and operating profit/(loss) all relate to continuing activities of
the Group as of 31 December 1999.
The notes on pages 30-70 form part of these financial statements.
Annual Report 1999
www.brightstation.com
Technology born for business
27
Consolidated Balance Sheet as at 31 December 1999
=============================================================================
1999 1998
Notes (pound) 000 (pound) 000
-----------------------------------------------------------------------------
Fixed assets
Intangible assets 10 27,030 23,154
Goodwill 11 9,805 7,676
Tangible assets 12 14,338 17,870
Investments 13 9,635 12,354
-----------------------------------------------------------------------------
60,808 61,054
-----------------------------------------------------------------------------
Current assets
Stocks 60 221
Debtors: amounts due within one year 14 36,690 42,781
Assets held for resale - 992
Cash and bank deposits 10,521 4,494
-----------------------------------------------------------------------------
47,271 48,488
Creditors (amounts falling due within one year) 15 (71,574) (58,845)
-----------------------------------------------------------------------------
Net current liabilities (24,303) (10,357)
Total assets less current liabilities 36,505 50,697
Creditors (amounts falling due after more than
one year) 16 (137,370) (139,741)
Provisions for liabilities and charges 17 (1,430) (4,697)
-----------------------------------------------------------------------------
Net liabilities (102,295) (93,741)
-----------------------------------------------------------------------------
Capital and reserves - equity
Called up share capital 18 1,549 1,514
Share premium account 19 154,949 152,128
Shares to be issued 20 967 967
Profit and loss account 21 (260,303) (249,427)
-----------------------------------------------------------------------------
Equity shareholders' funds 22 (102,838) (94,818)
Minority equity interest 23 543 1,077
-----------------------------------------------------------------------------
Total shareholders' funds (102,295) (93,741)
=============================================================================
The financial statements were approved by the Board of Directors on 14 July 2000
and signed on its behalf by:
/s/ D. WAGNER /s/ D. MATTEY
--------------------- -------------------------
D Wagner D Mattey
Chief Executive Chief Financial Officer
The notes on pages 30-70 form part of these financial statements.
Annual Report 1999
www.brightstation.com
Technology born for business
28
Company Balance Sheet as at 31 December 1999
<TABLE>
<CAPTION>
===========================================================================================
1999 1998
Notes (pound) 000 (pound) 000
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed assets
Intangible assets 10 4,899 4,650
Tangible assets 12 2,183 2,842
Investments 13 186,522 284,836
-------------------------------------------------------------------------------------------
193,604 292,328
-------------------------------------------------------------------------------------------
Current assets
Stocks 27 27
Debtors 14 35,258 40,734
Cash at bank and in hand 1,634 -
-------------------------------------------------------------------------------------------
36,919 40,761
Creditors (amounts falling due within one year) 15 (57,935) (55,435)
-------------------------------------------------------------------------------------------
Net current liabilities (21,016) (14,674)
-------------------------------------------------------------------------------------------
Total assets less current liabilities 270,659 277,654
Creditors (amounts falling due after more than one year) 16 (135,745) (136,709)
-------------------------------------------------------------------------------------------
Net assets 36,843 140,945
-------------------------------------------------------------------------------------------
Capital and reserves - equity
Called up share capital 18 1,549 1,514
Share premium account 19 154,949 152,128
Shares to be issued 20 967 967
Profit and loss account 21 (120,622) (13,664)
-------------------------------------------------------------------------------------------
Total shareholders' funds 22 36,843 140,945
===========================================================================================
</TABLE>
The financial statements were approved by the Board of Directors on 14 July 2000
and signed on its behalf by:
/s/ D. WAGNER /s/ D. MATTEY
------------------ ------------------------
D Wagner D Mattey
Chief Executive Chief Financial Officer
The notes on pages 30-70 form part of these financial statements.
Annual Report 1999
www.brightstation.com
Technology born for business
29
Consolidated Cash Flow Statement for the year ended 31 December 1999
<TABLE>
<CAPTION>
==========================================================================================================================
1999 1998 1997
Notes (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash inflow from operating activities 25 33,583 34,151 3,175
--------------------------------------------------------------------------------------------------------------------------
Returns on investments and servicing of finance
Dividends paid to minority shareholders in subsidiary undertakings - - (41)
Interest received 303 205 353
Interest paid on bank loans and overdrafts (16,945) (15,251) (585)
Interest paid on finance leases (106) (46) (119)
--------------------------------------------------------------------------------------------------------------------------
(16,748) (15,092) (392)
--------------------------------------------------------------------------------------------------------------------------
Taxation Paid (911) (349) (158)
--------------------------------------------------------------------------------------------------------------------------
Capital expenditure
Payments to develop intangible assets (12,178) (11,762) (2,747)
Payments to acquire tangible fixed assets (4,536) (7,223) (1,987)
Receipts from sale of tangible fixed assets 78 211 178
--------------------------------------------------------------------------------------------------------------------------
(16,636) (18,774) (4,556)
--------------------------------------------------------------------------------------------------------------------------
Acquisitions and disposals
Purchase of subsidiary undertakings 11 - (965) (262,623)
Cash impact of revisions to fair values - (2,284) -
Payment to acquire minority interests in a subsidiary undertaking 11 (428) (1,720) -
Net cash acquired with subsidiary undertakings - (33) 11,907
Investment in joint venture (1,235) (1,086) (610)
Expenses in connection with purchase of subsidiary undertakings - (471) (3,857)
Proceeds from sale of assets held for resale/investments 777 7,123 -
Payments made in connection with sale of technology - - (562)
Expenses in connection with the sale of assets held for resale (303) - -
--------------------------------------------------------------------------------------------------------------------------
(1,189) 564 (255,745)
--------------------------------------------------------------------------------------------------------------------------
Cash (outflow)/inflow before the use of liquid resources and financing (1,901) 500 (257,676)
--------------------------------------------------------------------------------------------------------------------------
Management of liquid resources
Cash withdrawn from deposit 26 - 620 -
Net receipts from sale of investments with original maturity date of
less than one year - - 5,380
--------------------------------------------------------------------------------------------------------------------------
Financing
Net proceeds on issue of Ordinary share capital 142 458 111,302
Net proceeds on issue of Senior Credit Facility - - 52,836
Net proceeds on issue of Senior Subordinated Notes - - 102,844
Debt due within one year - Increase in borrowings 13,187 - -
Debt due within one year - Increase in finance leases 1,549 - -
Debt due within one year - Repayment of loans (22,004) (9,551) -
Debt due after one year - New secured loan 15,593 - -
Debt due after one year - Increase in finance leases 1,509 - -
Expenses on issue of Ordinary share capital - - (755)
Expenses on raising of Senior Credit Facility and Senior Subordinated
Notes (1,246) (29) (1,608)
Repayment of capital element of finance leases (525) (549) (1,491)
--------------------------------------------------------------------------------------------------------------------------
8,205 (9,671) 263,128
--------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash 6,304 (8,551) 10,832
--------------------------------------------------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period 6,304 (8,551) 10,832
Cash used to decrease lease financing 525 549 1,491
Cash acquired from issue of debt (net of expenses) (27,533) 29 (154,072)
Cash used to repay loans 22,004 9,551 -
Cash acquired from sale and leaseback (3,058) - -
Decrease in liquid resources and cash deposits with original maturity
dates of more than one year - (620) (5,380)
--------------------------------------------------------------------------------------------------------------------------
Change in net debt from cash flows (1,758) 958 (147,129)
Other non-cash changes (1,274) (946) (119)
New finance leases (3,614) - (122)
Effect of foreign exchange rate changes (5,242) 1,695 (4,422)
--------------------------------------------------------------------------------------------------------------------------
Movement in net (debt)/funds in period (11,888) 1,707 (151,792)
Net (debt)/funds at beginning of period (145,091) (145,904) 5,888
--------------------------------------------------------------------------------------------------------------------------
Net debt at end of period 27 (156,979) (144,197) (145,904)
==========================================================================================================================
</TABLE>
The notes on pages 30-70 form part of these financial statements.
27
Annual Report 1999
www.brightstation.com
Technology born for business
30
Notes to the Financial Statements
1 Accounting Policies
================================================================================
The financial statements of Bright Station plc (the "Company") have been
prepared under the historical cost convention and in accordance with accounting
standards applicable in the United Kingdom. There are significant differences
between generally accepted accounting principles (GAAP) in the United Kingdom
(UK) and the United States (US). A summary of these differences together with
the reconciliation of net profit/(loss) and shareholders' equity from UK GAAP to
US GAAP is provided in note 29 to these financial statements. Certain additional
disclosures have been made to aid US readers of the financial statements. The
following principal accounting policies have been applied:
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Group accounts
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries (the "Group"). All intercompany transactions
and balances have been eliminated. The accounts include the results of
subsidiaries acquired during the year from the relevant date of acquisition
other than those subsidiaries acquired with a view to resale.
Goodwill
Prior to 1 January 1998, goodwill arising as the difference between the cost of
acquisition of a subsidiary and the fair value of its net assets at the date of
acquisition was written off to reserves in the year of acquisition. Goodwill
arising on acquisitions since 1 January 1998 is capitalised and subsequently
written off over its estimated useful life, which currently ranges from 10-20
years. Where necessary, adjustments to provisional fair values of net assets
acquired are adjusted to goodwill in the first full year following the
acquisition.
Turnover and revenue recognition
Turnover represents database subscription sales, online and usage charges and
design and implementation fees at invoiced amounts, exclusive of value added tax
and other sales taxes. Subscription revenues are recognised when contractually
due and invoiced. The costs of fulfilling obligations under the terms of the
subscription contract are accrued at the time the income is recognised. Online
and usage charges are recognised as the service is provided.
Most subscriptions are due and invoiced either annually or
semi-annually in advance and recognised in full at the commencement of the
subscription term. Some of the Group's US operations bill monthly under its
'modular pricing' scheme, whereby subscriptions for access to the Group's
service are raised on a monthly basis and are accounted for accordingly.
Annual CD-ROM usage fees are deferred and amortised over the life of
the contract.
Turnover also includes licence fees for technology sales and exclusive
distribution rights. Revenues on such items are recognised when the Company has
fulfilled all of its significant performance obligations.
Fixed assets
Fixed assets are stated at cost. Depreciation is provided to write off the cost,
less estimated residual value, of all tangible fixed assets over their expected
useful lives and is calculated at the following rates:
--------------------------------------------------------------------------------
Equipment, including computers - 33% straight line
Motor vehicles - 25% straight line
Fixtures and fittings - 20% straight line
Leasehold improvements - shorter of remaining lease
period and 20% straight line
Mainframe computers - 20% straight line
--------------------------------------------------------------------------------
Leasehold improvements relate to the cost of refurbishment of the Group's short
leasehold properties.
Stocks
Stocks, which comprise consumable items, are stated at the lower of cost and net
realisable value.
Foreign currency
Transactions denominated in foreign currencies are recorded at the exchange rate
prevailing at the date of the transaction. Transactions to be settled at a
contract rate are recorded at that rate. Any gains or losses from the
translation of transactions denominated in foreign currencies are included in
the results of the operation. Assets and liabilities denominated in foreign
currencies are translated at the exchange rate ruling at the year-end. Profit
and losses of overseas companies are translated at average rates of exchange for
the period. Exchange differences arising out of the translation of accounts of
foreign subsidiaries, net of associated borrowings, are taken to reserves.
Financial instruments
Changes in the value of forward foreign exchange contracts are recognised in the
results in the same period as changes in the values of the assets and
liabilities they are intended to hedge. Any interest receipts arising from the
interest rate cap would be matched to those arising from the underlying debt
position.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
31
1 Accounting Policies continued
================================================================================
Intangible fixed assets
Intangible fixed assets comprise both system and product development costs.
System development comprises costs associated with the Group's host
computer systems and databases, and includes software licence fees and
installation costs. These costs are amortised on a straight line basis over five
years in line with the depreciation policy for the computer hardware used to
host the Group's services.
Product development consists of the pre-launch costs associated with
the development of new products. These include the costs of consultancy,
programmers' salaries and related overheads including depreciation and lease
interest on computer hardware wholly used for product development. These costs
are amortised on a straight line basis over three years commencing in the first
month of revenue generation from the developed product.
Product development costs are reviewed regularly for impairment and
additional depreciation is charged, if necessary, to reduce the net amount
carried forward on a product by product basis to net revenues expected to be
generated from that product.
Indexing costs
The cost of indexing information on databases is deferred and amortised on a
straight line basis over two years.
Fixed asset investments
Investments in subsidiaries and other fixed asset investments are stated in the
balance sheet at cost. Provision is made in full for diminution in value if
considered permanent.
Deferred taxation
Provision is made for timing differences between the treatment of certain items
for taxation and accounting purposes, to the extent that it is probable that a
liability or asset will crystallise.
Leased assets
Where assets are financed by leasing agreements that give rights approximating
to ownership ('finance leases'), the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable over the term of the lease. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account except for that
proportion relating to assets wholly used for product development.
Lease payments are analysed between capital and interest using the
actuarial method. The interest is charged to the profit and loss account except
for that proportion relating to assets wholly used for product development. The
capital part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals
are charged to the profit and loss account on a straight line basis over the
lease term except where the costs are capitalised as development costs.
Pension costs
For the year ended 31 December 1999, the Group operated defined contribution
pension schemes in the UK, US and Switzerland. The amount of contributions
payable to the pension schemes are charged to the profit and loss account as
incurred.
Finance costs
Borrowings are stated net of the associated costs of raising the finance. Such
finance costs are charged to the profit and loss account over the term of the
related borrowing, increasing the outstanding borrowing to the amount of the
debt at the maturity date.
Content provider agreements
Certain of the Group's information provider agreements contain provisions for
either fixed fees or minimum royalty payments irrespective of the usage revenues
generated by the Group. The Group recognises these fixed fees or minimum royalty
payments on a pro-rata basis in accordance with the terms of the contracts. The
Group periodically reviews the projected revenues related to these arrangements
and makes provision if fixed fees or minimum royalty commitments are not
expected to be recovered from the related revenues.
Cash
Cash is defined as cash in hand and deposits repayable on demand.
Warrants
Net proceeds from the issue of warrants are credited to equity upon issue. Where
warrants are issued in conjunction with debt, the net proceeds are allocated
between equity and debt based upon their respective fair values at the time of
issue.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
32
2 Turnover and Segmental Analysis
================================================================================
On 2 February 1999, the Company announced the creation of three new operating
divisions: the Information Services Division which provides an indexed online
delivery system sourced principally in the United Kingdom and North America; the
Web Solutions Division which licenses the Group's search technologies for
corporate knowledge management solutions; and the eCommerce Division.
1998 includes a full year's results of Knight-Ridder Information, Inc.
(KRII) as opposed to the previous year which only shows the results of KRII from
the date of acquisition, being 14 November 1997.
The composition of turnover is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
Information Services:
- Usage sales 132,631 136,992 28,040
- Subscription sales 8,891 10,561 14,092
- CD-ROM sales 7,465 8,737 1,134
- Other sales(1) 16,146 9,021 590
--------------------------------------------------------------------------
165,133 165,311 43,856
Web Solutions(2) 7,917 4,010 397
eCommerce 1,402 77 -
Other - 1,364 1,829
--------------------------------------------------------------------------
174,452 170,762 46,082
==========================================================================
(1) Includes(pound)12.6 million in respect of the sale of exclusive distribution
rights in 1999 (1998 and 1997:(pound)nil).
(2) Includes(pound)4 million in respect of technology sales in 1999 (1998 and
1997:(pound)nil).
The composition of operating profit/(loss) is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
Information Services 13,639 21,422 (24,125)
Web Solutions 2,692 953 (11)
eCommerce (1,216) (59) -
Other - 601 1,829
--------------------------------------------------------------------------
15,115 22,917 (22,307)
==========================================================================
The 'Other' category relates to royalties earned from the provision of hotel
Internet access.
The composition of depreciation and amortisation is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
Information Services 16,362 15,487 6,414
Web Solutions 489 208 21
eCommerce 380 27 -
Other - - -
--------------------------------------------------------------------------
17,231 15,722 6,435
==========================================================================
The composition of capital expenditure is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
Information Services 16,370 17,597 4,656
Web Solutions 90 1,385 78
eCommerce 254 3 -
Other - - -
--------------------------------------------------------------------------
16,714 18,985 4,734
==========================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
33
2 Turnover and Segmental Analysis continued
==========================================================================
The composition of net liabilities is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
Information Services 57,632 52,532 66,943
Web Solutions 2,053 2,209 947
eCommerce (301) (23) -
Other - - -
--------------------------------------------------------------------------
59,384 54,718 67,890
Unallocated net liabilities (161,679) (148,459) (158,845)
--------------------------------------------------------------------------
(102,295) (93,741) (90,955)
==========================================================================
Unallocated net liabilities comprise borrowings and cash deposits.
The composition of total assets is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
Information Services 104,925 106,665 123,336
Web Solutions 2,864 2,718 1,174
eCommerce 290 158 -
Other - - -
--------------------------------------------------------------------------
108,079 109,541 124,510
==========================================================================
The geographical composition of turnover by source is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
United Kingdom 22,764 17,243 29,013
North America 131,997 129,478 14,367
Continental Europe 15,271 17,231 2,244
Rest of the world 4,420 6,810 458
--------------------------------------------------------------------------
174,452 170,762 46,082
==========================================================================
The geographical composition of turnover by destination is analysed as follows:
--------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------
United Kingdom 21,661 24,374 14,026
North America 80,626 91,845 20,377
Continental Europe 26,234 24.547 7,365
Rest of the world 45,931 29,996 4,314
--------------------------------------------------------------------------
174,452 170,762 46,082
==========================================================================
The geographical composition of operating profit/(loss) is analysed as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Restructuring Restructuring
Total costs and Total Total costs and Total
before other after before other after
restructuring exceptional restructuring restructuring exceptional restructuring
costs items costs costs items costs
1999 1998 1998 1998 1997 1997 1997
(pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
United Kingdom (13,989) (9,950) (2,689) (12,639) (5,599) (5,983) (11,582)
North America 31,559 33,892 (2,781) 31,111 (375) (10,107) (10,482)
Continental Europe (2,088) 921 587 1,508 2,288 (2,429) (141)
Rest of the world (367) 746 - 746 (71) (31) (102)
--------------------------------------------------------------------------------------------------------------------------------
15,115 25,609 (4,883) 20,726 (3,757) (18,550) (22,307)
================================================================================================================================
</TABLE>
The operating profit/(loss) for the United Kingdom for the periods under review
includes the central costs associated with the Group's worldwide head office
functions.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
34
2 Turnover and Segmental Analysis continued
================================================================================
The composition of net assets and total assets by location is presented on a
basis consistent with the segmental analysis of operating profit/(loss). The
assets in any location are not necessarily matched with the turnover in that
location. The net assets and total assets for the United Kingdom for the periods
under review include those associated with the Group's worldwide head office
functions.
The geographical composition of net liabilities is analysed as follows:
--------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
United Kingdom 15,747 13,003 20,387
North America 40,756 37,720 38,403
Continental Europe 2,460 2,481 3,293
Rest of the world 421 1,514 5,807
--------------------------------------------------------------------------------
Net operating assets 59,384 54,718 67,890
Unallocated net liabilities (161,679) (148,459) (158,845)
--------------------------------------------------------------------------------
(102,295) (93,741) (90,955)
================================================================================
Unallocated net liabilities comprise borrowings and cash deposits.
The geographical composition of total assets is analysed as follows:
--------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
United Kingdom 34,265 28,382 28,287
North America 66,043 66,546 78,325
Continental Europe 6,940 7,771 10,376
Rest of the world 831 6,843 7,522
--------------------------------------------------------------------------------
Net operating assets 108,079 109,542 124,510
================================================================================
3 Staff numbers and costs
================================================================================
Staff costs (including Directors) consist of:
--------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
Wages and salaries 34,091 32,529 14,336
Social security costs 3,878 2,997 1,440
Other pension costs 945 910 51
--------------------------------------------------------------------------------
38,914 36,436 15,827
================================================================================
Included above are staff costs of (pound)3,880,000 (1998: (pound)9,260,000;
1997: (pound)1,413,000) which represent costs of product and systems development
and have been capitalised in accordance with the accounting policy for
intangible fixed assets as set out in note 1 to these financial statements.
Pension arrangements
The Group operates defined contribution pension schemes in the UK, the US and
Switzerland. The pension cost charge represents contributions payable by the
Group to the funds and amounted to (pound)945,000 (1998: (pound)910,000; 1997:
(pound)51,000). The assets of all the schemes are held by independent custodians
and kept entirely separate from the assets of the Group.
The average number of full-time employees during the year was:
--------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------
United Kingdom 308 275 217
North America 560 573 289
Continental Europe 110 99 43
Rest of the world 74 78 43
--------------------------------------------------------------------------------
1,052 1,025 592
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
35
4 Operating Profit/(Loss)
================================================================================
This is arrived at after charging/(crediting):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hire of plant and machinery - operating leases 60 - 560
Hire of other assets - operating leases 4,613 5,160 1,272
Depreciation:
- on owned assets 6,964 7,069 4,378
- on leased assets 518 893 516
Amortisation/write-off:
- of development costs 9,334 7,699 11,548
- of goodwill 415 61 -
Auditors' remuneration:
- PricewaterhouseCoopers 252 229 197
- other 29 28 78
Gain on foreign currency translations (119) (290) (60)
Loss/(profit) on disposal of fixed assets 631 17 (15)
Net costs arising on reorganisation of Group's agency arrangements - - 267
Write-off of fixed asset investments (see notes 5 and 13) 4,619 2,300 -
-------------------------------------------------------------------------------------------------------
</TABLE>
The auditors' remuneration includes amounts in respect of the parent company for
the year ended 31 December 1999 of (pound)100,000 (1998:(pound)100,000;
1997:(pound)100,000).
Additional fees paid to PricewaterhouseCoopers for non-audit services
amounted to(pound)52,000 in 1999 (1998: (pound)8,000; 1997:(pound)1,433,000).
The fees paid in 1997 were in respect of the Company's acquisition of KRII in
November 1997 and the associated financing.
Of the 1997 costs of reorganising the Group's agency arrangements
amounting to (pound)267,000, which was charged against operating profit in 1997,
(pound)383,000 related to the cost of purchasing the Company's South African
agency, offset by a gain of (pound)116,000 on the assignment of the Group's
former Japanese agency to Fujitsu.
The (loss)/profit for the year attributable to shareholders, dealt with in the
accounts of Bright Station plc, is:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(103,340) (9,016) 4,120
=======================================================================================================
</TABLE>
As permitted by Section 230 of the Companies Act 1985, the profit and loss
account of the Company is not presented.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
36
5 Amounts Written off Investments, Exceptional Items and Restructuring Costs
================================================================================
1999
The amounts written off investments during the year ended 31 December 1999
comprised (pound)3.2 million in respect of the Company's remaining investment in
eHotel (formerly 4th Network), reflecting further delays in its proposed initial
public offering. In addition, a provision of (pound)1.4 million was made against
the Company's investment in Frost & Sullivan Electronic Distribution LLC
reflecting concerns over the value of certain of its exclusive online
distribution rights.
The provision for closure of business of (pound)911,000 booked during
the year ended 31 December 1999 relates to the closure of its former subsidiary
distributor in Japan, KMK Digitex Company Limited. The provision has been
classified within accruals and deferred income at 31 December 1999.
1998
During the year ended 31 December 1998, exceptional restructuring costs of
(pound)2.6 million were charged as a result of the continuing integration of
KRII. These costs consisted of (pound)1.8 million relating to the relocation of
the US headquarters, (pound)1.6 million relating to the termination of property
leases and (pound)0.9 million of various other restructuring charges, relating
primarily to the integration of the sales force and one-off customer hostings.
These costs were offset by a write-back of (pound)1.2 million relating to data
centre convergence costs and (pound)0.5 million relating to the removal of the
Knight-Ridder Information name.
An exceptional write-down of (pound)2.3 million was charged to the
profit and loss account relating to the Company's investment in eHotel.
On 6 May 1998, the Group disposed of its investment in NewsEdge
Corporation, an online service provider, for net proceeds of (pound)3.9 million.
This resulted in a book profit on the disposal of (pound)1.0 million.
On 13 May 1998, the Company disposed of its investment in Easynet Group
plc, an Internet and telecommunications company, for net proceeds, after
associated expenses, of (pound)3.2 million. This resulted in a book profit on
the disposal of (pound)1.1 million.
1997
On 24 February 1997, the Company sold its hotel Internet access technology (and
existing hotel contracts) to eHotel and became their agent in Europe. In
consideration the Company received 500,000 shares in eHotel with an aggregate
value of (pound)4,597,000. The costs associated with the transfer were
(pound)562,000. There was no effect on the Group's tax charge as a result of
this exceptional gain.
During the year ended 31 December 1997, exceptional restructuring costs
of (pound)18.6 million were charged as a result of the integration of KRII.
Distribution costs of (pound)1.3 million related to the removal of the KRII name
and logo from all printed materials, products and signage. Administrative
expenses of (pound)9.3 million consisted of (pound)5.3 million relating to data
centre integration costs, (pound)2.2 million relating to the termination of
property leases, (pound)1.5 million relating to severance costs and (pound)0.3
million relating to various other restructuring charges. Amortisation of
(pound)8.0 million related to the write-off of previously capitalised product
development costs where these products were no longer being pursued by the
enlarged Group.
6 Interest Payable and Similar Charges
================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
Bank loans and overdrafts:
- on Senior Subordinated Notes 12,268 12,013 1,701
- on Senior Credit Facility 4,585 4,399 659
- amortisation of debt fees 1,274 946 -
- on bank overdrafts 78 33 26
- other 59 - -
--------------------------------------------------------------------------------
18,264 17,391 2,386
Finance leases 105 45 118
Exchange gains on foreign currency deposits (3) - -
--------------------------------------------------------------------------------
18,366 17,436 2,504
Less: Lease finance costs capitalised - - (6)
--------------------------------------------------------------------------------
18,366 17,436 2,498
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
37
7 Directors' Emoluments and Interests in Ordinary Shares
<TABLE>
<CAPTION>
==============================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate emoluments 1,291 1,326 773
Compensation to past Directors for loss of office 154 - -
Amounts paid to third parties 33 51 38
Amounts paid to former Directors 11 50 167
Contributions to defined contribution pension schemes 25 12 -
----------------------------------------------------------------------------------------------
1,514 1,439 978
==============================================================================================
</TABLE>
Details of the full cost of each Director's remuneration package for the year
ended 31 December 1999 are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Pension 1999 1998 1997
Fees Salary Benefits Bonus contributions Total Total Total
(pound) (pound) (pound) (pound) (pound) (pound) (pound) (pound)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I Barton 25,000 - - - - 25,000 20,000 15,000
G Burrows
(to 2 February 1999) - 23,403 - - - 23,403 30,894 -
M Hussey 25,000 - - - - 25,000 20,000 15,000
S Maller - 127,000 26 - - 127,026 98,841 82,236
M Mander
(to 1 July 1999) 32,500 - - - - 32,500 51,250 37,500
D Mattey - 173,333 4,062 - 5,867 183,262 144,380 167,062
J Molle - 169,235 4,947 - 2,114 176,296 128,514 39,788
C Morton - 150,000 7,205 - 4,500 161,705 124,880 37,853
D Smith
(to 2 February 1999) - 13,333 1,437 - 6,933 21,703 143,401 161,858
P Sommers - 192,313 - 30,979 5,576 228,868 39,677 -
R Swank
(from 15 March 1999) 20,233 - - - - 20,233 - -
A Thomas 51,664 - - - - 51,664 20,000 3,750
D Wagner - 210,000 4,407 - - 214,407 168,078 199,510
--------------------------------------------------------------------------------------------------------------
154,397 1,058,617 22,084 30,979 24,990 1,291,067 989,915 759,557
==============================================================================================================
</TABLE>
Derek Smith resigned on 2 February 1999 and, in addition to the emoluments shown
above, received(pound)153,600 in respect of the termination of his service
contract.
Benefits include P11D benefits (non-cash compensation) for the UK
Directors, as detailed in the Remuneration Committee Report.
David Mattey, Ciaran Morton and Derek Smith are or were members of the
Company's defined contribution scheme in the UK and Jason Molle and Patrick
Sommers were, during the year ended 31 December 1999, members of the Company's
defined contribution scheme in the US. The Company made (pound)17,300
contributions to the UK scheme and $12,412 contributions to the US scheme on
behalf of the Directors in 1999.
Each of the Executive Directors has service agreements with the Company
for continuing employment unless and until terminated by either party by giving
not less than twelve months' notice, except Patrick Sommers who was on a two
year rolling contract prior to becoming a Non-Executive Director on 4 May 2000.
On 4 May 2000 the Company completed the sale of the ISD to Thomson. On
this date, Stephen Maller, Jason Molle and Ciaran Morton transferred to Thomson
and resigned as directors of the Company. On the same date, Patrick Sommers
became a Non-Executive Director of the Company upon his transfer to Thomson. On
completion of the sale, the Company paid Patrick Sommers a bonus of $1.5 million
((pound)1.0 million), half in cash and the remainder by the issue of 71,361
ADSs, equivalent to 285,444 Ordinary shares, credited as fully paid, at a price
of 168 pence per share.
In May 2000, the following bonuses were paid to the Executive
Directors in respect of the sale of the ISD the successful repayment of the
Company's debt, and, where applicable, the restructuring and formation of Bright
Station plc:
Patrick Sommers $300,000 ((pound)192,000)
Jason Molle $150,000 ((pound)96,000)
Daniel Wagner (pound)190,000
David Mattey (pound)160,000
Ciaran Morton (pound)100,000
Stephen Maller (pound)50,000
The amounts disclosed above as fees paid to Michael Mander were paid to
Close Brothers Corporate Finance Ltd, his primary employer. Michael Mander, who
resigned as a Non-Executive Director on 1 July 1999, was paid an additional
(pound)11,000 during the year for services provided under a consultancy
agreement which will expire on 31 December 2000.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
38
7 Directors' Emoluments and Interests in Ordinary Shares continued
================================================================================
The following table sets forth certain information regarding the beneficial
ownership of Ordinary shares by (a) each officer and executive director, and (b)
all directors and officers of the Company as a group. Unless otherwise noted in
the footnotes to the table, (i) the persons named in the table have sole voting
and investing power with respect to all Ordinary shares indicated as being
beneficially owned by them and (ii) officers and directors can be reached via
the principal offices of the Company.
Interests in Ordinary shares (1)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
% of issued
shares as at % of issued
31 December 31 December shares as at
Name of beneficial owner 1 January 1999* Acquisitions Disposals 1999+ 1999 30 June 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I Barton (2) 479,139 - - 479,139 0.31 0.28
M Hussey (3) 242,610 - - 242,610 0.16 0.14
S Maller 25,441 - - 25,441 0.02 0.01
M Mander (4) 900,327 - - 900,327 0.58 0.52
D Mattey (5) 2,335,200 - - 2,335,200 1.51 1.35
J Molle 135,116 - - 135,116 0.09 0.08
C Morton 202,001 - - 202,001 0.13 0.11
D Smith 550,000 - - 550,000 0.35 0.32
P Sommers (6) 8,000** 40,000** - 48,000** 0.03 0.03
R Swank (7) 12,000** 20,000** - 32,000** 0.02 0.02
A Thomas (8) 100,000 - - 100,000 0.06 0.06
D Wagner (9) 17,434,780 - - 17,434,780 11.25 10.10
--------------------------------------------------------------------------------------------------------------------
Total 22,424,614 60,000 - 22,484,614 14.51 13.02
====================================================================================================================
</TABLE>
* or date of appointment if later
+ or date of retirement if earlier
** held as American Depositary Shares
(1) Based on 154,943,398 Ordinary shares outstanding at 31 December 1999 and
excluding an aggregate of 4,080,058 that may be acquired by all executive
officers and directors as a group pursuant to the share option schemes as
described on pages 39-40 and note 18 to the financial statements.
(2) Includes 20,640 Ordinary shares held by A Barton, I Barton's wife.
(3) 242,610 Ordinary shares held for the benefit of M Hussey by RBSTB Nominees
Limited.
(4) Includes 9,327 Ordinary shares held for the benefit of M Mander by BDS
Nominees Limited.
(5) Includes (i) 600,000 Ordinary shares held by Barclayshare Nominees Limited
for the benefit of D Mattey, (ii) 560,000 Ordinary shares held jointly by
D Mattey and Alan Mattey, and (iii) 200 Ordinary shares held by A Mattey,
D Mattey's wife.
(6) On 8 September 1999, P Sommers purchased 10,000 American Depositary
Shares, equivalent to 40,000 Ordinary shares. P Sommers holds the
equivalent of 48,000 Ordinary shares held as American Depositary Shares.
(7) On 14 July 1999, R Swank purchased 3,000 American Depositary Shares,
equivalent to 12,000 Ordinary shares. On 21 July 1999, R Swank purchased
2,000 American Depositary Shares, equivalent to 8,000 Ordinary shares. R
Swank holds the equivalent of 32,000 Ordinary shares held as American
Depositary Shares.
(8) 100,000 Ordinary shares held for the benefit of A Thomas by BAT Holdings
Limited.
(9) Includes (i) 1,334,060 Ordinary shares held jointly by D Wagner and Y
Wagner, (ii) 100,000 Ordinary shares held in trust for the benefit of D
Wagner by the Daniel Wagner (M.A.I.D) Trust, and (iii) 400,000 Ordinary
shares held by S Wagner, D Wagner's wife.
To the Company's knowledge, no other person is the owner of more than 10% of the
outstanding Ordinary shares nor is the Company directly or indirectly owned or
controlled by any other corporation or any government.
There are no arrangements known to the Company the operation of which
may, at a subsequent date, result in a change of control of the Company.
With respect to those Directors in office at 31 December 1999, all of
their interests in the Ordinary shares of the Company are beneficial.
Since 31 December 1999 through to the date of this Annual Report
Patrick Sommers has increased his holding to 83,361 ADSs, equivalent to 333,444
Ordinary shares pursuant to his bonus arrangement as disclosed in note 31 to the
financial statements. In addition, certain ex-Directors have reduced their
interests in the Company after retiring as Directors of the Company.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
39
7 Directors' Emoluments and Interests in Ordinary Shares continued
<TABLE>
<CAPTION>
===================================================================================================================================
At At Date from
1 January Granted/ 31 December Exercise which Expiry
Options over Ordinary shares Scheme 1999* (Cancelled) (Exercised) 1999+ price exercisable date
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
G Burrows (1) US Stock Option Plan** 50,000 - - 50,000 170p 08/09/99 08/09/08
US Stock Option Plan** 70,000 - - 70,000 150p 08/10/99 08/10/08
Employee Stock Purchase Plan*** 3,812 - - 3,812 158p 30/09/00 30/09/00
S Maller (2) Sharesave Scheme 7,040 - - 7,040 49p 01/12/99 31/05/00
Sharesave Scheme 2,156 - - 2,156 64p 01/06/00 30/11/00
Sharesave Scheme 308 - - 308 224p 01/12/00 31/05/01
Sharesave Scheme 766 - - 766 180p 01/06/01 30/11/01
Sharesave Scheme 569 - - 569 137p 01/07/01 31/12/01
Sharesave Scheme - 1,174 - 1,174 99p 01/07/02 31/12/02
Unapproved Scheme 30,000 - - 30,000 189p 14/03/00 14/03/04
Unapproved Scheme 30,000 - - 30,000 173p 30/04/01 30/04/05
Unapproved Scheme 120,000 - - 120,000 150p 08/10/01 08/10/05
Executive Scheme 62,727 - - 62,727 110p 24/03/97 24/03/04
Executive Scheme 20,000 - - 20,000 80p 25/04/98 25/04/05
Executive Scheme 17,500 - - 17,500 248p 04/10/98 04/10/05
Unapproved Scheme - 250,000 - 250,000 400p 02/07/02 02/07/06
D Mattey Sharesave Scheme - 17,045 - 17,045 99p 01/07/04 31/12/04
Sharesave Scheme 19,602 (19,602) - - 88p 01/05/99 31/10/99
Unapproved Scheme 30,000 - - 30,000 173p 30/04/01 30/04/05
Unapproved Scheme 120,000 - - 120,000 150p 08/10/01 08/10/05
Executive Scheme 122,727 - - 122,727 110p 24/03/97 24/03/04
Unapproved Scheme - 325,000 - 325,000 400p 02/07/02 02/07/06
J Molle (2) Unapproved Scheme 54,545 - - 54,545 110p 24/03/97 24/03/01
Unapproved Scheme 17,500 - - 17,500 248p 04/10/98 04/10/02
Unapproved Scheme 30,000 - - 30,000 189p 14/03/00 14/03/04
US Stock Option Plan** 30,000 - - 30,000 173p 30/04/99 30/04/08
US Stock Option Plan** 120,000 - - 120,000 150p 08/10/99 08/10/08
Employee Stock Purchase Plan*** 2,196 1,352 (3,548) - 80p 29/06/99 29/06/99
Employee Stock Purchase Plan*** - 5,276 - 5,276 59p 04/10/00 04/10/00
US Stock Option Plan** - 250,000 - 250,000 400p 02/07/02 02/07/06
Unapproved Scheme - 50,000 - 50,000 400p 02/07/02 02/07/06
C Morton (2) Sharesave Scheme 35,204 - 35,204 49p 01/12/99 31/05/00
Unapproved Scheme 17,500 - 17,500 248p 04/10/98 04/10/02
Unapproved Scheme 30,000 - 30,000 189p 14/03/00 14/03/04
Unapproved Scheme 30,000 - 30,000 173p 30/04/01 30/04/05
Unapproved Scheme 120,000 - 120,000 150p 08/10/01 08/10/05
Executive Scheme 61,364 - 61,364 110p 24/03/97 24/03/04
Unapproved Scheme - 300,000 300,000 400p 02/07/02 02/07/06
D Smith (3) Executive Scheme 15,900 - 15,900 189p 02/02/99 14/03/01
Unapproved Scheme 84,100 - 84,100 189p 02/02/99 14/03/01
Unapproved Scheme 30,000 - 30,000 173p 02/02/99 30/04/02
Unapproved Scheme 120,000 - 120,000 150p 02/02/99 08/10/02
Sharesave Scheme 7,116 - 7,116 137p 02/02/99 02/02/99
P Sommers US Stock Option Plan** 200,000 - 200,000 150p 08/10/99 08/10/08
US Stock Option Plan** - 200,000 200,000 90p 02/07/00 02/07/09
Employee Stock Purchase Plan*** - 2,352 2,352 128p 22/04/01 22/04/01
Employee Stock Purchase Plan*** - 5,276 5,276 59p 04/10/00 04/10/00
Unapproved Scheme - 600,000 600,000 400p 02/07/02 02/07/06
R Swank Individual Arrangement 26,844 - 26,844 220p 14/11/98 14/11/04
Individual Arrangement 16,928 - 16,928 185p 08/09/99 08/09/05
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
40
7 Directors' Emoluments and Interests in Ordinary Shares continued
<TABLE>
<CAPTION>
========================================================================================================================
At At Date from
1 January Granted/ 31 December Exercise which Expiry
Options over Ordinary shares Scheme 1999* (Cancelled) 1999+ price exercisable date
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
D Wagner Sharesave Scheme - 17,045 17,045 99p 01/07/04 31/12/04
Sharesave Scheme 19,602 (19,602) - 88p 01/05/99 31/10/99
Unapproved Scheme 30,000 - 30,000 173p 30/04/01 30/04/05
Unapproved Scheme 130,000 - 130,000 150p 08/10/01 08/10/05
Executive Scheme 163,636 - 163,636 110p 24/03/97 24/03/04
------------------------------------------------------------------------------------------------------------------------
Grand Total 2,099,642 1,980,416 4,080,058
========================================================================================================================
</TABLE>
* or date of appointment if later
+ or date of retirement if earlier
** under the terms of the US Stock Option Plan, options are granted in the form
of ADSs at an exercise price expressed in US Dollars. Options granted under the
US Stock Option Plan become exercisable in cumulative increments as determined
by the Remuneration Committee of the Board of Directors. For the purpose of
uniformity, all options detailed above are expressed in Ordinary shares and in
Pounds Sterling.
*** under the terms of the Employee Stock Purchase Plan, rights are granted for
eligible US employees to acquire beneficial ownership of Ordinary shares of the
Company by purchasing ADSs. The purchase price may not be less than the lower of
85% of the fair market value of the ADSs on the offering date or 85% of the fair
market value of the ADSs on the purchase date. The purchase price is accumulated
by payroll deductions over the course of the offering. There are two offerings a
year. For the purpose of uniformity, all rights to purchase ADSs under the
Employee Stock Purchase Plan detailed above are expressed in Ordinary shares and
in Pounds Sterling.
Notes:
(1) All options held by Graham Burrows lapsed upon his resignation as a Director
of the Company on 2 February 1999.
(2) In accordance with the rules of the Company's share option schemes, the
period within which options held by Stephen Maller, Jason Molle and Ciaran
Morton may be exercised were amended in the following manner upon their transfer
to Thomson:
Options held under the Executive Scheme, the Unapproved Scheme and the
US Stock Option Plan became immediately exercisable and remain so until the
later of 12 months after the date of transfer or four years after the date of
grant, whereupon they lapse. Options held under the Sharesave Scheme became
immediately exercisable (to the value of accumulated savings) and remain so for
six months, whereupon they lapse. Rights to purchase ADSs under the Employee
Stock Purchase Plan matured on completion, whereupon they lapsed.
(3) Options held by Derek Smith under the Executive and Unapproved Schemes
became immediately exercisable on 2 February 1999 and remain exercisable until
the later of 2 February 2000 and four years from the date of grant, whereupon
they lapse. Options held under the Sharesave Scheme became exercisable on 2
February 2000 (to the value of the accumulated savings) and remained exercisable
for six months, whereupon they lapsed.
During May 2000 options were granted to the following Directors:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Scheme Date of Number Exercise Exercisable Expiry
grant price from date
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D Mattey Unapproved Scheme 4 May 2000 50,000 93.5p 4 May 2004 4 May 2007
P Sommers US Stock Option Plan 4 May 2000 200,000 93.5p 4 May 2001 4 May 2010
P Sommers Individual arrangement 5 May 2000 285,444 170.0p 5 May 2001 5 May 2007
D Wagner Unapproved Scheme 4 May 2000 50,000 93.5p 4 May 2004 4 May 2007
===========================================================================================================
</TABLE>
Further details of each of the Company's share option schemes are contained in
note 18 to the financial statements.
The mid-market price of the Company's Ordinary shares on 30 December 1999, the
last trading day in 1999, was 91 pence per share and the range during 1999 was
57 pence to 148 pence per share. Further details of the Company's share option
schemes are set out in note 18 to the financial statements.
None of the Directors have notified the Company of an interest in any
other shares, transactions or arrangements which require disclosure except as
indicated in note 7 to the financial statements.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
41
8 Taxation on (Loss)/Profit on Ordinary Activities
<TABLE>
<CAPTION>
==============================================================================================
1999 1998 1997
(pound) 000 (pound)00E0 (pound) 000
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UK corporation tax at 30% (1998: 31%; 1997: 31.5%) (65) - -
Overseas tax 1,413 776 332
Adjustment relating to earlier years 156 - -
Deferred tax credit (26) (7) (9)
----------------------------------------------------------------------------------------------
Tax charge 1,478 769 323
==============================================================================================
</TABLE>
The taxation on (loss)/profit on ordinary activities may be reconciled as
follows to the UK statutory rate:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1999 1998 1997
% % %
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UK statutory rate of tax 30 31 31
Disallowed expenditures (12) 14 -
Tax deduction in respect of goodwill written off to reserves 114 (80) -
Unrecognised tax losses (170) 49 (32)
----------------------------------------------------------------------------------------------
Effective rate of tax provided (38) 14 (1)
==============================================================================================
</TABLE>
9 (Loss)/Earnings per Share
<TABLE>
<CAPTION>
===================================================================================================================================
Total Total Total Total
before after before after
restructuring restructuring restructuring restructuring
costs costs costs costs
1999 1998 1998 1997 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Attributable (loss)/profit ((pound)) (5,385,000) 7,253,000 4,439,000 (6,229,000) (20,744,000)
Weighted average number of Ordinary shares in issue 151,928,606 150,579,177 150,579,177 101,077,187 101,077,187
-----------------------------------------------------------------------------------------------------------------------------------
(Loss)/earnings per share (pence) (3.5) 4.8 (2.9) (6.2) (20.5)
===================================================================================================================================
Attributable (loss)/profit as above ((pound)) (5,385,000) 7,253,000 4,439,000 (6,229,000) (20,744,000)
Weighted average number of Ordinary shares
in issue as above 151,928,606 150,579,177 50,579,177 101,077,187 101,077,187
Add: shares issuable on conversion of options 119,429 384,655 384,655 735,716 735,716
Add: shares issuable on acquisition of subsidiary 1,062,637 1,667,241 1,667,241 - -
-----------------------------------------------------------------------------------------------------------------------------------
Adjusted average number of Ordinary shares 153,110,672 152,631,073 152,631,073 101,812,903 101,812,903
-----------------------------------------------------------------------------------------------------------------------------------
Fully diluted (loss)/earnings per share (pence) (3.5) 4.8 2.9 (6.1) (20.4)
===================================================================================================================================
Share equivalents excluded from calculation
of fully diluted (loss)/earnings per share
because anti-dilutive:
Warrants 9,000,000 - - - -
Options 8,419,638 3,911,532 3,911,532 301,844 301,844
-----------------------------------------------------------------------------------------------------------------------------------
17,419,638 3,911,532 3,911,532 301,844 301,844
===================================================================================================================================
</TABLE>
In view of the significant impact of restructuring costs and other exceptional
items on earnings per share calculated in accordance with FRS14, additional
earnings per share figures have been provided.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
42
<TABLE>
<CAPTION>
10 Intangible Fixed Assets
================================================================================
Group Company
(pound) 000 (pound) 000
--------------------------------------------------------------------------------
<S> <C> <C>
Cost
At 31 December 1997 33,204 11,299
Transfer from subsidiary undertakings - 1,153
Revisions to fair values and other adjustments (2,377) -
Exchange adjustments (231) -
Additions 11,762 2,396
--------------------------------------------------------------------------------
At 31 December 1998 42,358 14,848
Amounts written off (57) -
Exchange adjustments 805 -
Additions 12,734 2,512
--------------------------------------------------------------------------------
At 31 December 1999 55,840 17,360
--------------------------------------------------------------------------------
Amortisation
At 31 December 1997 11,580 7,142
Transfer from subsidiary undertakings - 779
Exchange adjustments (75) -
Provision for year 7,699 2,277
--------------------------------------------------------------------------------
At 31 December 1998 19,204 10,198
Exchange adjustments 272 -
Provision for year 9,334 2,263
--------------------------------------------------------------------------------
At 31 December 1999 28,810 12,461
================================================================================
Net book amount
At 31 December 1999 27,030 4,899
================================================================================
At 31 December 1998 23,154 4,650
================================================================================
</TABLE>
<TABLE>
<CAPTION>
The net book amounts are analysed as follows:
--------------------------------------------------------------------------------
1999 1999
Group Company
(pound) 000 (pound) 000
--------------------------------------------------------------------------------
<S> <C> <C>
Systems development 5,841 121
Product development 21,189 4,777
--------------------------------------------------------------------------------
27,030 4,898
================================================================================
1998 1998
Group Company
(pound) 000 (pound) 000
--------------------------------------------------------------------------------
Systems development 5,370 237
Product development 17,784 4,413
--------------------------------------------------------------------------------
23,154 4,650
================================================================================
</TABLE>
Additions to intangible fixed assets in 1999 for the Group principally comprised
product development costs related to Dialog Web, Dialog Select and Open System
Alerts. The product development costs include salaries and related overhead
costs of (pound)6,175,000 (1998:(pound)10,210,000) (1997:(pound)1,798,000),
consultancy costs, including attributable overheads, of (pound)3,223,000
(1998:(pound)526,000) (1997:(pound)211,000) and hardware and software costs of
(pound)487,000 (1998:(pound)896,000) (1997:(pound)1,955,000) (including
depreciation of (pound)nil (1998:(pound)nil) (1997:(pound)1,200,000). Additions
to systems development costs in 1999 related to various database projects.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
43
<TABLE>
<CAPTION>
11 Goodwill
================================================================================
Group
(pound) 000
--------------------------------------------------------------------------------
<S> <C>
Cost
At 31 December 1997 -
Additions 7,743
Exchange adjustments (6)
--------------------------------------------------------------------------------
At 31 December 1998 7,737
Additions 2,490
Exchange adjustments 54
--------------------------------------------------------------------------------
At 31 December 1999 10,281
================================================================================
Amortisation
At 31 December 1997 -
Provision for the year 61
--------------------------------------------------------------------------------
At 31 December 1998 61
Provision for year 415
--------------------------------------------------------------------------------
At 31 December 1999 476
================================================================================
Net book amount
At 31 December 1999 9,805
================================================================================
At 31 December 1998 7,676
================================================================================
</TABLE>
Responsive Database Services, Inc.
On 6 October 1998, the Group exercised its option to acquire all of the share
capital of Responsive Database Services, Inc. ('RDS') for total cash
consideration of $2.85 million ((pound)1.72 million). The Group has historically
provided all financing for RDS and, accordingly, has consolidated its results
within the Group financial statements. No fair value adjustments were required.
The total consideration paid has been treated as goodwill arising on the
acquisition of a minority interest.
Write Works
On 19 November 1998, the Company acquired all of the share capital of Write
Works Limited ('Write Works') for a maximum consideration of (pound)6.0 million
to be paid over two years. The consideration has been satisfied through an
initial payment of (pound)1.0 million in cash and approximately (pound)1.2
million by the issue of 694,025 new Ordinary shares at a price of (pound)1.66
per share. A further consideration of up to a maximum of (pound)3.8 million in
cash and shares (cash of (pound)2.8 million and shares with a market value of
(pound)1.0 million at the dates the deferred consideration is payable) will be
paid on the achievement of certain earnings targets over the next two years.
KMK
On 30 June 1999, the Company acquired the remaining 48% minority interest in its
Japanese subsidiary, KMK Digitex Company Limited, for total cash consideration
of (pound)428,000. No fair value adjustments were required and no goodwill arose
on the transaction.
Muscat
On 30 November 1999, the Company announced that it had acquired the remaining
30% minority interest in its UK subsidiary, Muscat Limited. The consideration of
(pound)2,500,737 was satisfied by the issue of 3,012,936 Ordinary shares at 83
pence per share.
No fair value adjustments were required. The resultant goodwill of
(pound)2,490,000 has been capitalised and will subsequently be written off over
20 years as set out in Note 1.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
44
12 Tangible Fixed Assets
<TABLE>
<CAPTION>
============================================================================================
Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
Group (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost
At 31 December 1997 2,181 25,255 3,095 595 31,126
Exchange adjustments (12) (97) (28) 3 (134)
Additions 408 5,969 150 14 6,541
Revisions to fair values - (43) - - (43)
Disposals (99) (83) (449) (82) (713)
--------------------------------------------------------------------------------------------
At 31 December 1998 2,478 31,001 2,768 530 36,777
Exchange adjustments 30 582 78 (19) 671
Additions 776 3,464 287 9 4,536
Disposals (65) (5,133) (359) (158) (5,715)
--------------------------------------------------------------------------------------------
At 31 December 1999 3,219 29,914 2,774 362 36,269
============================================================================================
Depreciation
At 31 December 1997 1,384 9,078 1,080 230 11,772
Exchange adjustments (10) (55) (12) 2 (75)
Provided for the year 436 6,855 532 139 7,962
Revisions to fair values - (267) - - (267)
Disposals (33) (190) (209) (53) (485)
--------------------------------------------------------------------------------------------
At 31 December 1998 1,777 15,421 1,391 318 18,907
Exchange adjustments 31 493 44 (19) 549
Provided for the year 377 6,772 224 109 7,482
Disposals (31) (4,627) (239) (110) (5,007)
--------------------------------------------------------------------------------------------
At 31 December 1999 2,154 18,059 1,420 298 21,931
============================================================================================
Net book amount
At 31 December 1999 1,065 11,855 1,354 64 14,338
============================================================================================
At 31 December 1998 701 15,580 1,377 212 17,870
============================================================================================
</TABLE>
On 10 November 1999, the Company entered into an agreement with International
Computers Limited ("ICL") to outsource the operations of its data centre in Palo
Alto, California for a period of seven years. In connection with this
transaction, the Company sold certain assets in the Palo Alto data centre with a
net book value of (pound)3,475,000 in return for cash of (pound)3,058,000 and a
reduction in outsourcing charges of (pound)1,451,000. Although the assets have
been legally sold to ICL, they continue to be used by the Company and have
therefore been retained on the balance sheet in accordance with FRS 5 (Reporting
the substance of transactions).
After accounting for this transaction, the net book amounts of assets
held under finance leases at 31 December 1999 were (pound)5,255,000 (1998:
(pound)857,000).
Equipment included assets under finance leases of (pound)12,809,000 and
(pound)5,378,000 at 31 December 1999 and 1998 respectively. Accumulated
depreciation relating to equipment under finance leases totalled
(pound)7,554,000 and (pound)4,521,000 at 31 December 1999 and 1998 respectively.
Depreciation of equipment under finance leases is included in the depreciation
expense, unless capitalised in accordance with the Group's system and product
development cost policy (note 1).
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
45
12 Tangible Fixed Assets continued
<TABLE>
<CAPTION>
=================================================================================================================
Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
Company (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost
At 31 December 1997 849 2,633 500 557 4,539
Transfer from subsidiary undertakings - 6,979 29 - 7,008
Additions 174 653 11 - 838
Disposals - (25) (4) (82) (111)
-----------------------------------------------------------------------------------------------------------
At 31 December 1998 1,023 10,240 536 475 12,274
Transfer to subsidiary undertakings - (14) - (14) (28)
Additions - 1,131 56 - 1,187
Disposals (21) - (1) (143) (165)
-----------------------------------------------------------------------------------------------------------
At 31 December 1999 1,002 11,357 591 318 13,268
===========================================================================================================
Depreciation
At 31 December 1997 304 1,695 305 205 2,509
Transfer from subsidiary undertakings - 4,638 20 - 4,658
Provided for the year 183 1,914 93 129 2,319
Disposals - (1) - (53) (54)
-----------------------------------------------------------------------------------------------------------
At 31 December 1998 487 8,246 418 281 9,432
Transfer from subsidiary undertakings - - - (16) (16)
Provided for the year 170 1,418 80 96 1,764
Disposals - - - (95) (95)
-----------------------------------------------------------------------------------------------------------
At 31 December 1999 657 9,664 498 266 11,085
===========================================================================================================
Net book amount
At 31 December 1999 345 1,693 93 52 2,183
===========================================================================================================
At 31 December 1998 536 1,994 118 194 2,842
===========================================================================================================
</TABLE>
The net book amounts of assets held under finance leases at 31 December 1999
were (pound)nil (1998:(pound)nil).
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
46
13 Fixed Asset Investments
=========================================================
Group
Investments (pound) 000
---------------------------------------------------------
At 31 December 1997 18,374
Amounts written off (note 5) (2,300)
Additions 1,446
Disposals (5,053)
Exchange movements (113)
---------------------------------------------------------
At 31 December 1998 12,354
Amounts written off (note 5) (4,619)
Additions 1,645
Disposals -
Exchange movements 255
---------------------------------------------------------
At 31 December 1999 9,635
=========================================================
The additions during the year ended 31 December 1999 related to the
final funding instalments ((pound)746,000) of Frost & Sullivan Electronic
Distribution LLC ("FSED"), a 50:50 joint venture with Frost & Sullivan which is
registered in the US, and further funding of (pound)899,000 in respect of the
Company's investment in eHotel (formerly 4th Network).
Following further delays in eHotel's proposed initial public offering,
the Company booked a provision of (pound)3,196,000 against its remaining
investment. In addition, the Company booked a provision of (pound)1,423,000
against the carrying value of its investment in FSED, reflecting concerns over
the value of certain of its exclusive online distribution rights.
--------------------------------------------------------------------------------
Long-term
loans to
Group
Investments companies Total
Company (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
At 31 December 1997 61,562 220,724 282,286
Amounts written off (note 5) (2,300) - (2,300)
Additions 6,015 1,325 7,340
Disposals (2,135) - (2,135)
Disposals to subsidiary undertakings (355) - (355)
--------------------------------------------------------------------------------
At 31 December 1998 62,787 222,049 284,836
Amounts written off (note 5) (3,196) (1,423) (4,619)
Additions 3,630 746 4,376
Provision for impairment - (98,071) (98,071)
--------------------------------------------------------------------------------
At 31 December 1999 63,221 123,301 186,522
================================================================================
Following the disposal of the ISD to Thomson on 4 May 2000 (see note 31), the
Company has written down certain long term loans made by the Company to its
subsidiaries to fund the acquisition of KRII.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
47
13 Fixed Asset Investments continued
<TABLE>
<CAPTION>
========================================================================================
The following were principal subsidiary undertakings as at 31 December 1999 and have all
been included in the consolidated accounts except where indicated. Each subsidiary
principally does business in the country of its incorporation/registration and all
equity is in the form of Ordinary shares or their equivalent.
---------------------------------------------------------------------------------------
Country of
incorporation/ Proportion of Nature of
Company name registration equity held business**
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dialog Holdings Limited England 100% 3
Dialog Nova KK Japan 100% 3
Dotcom Investments BV Netherlands 100% 3
InfoDynamics Limited England 100% 2
KMK Digitex Company Limited Japan 100% 1
Muscat Limited England 100% 5
Officeshopper Holdings Limited England 100% 3
Officeshopper.com Limited England 100% 8
Prosmart Systems Limited England 100% 3
Sparza Limited England 100% 6
Webtop.com Limited England 100% 5
Write Works Limited England 100% 8
Dialog Information Services Limited England 100% 1*
Frost & Sullivan Electronic Distribution LLC USA 50% 4*
Infomart/DIALOG Limited Canada 50% 1*
Responsive Database Services Inc. USA 100% 7*
Responsive Database Services Limited England 100% 7*
The Dialog Corporation USA 100% 1*
The Dialog Corporation A/S Denmark 100% 1*
The Dialog Corporation Asia Pacific Limited Hong Kong 100% 1*
The Dialog Corporation BV Netherlands 100% 1*
The Dialog Corporation GmbH Germany 100% 1*
The Dialog Corporation GmbH Switzerland 100% 1*
The Dialog Corporation (Ireland) Limited Ireland 100% 1*
The Dialog Corporation SA Belgium 100% 1*
The Dialog Corporation S.A.R.L France 100% 1*
The Dialog Corporation Srl Italy 100% 1*
The Dialog Corporation Sociedad Limitada Spain 100% 1*
The Dialog Corporation (Sweden) AB Sweden 100% 1*
========================================================================================
</TABLE>
* Companies marked were sold to Thomson on 4 May 2000 as part of the ISD
** Key
1 Provision of an indexed online business information service
2 Provision of a database system
3 Holding company
4 Preparation of publishing information
5 Provision of indexing and search technology
6 Provision of eCommerce procurement systems
7 Development and provision of business information
8 Provision of eCommerce services
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
48
14 Debtors
<TABLE>
<CAPTION>
==========================================================================================
Group Group Company Company
1999 1998 1999 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amounts due within one year
Trade debtors 30,362 32,131 6,417 3,039
Other debtors 1,657 1,334 673 1,093
Prepayments and accrued income 4,671 9,316 1,680 3,807
Amounts owed by subsidiary undertakings - - 26,488 32,795
------------------------------------------------------------------------------------------
36,690 42,781 35,258 40,734
==========================================================================================
</TABLE>
Trade debtors for the Group are stated net of the allowance for doubtful trade
debtor balances, which amounted to (pound)2,184,000 and (pound)2,974,000 at 31
December 1999 and 1998, respectively.
Included within 'Other debtors' are the deferred indexing costs for
both the Group and Company, which are deferred and amortised on a straight line
basis over two years. The deferred indexing costs for both the Group and Company
amounted to (pound)296,000 and (pound)541,000 at 31 December 1999 and 1998,
respectively.
15 Creditors: Amounts falling due within one year
<TABLE>
<CAPTION>
=================================================================================================================
Group Group Company Company
1999 1998 1999 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank overdrafts -- -- -- 161
Senior Credit Facility (see note 16) 30,075 13,158 30,075 13,158
Deferred consideration - purchase of subsidiary (see note 20) 1,437 1,437 1,437 1,437
Trade creditors 8,095 8,987 2,806 2,447
Obligations under finance leases 1,813 222 1,729 210
Other creditors 4,030 4,274 3,704 3,873
Taxation and social security 1,008 1,030 782 416
Corporation tax 556 258 -- --
Accruals and deferred income 24,560 29,479 3,350 4,651
Amounts owed to subsidiary undertakings -- -- 14,052 29,082
-----------------------------------------------------------------------------------------------------------------
71,574 58,845 57,935 55,435
=================================================================================================================
</TABLE>
Included within 'Other creditors' for both Group and Company are subscriber
service cost provisions, which amounted to (pound)349,000 and (pound)542,000 at
31 December 1999 and 1998, respectively.
Subsequent to the year end, the balance owing under the Senior Credit
Facility has been repaid in full (note 31).
Accruals and deferred income for the Group, which individually represent in
excess of 5% of current liabilities, consist of the following:
--------------------------------------------------------------------------------
1999 1998
(pound) 000 (pound) 000
--------------------------------------------------------------------------------
Information provider accruals 8,742 10,867
Deferred revenue 5,438 4,495
Other accrued expenses 10,380 14,117
--------------------------------------------------------------------------------
24,560 29,479
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
49
16 Creditors: Amounts falling due after more than one year
<TABLE>
<CAPTION>
==================================================================================================================
Group Group Company Company
1999 1998 1999 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$180 million 11% Senior Subordinated Notes due 2007 108,231 104,433 108,231 104,433
Senior Credit Facility 22,835 30,868 22,835 30,868
Accruals 355 2,256 -- --
Other creditors -- 776 -- --
Deferred consideration - purchase of subsidiary (see note 20) 1,396 1,396 1,396 1,396
Obligations under finance leases 4,553 12 3,283 12
------------------------------------------------------------------------------------------------------------------
137,370 139,741 135,745 136,709
==================================================================================================================
</TABLE>
The Senior Subordinated Notes are for a term of 10 years and interest is fixed
at 11% throughout the term.
The Senior Credit Facility consists of two tranches. Tranche A was the
original facility used to fund the acquisition of KRII. It is repayable over
five years and, until November 1999, interest was fixed every three to six
months at a rate of 2.25 percentage points over US Dollar LIBOR. With effect
from 15 November 1999, interest was fixed every month at a rate of 2.5 points
over US Dollar LIBOR. The Company has entered into an interest rate cap
agreement that limits the exposure of 75% of the balance of Tranche A to a
maximum US Dollar LIBOR rate of 6.5%.
In May 1999, the Company entered into a new agreement with Chase
Manhattan Bank International Limited ("Chase") to borrow an additional $25
million ("Tranche B"). The Company issued Chase with a total of three million
warrants to subscribe for Ordinary shares in the Company (see note 18). Tranche
B is repayable in October 2002 and carried interest at a rate of 3.25 percentage
points above US Dollar LIBOR through to 1 October 1999, 4.25 percentage points
above US Dollar LIBOR through to 15 November 1999 and 4.5 percentage points
above US Dollar LIBOR thereafter.
Repayments on the Senior Subordinated Notes and Senior Credit Facility fall due
as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Group Group Company Company
1999 1998 1999 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year 30,075 13,158 30,075 13,158
Within 1-2 years 25,349 13,158 25,349 13,158
Within 2-5 years -- 19,736 -- 19,736
After 5 years 111,663 108,186 111,663 108,186
----------------------------------------------------------------------------------------------------
167,087 154,238 167,087 154,238
Less: Unamortised finance costs (5,946) (5,779) (5,946) (5,779)
----------------------------------------------------------------------------------------------------
161,141 148,459 161,441 148,459
====================================================================================================
</TABLE>
The Company's obligations with respect to the Senior Credit Facility and finance
leases are collateralised by the assets of the Company and certain of its
subsidiaries. The Senior Subordinated Notes are unsecured.
Subsequent to the year end, the balances owing under the Senior Credit
Facility and $180 million Senior Subordinated Notes have been repaid in full
(note 31).
Obligations under finance leases are due as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Group Group Company Company
1999 1998 1999 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year 1,813 222 1,729 210
Within 1-2 years 3,629 12 3,283 12
Within 2-5 years 924 -- -- --
--------------------------------------------------------------------------------
6,366 234 5,012 222
================================================================================
</TABLE>
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
50
17 Provision for liabilities and charges
<TABLE>
<CAPTION>
====================================================================================================================================
Post-
Removal of acquisition
Knight-Ridder Termination funding of Relocation
Deferred Data centre Information of property non-core of US
taxation integration name leases(1) businesses Legal(2) headquarters Total
Group (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At 31 December 1997 119 4,473 1,313 917 761 -- -- 7,583
Reclassification from creditors -- -- -- -- -- 547 -- 547
Transfer from/(to) profit
and loss account (7) (1,197) (524) 1,589 -- -- 1,758 1,619
Amounts paid -- (3,254) (418) (1,667) (1,483) (513) (947) (8,282)
Revisions to fair values -- -- -- 378 728 2,172 -- 3,278
Exchange adjustments 16 (22) (10) (10) (6) (13) (3) (48)
----------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 128 -- 361 1,207 -- 2,193 808 4,697
Transfer to profit
and loss account (26) -- -- -- -- (620) -- (646)
Amounts paid -- -- (372) (647) -- (808) (833) (2,660)
Exchange adjustments (13) -- 11 6 -- 10 25 39
----------------------------------------------------------------------------------------------------------------------------------
At 31 December 1999 89 -- -- 566 -- 775 -- 1,430
==================================================================================================================================
</TABLE>
(1) Onerous lease commitments in respect of properties vacated following the
acquisition of KRII. The Company expects to continue making payments against
this provision until 2004.
(2) Provision for legal costs and settlements (see note 32). The Company expects
to have substantially utilised this provision by the end of 2000.
Deferred taxation
-------------------------------------------------------------------------------
1999 1999 1998 1998
Potential Provided in Potential Provided in
liability accounts liability accounts
Group (pound) 000 (pound) 000 (pound) 000 (pound) 000
-------------------------------------------------------------------------------
Fixed asset related 2,704 -- 1,530 --
Other timing differences 89 89 128 128
-------------------------------------------------------------------------------
2,793 89 1,658 128
===============================================================================
At 31 December 1999, the Group had (pound)50.1 million of tax losses carried
forward (1998: (pound)25.3 million), giving rise to an unprovided potential
deferred tax asset of (pound)18.6 million (1998: (pound)9.1 million). With the
exception of the tax losses carried forward in the Company (see below) the
Group's tax losses passed to Thomson following the disposal of the ISD.
Deferred taxation
-------------------------------------------------------------------------------
1999 1999 1998 1998
Potential Provided in Potential Provided in
liability accounts liability accounts
Company (pound) 000 (pound) 000 (pound) 000 (pound) 000
-------------------------------------------------------------------------------
Fixed asset related 1,470 - 1,441 -
Other timing differences - - - -
-------------------------------------------------------------------------------
1,470 - 1,441 -
===============================================================================
At 31 December 1999, the Company had (pound)13.2 million of tax losses carried
forward (1998: (pound)15.1 million), giving rise to an unprovided potential
deferred tax asset of (pound)3.9 million (1998: (pound)4.7 million).
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
52
18 Share Capital continued
================================================================================
(v) Exercise of share options
At various dates throughout 1998, in accordance with the Company's share option
schemes, a number of eligible employees exercised their share options. The
options were exercised at prices between (pound)0.49 and (pound)1.10 per share
for a total consideration of (pound)457,729.
(vi) 401(k) Investment Savings Plan contributions
The Company operates a defined contribution pension scheme in the US (the 401(k)
Investment Savings Plan). At various dates throughout 1998, the Company matched
employee contributions to this Plan, partially with the allotment of new
Ordinary shares valued at market price at the time of issue and subsequently
converted into ADSs. A total of 140,392 Ordinary shares were issued during the
year at prices between (pound)0.56 and (pound)1.84 per share for an aggregate
market value of (pound)179,936.
(vii) On 19 November 1998, the Company announced that it had acquired 100% of
the share capital of Write Works Ltd. The consideration for the acquisition was
an initial payment of (pound)1 million in cash and approximately (pound)1.2
million by the issue of 694,025 Dialog shares, representing a value of
(pound)1.66 per share. A further consideration of up to a maximum of (pound)2.8
million in cash and (pound)1 million in shares is payable on the achievement of
Write Works' targets over the next two years.
(viii) 401(k) Investment Savings Plan contributions
The Company operates a defined contribution pension scheme in the US (the 401(k)
Investment Savings Plan). At various dates throughout 1999 the Company matched
employee contributions to this Plan partially with the allotment of new Ordinary
shares valued at market price at the time of issue and subsequently converted
into ADSs. A total of 246,620 Ordinary shares were issued during the year at an
aggregate market value of (pound)203,596.
(ix) Employee Stock Purchase Plan
The Company operates an Employee Stock Purchase Plan for US employees as defined
by section 423(b) of the United States Internal Revenue Code of 1986. On 29 June
1999, 132,248 Ordinary shares for conversion into ADSs were issued at an
aggregate market value of (pound)120,346 to participants in the first offering
under the plan.
(x) Save As You Earn Share Option Exercises
At various dates between 29 November and 17 December 1999, in accordance with
the Company's Save As You Earn Share Option Scheme, a number of eligible
employees exercised their share options. The options were exercised at
(pound)0.49 per share for a total consideration of (pound)41,399.
(xi) On 30 November 1999, the Company announced that it had acquired the
remaining 30% interest of the share capital of Muscat Ltd. The purchase
consideration for the 30% stake was (pound)2,500,737 satisfied by the issue of
3,012,936 Ordinary shares. Each Ordinary share of The Dialog Corporation plc was
valued at 83 pence, the average mid-market price of Ordinary shares of the
Company over the five trading days prior to 30 November 1999. The purchase
provides the Company with 100% ownership of Muscat Ltd after the initial
acquisition of 70% of the share capital in 1997 (see note (ii)).
As at 31 December 1999 the Company had in place five stock plans; the 1994
Executive Share Option Scheme, the 1994 Savings Related Share Option Scheme, the
1994 Unapproved Executive Share Option Scheme, the 1997 US Stock Option Plan and
the 1998 Employee Stock Purchase Plan. Options over the Company's Ordinary
shares were also granted as part of a rollover arrangement with employees of
Muscat Limited, and options over American Depositary Shares were granted to
certain non-executive directors of the Company's US subsidiary under individual
arrangements.
At 31 December 1999, options have been granted over the Company's Ordinary
shares as follows:
--------------------------------------------------------------------------------
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
--------------------------------------------------------------------------------
Executive Scheme 680,863 1.10 24 March 1997 24 March 2004
Executive Scheme 20,000 0.80 25 April 1998 25 April 2005
Executive Scheme 134,500 2.48 4 October 1998 4 October 2005
Executive Scheme 103,880 1.89 14 March 2000 14 March 2007
Executive Scheme 214,900 1.58 9 April 2001 9 April 2008
Executive Scheme 158,832 1.21 1 April 2002 1 April 2009
Executive Scheme 53,450 0.91 2 July 2002 2 July 2009
Executive Scheme 30,000 0.74 25 August 2002 25 August 2009
--------------------------------------------------------------------------------
Total 1,396,425
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
53
18 Share Capital continued
--------------------------------------------------------------------------------
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
--------------------------------------------------------------------------------
Unapproved Scheme 128,863 1.10 24 March 1997 24 March 2001
Unapproved Scheme 98,000 2.48 4 October 1998 4 October 2002
Unapproved Scheme 21,834 2.29 31 July 1999 31 July 2000
Unapproved Scheme 15,000 1.75 28 February 1999 28 February 2003
Unapproved Scheme 100,000 2.87 16 August 1999 16 August 2003
Unapproved Scheme 441,120 1.89 14 March 2000 14 March 2004
Unapproved Scheme 7,500 2.00 26 March 2000 26 March 2004
Unapproved Scheme 376,600 1.58 9 April 2001 9 April 2005
Unapproved Scheme 150,000 1.73 2 February 1999 30 April 2005
Unapproved Scheme 10,000 1.70 8 September 2001 8 September 2005
Unapproved Scheme 790,000 1.50 8 October 2001 8 October 2005
Unapproved Scheme 261,168 1.21 1 April 2002 1 April 2006
Unapproved Scheme 86,550 0.91 2 July 2002 2 July 2006
Unapproved Scheme 1,525,000 4.00 2 July 2002 2 July 2006
--------------------------------------------------------------------------------
Total 4,011,635
================================================================================
--------------------------------------------------------------------------------
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
--------------------------------------------------------------------------------
Muscat Unapproved 128,270 44.00 1 October 2000 1 October 2004
Muscat Unapproved 168,077 43.00 20 October 1999 20 October 2004
Muscat Unapproved 88,462 59.00 1 January 2001 1 January 2005
Muscat Unapproved 132,693 67.00 1 April 2001 1 April 2005
Muscat Unapproved 36,859 67.00 1 September 2001 1 September 2005
Muscat Unapproved 58,974 67.00 1 November 2001 1 November 2005
Muscat Unapproved 29,487 67.00 1 December 2001 1 December 2005
--------------------------------------------------------------------------------
Total 642,822
================================================================================
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
--------------------------------------------------------------------------------
Sharesave Scheme 133,774 0.49 1 December 1999 31 May 2000
Sharesave Scheme 99,183 0.64 1 June 2000 30 November 2000
Sharesave Scheme 2,464 2.24 1 December 2000 31 May 2001
Sharesave Scheme 25,680 1.80 1 June 2001 31 November 2001
Sharesave Scheme 2,378 1.74 1 May 2002 31 October 2002
Sharesave Scheme 69,448 1.37 1 July 2001 31 December 2001
Sharesave Scheme 38,876 1.37 1 July 2003 31 December 2003
Sharesave Scheme 108,801 0.99 1 July 2002 31 December 2002
Sharesave Scheme 141,063 0.99 1 July 2004 31 December 2004
--------------------------------------------------------------------------------
Total 621,667
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
54
18 Share Capital continued
<TABLE>
<CAPTION>
=============================================================================================
At 31 December 1999, options have been granted over the Company's American
Depositary Shares* as follows:
---------------------------------------------------------------------------------------------
American Exercisable Earliest Latest
Depositary price exercisable exercisable
Scheme Shares $ date date
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Stock Purchase Plan 4,577 10.49 30 September 2000 30 September 2000
Employee Stock Purchase Plan 13,072 8.50 22 April 2001 22 April 2001
Employee Stock Purchase Plan 32,134 3.79 4 October 2000 4 October 2000
US Option Plan 94,375 11.00 9 April 1999** 9 April 2008
US Option Plan 7,500 11.88 30 April 1999** 30 April 2008
US Option Plan 18,000 11.82 8 September 1999** 8 September 2008
US Option Plan 110,000 9.90 8 October 1999** 8 October 2008
US Option Plan 147,750 8.00 1 April 2000** 1 April 2009
US Option Plan 90,000 5.75 2 July 2000** 2 July 2009
US Option Plan 6,250 4.75 25 August 2000** 25 August 2009
US Option Plan 162,500 25.74 2 July 2002** 2 July 2006
Individual US arrangement 6,250 10.64 12 December 1997*** 12 December 2007
Individual US arrangement 6,711 14.90 14 November 1998 14 November 2004
Individual US arrangement 4,232 11.81 8 September 1999 8 September 2005
Individual US arrangement 6,250 8.00 1 April 1999*** 1 April 2009
---------------------------------------------------------------------------------------------
Total 709,601
=============================================================================================
* One American Depositary Share is equivalent to four Ordinary shares.
** Options become exercisable in stages. After the first year up to one quarter
of the total number of options may be exercised. After every subsequent month
for the next three years an additional 1/48 of the total number of options may
be exercised.
*** Options become exercisable in cumulative monthly increments during the 12
month period following the date of grant.
---------------------------------------------------------------------------------------------
Total options granted over Ordinary share equivalents 9,510,953
=============================================================================================
</TABLE>
1994 Executive Share Option Scheme
In March 1994, the Company adopted the 1994 Executive Share Option Scheme (the
"Executive Scheme"). Formal approval of the Executive Scheme was given by the
Inland Revenue in March 1994. Under the terms of the Executive Scheme, options
to acquire Ordinary shares may be granted at the discretion of the Remuneration
Committee of the Board of Directors to any employee, including full-time
employee Directors. The exercise price is determined at the date of grant of an
option and shall not be less than the higher of the par value of an Ordinary
share and the closing market price of an Ordinary share on the day preceding the
date of grant. Options under the Executive Scheme generally become exercisable
on the third anniversary of the date of grant and lapse on the tenth anniversary
of the date of grant. The number of options grantable under the Executive Scheme
and the aggregate exercise price of options grantable to any individual is now
limited to (pound)30,000 following the passing of the Finance Act 1996.
Transactions under the Executive Scheme for the three years ended 31 December
1999 were as follows:
--------------------------------------------------------------------------------
Options
outstanding
Exercise Weighted
Number price average
000s (pound) (pound)
--------------------------------------------------------------------------------
At 31 December 1996 2,033 0.80-3.41 1.42
Granted 176 1.89-2.20 1.93
Cancelled (311) 0.80-3.41 2.12
Exercised (424) 0.81-1.10 1.00
--------------------------------------------------------------------------------
At 31 December 1997 1,474 0.80-3.41 1.45
Granted 334 1.58-1.70 1.59
Cancelled (139) 1.10-2.87 1.89
Exercised (200) 1.10 1.10
--------------------------------------------------------------------------------
At 31 December 1998 1,469 0.80-2.48 1.49
Granted 294 0.74-1.21 1.11
Cancelled (367) 1.10-2.48 1.68
--------------------------------------------------------------------------------
At 31 December 1999 1,396 0.80-2.48 1.36
--------------------------------------------------------------------------------
Exercisable at 31 December 1997 1,047 1.10-2.48 1.15
Exercisable at 31 December 1998 1,027 0.80-2.48 1.40
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 835 0.80-2.48 1.32
================================================================================
Upon completion of the sale of the ISD, options held by employees who
transferred to Thomson became exercisable upon transfer and remain so until the
later of 12 months after the date of completion or four years after the date of
grant, whereupon they lapse.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
55
18 Share Capital continued
================================================================================
1994 Unapproved Executive Share Option Scheme
In March 1994, the Company adopted the 1994 Unapproved Executive Share Option
Scheme (the "Unapproved Scheme"). Under the terms of the Unapproved Scheme,
options to subscribe for Ordinary shares may be granted at the discretion of the
Remuneration Committee of the Board of Directors to any employee, including
full-time employee Directors. The exercise price is determined at the date of
grant of an option and shall not be less than the higher of the par value of an
Ordinary share and the closing market price of an Ordinary share on the day
preceding the date of grant. Options under the Unapproved Scheme generally
become exercisable on the third anniversary of the date of grant and lapse on
the seventh anniversary of the date of grant. The number of shares over which
options may be granted under the Unapproved Scheme is consistent with
institutional investor guidelines in respect of overall limits applicable to
employee share schemes. The number grantable to any individual is also in line
with such limits. Transactions under the Unapproved Scheme for the three years
ended 31 December 1999 were as follows:
--------------------------------------------------------------------------------
Options
outstanding
Exercise Weighted
Number price average
000s (pound) (pound)
--------------------------------------------------------------------------------
At 31 December 1996 991 1.10-2.87 1.74
Granted 741 1.89-2.20 1.93
Cancelled (150) 1.89-2.87 2.26
Exercised (242) 1.10 1.10
--------------------------------------------------------------------------------
At 31 December 1997 1,340 1.10-2.87 1.90
Granted 1,436 1.50-1.73 1.55
Cancelled (209) 1.58-2.87 2.13
Exercised (196) 1.10 1.10
--------------------------------------------------------------------------------
At 31 December 1998 2,371 1.10-2.87 1.73
Granted 1,988 0.91-4.00 1.15
Cancelled (348) 1.21-2.87 1.73
--------------------------------------------------------------------------------
At 31 December 1999 4,011 0.91-4.00 3.34
================================================================================
Exercisable at 31 December 1997 418 1.10-2.87 1.36
--------------------------------------------------------------------------------
Exercisable at 31 December 1998 339 1.10-2.87 1.89
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 514 1.10-2.87 1.96
================================================================================
Upon completion of the sale of the ISD, options held by employees who
transferred to Thomson became exercisable upon transfer and remain so until the
later of 12 months after the date of completion or four years after the date of
grant, whereupon they lapse.
1998 Muscat Unapproved Scheme
In December 1999, the Company acquired the remaining 30% of the issued share
capital of Muscat Limited (see note 11). Pursuant to this transaction, various
employees holding in aggregate 436 options at exercise prices ranging from
(pound)627 to (pound)1,100 under the 1998 Muscat Unapproved Share Option Scheme
(the "Muscat Scheme") were offered and accepted a total of 642,822 replacement
options over Ordinary shares of the Company at exercise prices ranging from 43
pence to 67 pence per share. Transactions under the Muscat Scheme for the year
ended 31 December 1999 are as follows:
--------------------------------------------------------------------------------
Options
outstanding
Exercise Weighted
Number price average
000s (pound) (pound)
--------------------------------------------------------------------------------
At 31 December 1998 -- -- --
Granted 643 0.43-0.67 0.55
--------------------------------------------------------------------------------
At 31 December 1999 643 0.43-0.67 0.55
================================================================================
Exercisable at 31 December 1998 -- -- --
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 42 0.43 0.43
================================================================================
Upon completion of the sale of the ISD, options held by employees who
transferred to Thomson became exercisable upon transfer and remain exercisable
for six months, whereupon they lapse.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
56
18 Share Capital continued
================================================================================
1994 Savings Related Share Option Scheme
In March 1994, the Company adopted the 1994 Savings Related Share Option Scheme
(the "Sharesave Scheme") which was subsequently approved by the Inland Revenue.
Under the rules of the Sharesave Scheme, participation is offered to all UK
employees, including full-time employee Directors. All options are linked to a
contractual savings scheme. Participants may save between (pound)5 and
(pound)250 per month over a three or five year period at the end of which they
are granted a tax-free bonus. Participants may withdraw from the savings
contract at any time (although their option will then lapse) and are not obliged
to exercise their options at the date of maturity. The exercise price is
determined at the date of grant of an option and shall not be less than the
higher of the par value of an Ordinary share and 85% (formerly 80% up until
December 1995) of the market value of an Ordinary share at the date of
invitation. Options under the scheme become exercisable on the bonus date and
remain exercisable for a period of six months. The number of shares over which
options may be granted under the Sharesave Scheme are consistent with
institutional investor guidelines in respect of overall limits applicable to
employee share schemes. The number grantable to any individual is also in line
with such limits. Transactions under the Sharesave Scheme for the three years
ended 31 December 1999 were as follows:
--------------------------------------------------------------------------------
Options
outstanding
Exercise Weighted
Number price average
000s (pound) (pound)
--------------------------------------------------------------------------------
At 31 December 1996 824 0.49-2.24 0.76
Granted 85 1.74 1.74
Cancelled (272) 0.49-2.24 0.79
Exercised (8) 0.64-1.80 0.70
--------------------------------------------------------------------------------
At 31 December 1997 629 0.49-2.24 0.88
Granted 224 1.37 1.37
Cancelled (157) 0.49-1.80 1.49
Exercised (45) 0.49-0.64 0.49
--------------------------------------------------------------------------------
At 31 December 1998 651 0.49-2.24 0.93
Granted 312 0.99 0.99
Cancelled (257) 0.49-1.80 1.14
Exercised (84) 0.49 0.49
================================================================================
At 31 December 1999 622 0.49-2.24 0.93
================================================================================
Exercisable at 31 December 1997 74 0.49-1.80 0.56
Exercisable at 31 December 1998 -- -- --
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 134 0.49 0.49
================================================================================
Upon completion of the sale of the ISD, options held by employees who
transferred to Thomson became exercisable upon transfer to the value of
accumulated savings, and remain exercisable for six months, whereupon they
lapse.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
57
18 Share Capital continued
================================================================================
1997 US Stock Option Plan
In November 1997, the Company adopted the 1997 US Stock Option Plan (the "US
Option Plan") which provides for the grant of both incentive and non-statutory
stock options to purchase the Company's American Depositary Shares (ADSs).
Incentive stock options granted under the US Option Plan are intended to qualify
as incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the 'Code'). Non-statutory stock options
granted under the US Option Plan are intended not to qualify as incentive stock
options under the Code. Under the terms of the US Option Plan, options to
acquire ADSs may be granted by the Remuneration Committee of the Board of
Directors to any US resident employee, including employee Directors.
The exercise price of incentive stock and non-statutory stock options
under the US Option Plan may not be less than the fair market value of the ADSs
subject to the option on the date of the option grant, and in some cases, may
not be less than 110% of such fair market value. Options granted under the US
Option Plan may become exercisable ('vest') in cumulative increments determined
by the Remuneration Committee of the Board of Directors and lapse no later than
the tenth anniversary of the date of grant.
The number of shares over which options may be granted under the US
Option Plan is consistent with the institutional investor guidelines in respect
of overall limits applicable to employee share schemes. The number grantable to
any individual is also in line with such limits. Transactions under the US
Option Plan up to 31 December 1999 were as follows:
--------------------------------------------------------------------------------
Options
outstanding
Number Exercise Weighted
of ADSs price average
000s $ $
--------------------------------------------------------------------------------
At 31 December 1996 -- -- --
Granted 63 14.90 14.90
--------------------------------------------------------------------------------
At 31 December 1997 63 14.90 14.90
--------------------------------------------------------------------------------
Granted 427 9.88-11.88 10.75
Cancelled (122) 9.88-14.90 12.93
--------------------------------------------------------------------------------
At 31 December 1998 368 9.90-11.88 10.73
Granted 456 4.75-25.74 13.77
Cancelled (187) 4.75-11.80 10.04
--------------------------------------------------------------------------------
At 31 December 1999 637 4.75-25.74 13.11
================================================================================
Exercisable at 31 December 1997 -- -- --
Exercisable at 31 December 1998 -- -- --
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 80 9.90-25.74 10.65
================================================================================
Upon completion of the sale of the ISD, options held by employees who
transferred to Thomson became exercisable upon completion, after which they
lapsed. Options held by individuals with change of control provisions in their
contracts remain exercisable until the later of 12 months after the date of
completion or four years after the date of grant, whereupon they lapse.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
58
18 Share Capital continued
================================================================================
1998 US Employee Stock Purchase Plan
In June 1998 the Company adopted the 1998 US Employee Stock Purchase Plan (the
"Purchase Plan"), which provides for the grant of rights ('Rights') to purchase
ADSs in the Company. The Rights are intended to qualify as options issued under
'employee stock purchase plans' as defined in Section 423(b) of the Code.
Participation in the Purchase Plan is offered to all US resident employees,
including full-time employee Directors. The initial offering began on 17 June
1998 (the 'Offering Date') and ended on 31 June 1999 (the 'Purchase Date').
Thereafter, and subject to the discretion of the Board, offerings will begin
approximately every six months following the announcement of the interim and
final results. All Rights under an offering are linked to accumulated payroll
deductions over the course of the offering, and participants may withdraw from
the plan at any time during an offering (although their Rights will then lapse).
The purchase price of the ADSs is not less than the lesser of 85% of the fair
market value of the ADSs on either the Offering Date or the Purchase Date. The
purchase price may include any UK stamp duty reserve tax payable with respect to
the issue of the ADSs.
Under US law, an individual may not purchase more than $25,000 worth of
ADSs in any calendar year (as determined by the fair market value on the
Offering Date). The number of shares over which the Rights may be granted under
the Purchase Plan is consistent with institutional investor guidelines in
respect of overall limits applicable to employee share schemes. The number
grantable to any individual is also in line with such limits. Transactions under
the Purchase Plan up to 31 December 1999 are as follows:
--------------------------------------------------------------------------------
Options
outstanding
Number Exercise Weighted
of ADSs price average
000s $ $
--------------------------------------------------------------------------------
At 31 December 1997 -- -- --
Granted 66 8.65-10.49 8.91
Cancelled (9) 8.65 8.65
--------------------------------------------------------------------------------
At 31 December 1998 57 8.65-10.49 8.96
Granted 48 3.79- 8.50 5.36
Cancelled (31) 8.50-10.49 2.47
Exercised (33) 5.35 5.35
--------------------------------------------------------------------------------
At 31 December 1999 41 3.79-10.49 5.64
================================================================================
Exercisable at 31 December 1997 -- -- --
Exercisable at 31 December 1998 -- -- --
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 -- -- --
================================================================================
Rights to acquire ADSs matured on completion. Thereafter they lapsed.
Individual US arrangements
Between 1997 and 1999, options over ADSs were granted at the prevailing market
value to certain individuals who were Non-Executive Directors of The Dialog
Corporation, the Company's North American subsidiary. Transactions under these
individual US schemes up to 31 December 1999 were as follows:
--------------------------------------------------------------------------------
Options
outstanding
Number Exercise Weighted
of ADSs price average
000s $ $
--------------------------------------------------------------------------------
At 31 December 1996 -- -- --
Granted 13 10.63-14.90 12.84
--------------------------------------------------------------------------------
At 31 December 1997 13 10.63-14.90 12.84
Granted 4 11.81 11.81
--------------------------------------------------------------------------------
At 31 December 1998 17 10.63-14.90 12.59
Granted 6 8.00 8.00
--------------------------------------------------------------------------------
At 31 December 1999 23 8.00-14.90 11.37
================================================================================
Exercisable at 31 December 1997 1 10.63 10.63
Exercisable at 31 December 1998 13 10.63-14.90 12.84
--------------------------------------------------------------------------------
Exercisable at 31 December 1999 23 8.00-14.90 11.37
================================================================================
Options granted under the individual arrangements were unaffected by the
transfer of the ISD to Thomson
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
59
18 Share Capital continued
================================================================================
Warrants
In connection with a new term facility of $25 million agreed between the Company
and Chase Manhattan Bank International Limited ("Chase") on 17 May 1999 (see
note 16), the Company issued to Chase between May 1999 and November 1999 a total
of 3 million warrants to subscribe for Ordinary shares in the Company. 1.5
million of those warrants entitle Chase to subscribe for Ordinary shares at any
time before 11 October 2002 (the "2002 Warrants"). The remaining 1.5 million
warrants entitle Chase to subscribe for Ordinary shares at any time up to 14 May
2004 (the "2004 Warrants"). The subscription price for an Ordinary share
subscribed on exercise of a Warrant is 90.6 pence per Ordinary share.
In relation to both the 2002 Warrants and the 2004 Warrants, the number
of warrants and/or the exercise price may be adjusted on the occurrence of
certain events including, on any capital reorganisation of the Company or on any
distribution of assets to shareholders or on any issue of Ordinary shares for
cash at less than "Fair Market Value". For these purposes, "Fair Market Value"
means (whilst the Ordinary shares are listed) the average of the daily market
prices for an Ordinary share for the 30 consecutive dealing days commencing 45
dealing days before the relevant date.
On 12 November 1999, warrants to subscribe to an aggregate of six
million Ordinary shares (the "2009 Warrants") were issued to the Company's
senior lenders, including to Chase Manhattan Bank, ABN AMRO Bank, NM Rothschild
& Sons, the Bank of Scotland and the Royal Bank of Scotland (the "Banks"). The
2009 Warrants were issued in consideration of the Banks agreeing to relax the
covenant arrangements in connection with the refinancing of the Company's senior
debt. The 2009 Warrants may be exercised, in whole or in part, at any time
before 12 November 2009. The subscription price for an Ordinary share subscribed
on exercise of a Warrant is 90.6 pence per Ordinary share.
The terms of the 2009 Warrants contain provisions to protect the
holders of those warrants and for adjusting the subscription price and the
number of shares which are the subject of the 2009 Warrants in certain
circumstances to take into account alterations to the share capital of the
Company in the same way described above in relation to the 2002 Warrants and the
2004 Warrants.
As at the date of this report no warrants had been exercised into
Ordinary shares of the Company.
19 Share premium
<TABLE>
<CAPTION>
==============================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at 1 January 152,128 150,341 35,672
Premium arising on shares issued on exercise of options 350 632 691
Premium arising on shares issued on placing/flotation
and acquisitions of fixed asset investments 2,471 1,155 124,038
Expenses of share issue - - (10,060)
----------------------------------------------------------------------------------------------
Balance at 31 December 154,949 152,128 150,341
==============================================================================================
</TABLE>
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
60
20 Shares to be Issued
================================================================================
On 19 November 1998, the Company acquired all of the share capital of Write
Works for a maximum of (pound)6,015,000 to be paid over two years (see note 11).
The consideration was satisfied through an initial payment of (pound)965,000 and
(pound)1,150,000 by the issue of 694,025 new Ordinary shares.
A further consideration of up to a maximum of (pound)3,800,000 in cash
and shares will be paid on the achievement of certain earnings targets over the
next two years.
--------------------------------------------------------------------------------
(pound) 000
--------------------------------------------------------------------------------
Total future consideration 3,800
Cash payable within one year (see note 15) (1,437)
Cash payable after more than one year (see note 16) (1,396)
--------------------------------------------------------------------------------
Shares to be issued 967
================================================================================
On 12 May 2000, the Company issued 420,508 new Ordinary shares as part
settlement of the deferred consideration at a price of 98.3 pence per share (see
note 31). The final tranche of shares are due to be issued in March 2001.
21 Profit and Loss Account
<TABLE>
<CAPTION>
=====================================================================================================
1999 1998 1997
Group (pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at 1 January (249,427) (243,524) (10,561)
(Loss)/profit for the financial year (5,385) 4,439 (20,744)
Effect of exchange rate movements on net investment in foreign
subsidiaries net of associated borrowings 894 (1,586) (2,015)
Goodwill written off -- (11,022) (209,120)
Effect of exchange rate movements on goodwill written off (6,385) 2,266 (1,084)
-----------------------------------------------------------------------------------------------------
Balance at 31 December (260,303) (249,427) (243,524)
=====================================================================================================
</TABLE>
Cumulative goodwill written off at 31 December 1999 amounted to
(pound)219,316,000, comprising balances denominated in US Dollars of
$355,429,000 and balances denominated in Pounds Sterling of (pound)5,737,000
(1998: (pound)219,316,000, comprising balances denominated in US Dollars of
$355,429,000 and balances denominated in Pounds Sterling of (pound)5,737,000;
1997: (pound)210,605,000 comprising balances denominated in US Dollars of
$337,091,000 and balances denominated in Pounds Sterling of (pound)5,737,000).
<TABLE>
<CAPTION>
=====================================================================================================
1999 1998 1997
Company (pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at 1 January (13,664) (6,400) (10,520)
(Loss)/profit for the financial year (103,340) (9,016) 4,120
Effect of exchange rate movements on net debt (3,618) 1,752 -
-----------------------------------------------------------------------------------------------------
Balance at 31 December (120,622) (13,664) (6,400)
=====================================================================================================
</TABLE>
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
61
22 Reconciliation of Movement in Ordinary Shareholders' Funds
<TABLE>
<CAPTION>
====================================================================================================================================
1999 1998 1997
Group (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Loss)/profit for the financial year (5,385) 4,439 (20,744)
Consolidated translation differences on foreign currency net investments (5,491) 680 (3,099)
New share capital subscribed for cash 355 637 120,586
New share capital subscribed on acquisition of subsidiaries and other fixed asset investments 2,501 1,162 4,719
Expenses of share issue - - (10,060)
Shares to be issued - 967 -
Goodwill written off - (11,022) (209,120)
------------------------------------------------------------------------------------------------------------------------------------
Net movement in Ordinary shareholders' funds (8,020) (3,137) (117,718)
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at 1 January (94,818) (91,681) 26,037
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at 31 December (102,838) (94,818) (91,681)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
1999 1998 1997
Company (pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Loss)/profit for the financial year (103,340) (9,016) 4,120
New share capital subscribed for cash 355 637 120,586
New share capital subscribed on acquisition of subsidiaries and other fixed asset investments 2,501 1,162 4,719
Expenses of share issue - - (10,060)
Effect of exchange rate movements on net debt (3,618) 1,752 -
Shares to be issued - 967 -
------------------------------------------------------------------------------------------------------------------------------------
Net movement in Ordinary shareholders' funds (104,102) (4,498) 119,365
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at 1 January 140,945 145,443 26,078
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at 31 December 36,843 140,945 145,443
====================================================================================================================================
</TABLE>
23 Minority Equity Interests
================================================================================
1999 1998
(pound) 000 (pound) 000
--------------------------------------------------------------------------------
Balance at 1 January 1,077 726
Profit attributed to the minorities 50 356
Exchange adjustments 26 (5)
Arising from acquisitions during the year (610) -
--------------------------------------------------------------------------------
Balance at 31 December 543 1,077
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
62
24 Commitments under Operating Leases and Finance Leases
================================================================================
As at 31 December 1999, the Group had annual commitments under non-cancellable
operating leases as set out below:
--------------------------------------------------------------------------------
1999 1999 1998 1998
Land and Land and
buildings Other buildings Other
(pound) 000 (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
Operating leases which expire:
Within 1 year 31 - 1,138 220
In 2-5 years 1,970 40 1,548 15
After 5 years 3,700 - 1,694 -
--------------------------------------------------------------------------------
5,701 40 4,380 235
================================================================================
The Group leases offices and operating facilities and certain equipment under a
variety of operating and finance leases that expire at various dates through to
2008. Future minimum lease payments under operating and finance leases with
initial or remaining non-cancellable terms of one or more years are as follows
as at 31 December 1999:
--------------------------------------------------------------------------------
Operating Finance
leases leases
Year ending 31 December (pound) 000 (pound) 000
--------------------------------------------------------------------------------
2000 11,547 2,066
2001 11,920 1,983
2002 11,440 1,974
2003 11,124 423
2004 10,494 169
2005-2008 22,906 -
--------------------------------------------------------------------------------
Total minimum lease payments 79,432 6,615
Less: amount representing interest - (249)
--------------------------------------------------------------------------------
Net minimum lease payments 79,432 6,366
================================================================================
Rent expense under operating leases was(pound)4,613,000 (see note 4),
(pound)5,160,000, (pound)1,246,000 for the years ended 31 December 1999, 1998
and 1997 respectively.
25 Reconciliation of Operating Profit/(Loss) to Net Cash Inflow from
Operating Activities
<TABLE>
<CAPTION>
=======================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit/(loss) 15,115 23,026 (22,307)
Less: Restructuring costs (see note 5) -- 2,583 18,550
---------------------------------------------------------------------------------------
Operating profit/(loss) before restructuring costs 15,115 25,609 (3,757)
Depreciation charges 7,482 7,962 2,877
Amortisation of development costs 9,334 7,699 3,558
Amortisation of goodwill 415 61 --
Loss/(profit) on sale of tangible fixed assets 631 17 (15)
Decrease in stocks 167 11 1
Decrease/(increase) in debtors 10,305 (1,077) (1,651)
(Decrease)/increase in creditors (7,607) (13) 4,156
Exchange variances 401 786 (60)
Cash costs of restructuring (2,660) (6,904) (1,934)
---------------------------------------------------------------------------------------
Net cash inflow 33,583 34,151 3,175
=======================================================================================
</TABLE>
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
63
26 Management of Liquid Resources
<TABLE>
<CAPTION>
=======================================================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net withdrawals from short-term deposits over three months not repayable on demand - 620 6,000
Net payments into short-term deposits over three months not repayable on demand - - (620)
-----------------------------------------------------------------------------------------------------------------------
Net cash inflow from management of liquid resources - 620 5,380
=======================================================================================================================
</TABLE>
Movements in all short-term deposits not repayable on demand are reported under
the heading of management of liquid resources.
27 Analysis of Changes in Net (Debt)/Funds
<TABLE>
<CAPTION>
==============================================================================================================================
Cash and Debt due Debt due
Bank bank within one after one Finance
Cash deposits deposits year year lease Total
(pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
At 1 January 1997 2,038 6,000 8,038 -- -- (2,150) 5,888
Cash flows 10,832 (5,380) 5,452 (2,831) (151,241) 1,491 (147,129)
Exchange movements 232 -- 232 (89) (4,565) -- (4,422)
Other non-cash changes -- -- -- (119) -- (122) (241)
------------------------------------------------------------------------------------------------------------------------------
At 1 January 1998 13,102 620 13,722 (3,039) (155,806) (781) (145,904)
Cash flows (8,551) (620) (9,171) 2,770 6,812 547 958
Exchange movements (57) -- (57) 81 1,671 -- 1,695
Other non-cash changes -- -- -- (44) (902) -- (946)
Other movements -- -- -- (14,446) 14,446 -- --
------------------------------------------------------------------------------------------------------------------------------
At 1 January 1999 4,494 -- 4,494 (14,678) (133,779) (234) (144,197)
Reclassification of loan from
other creditors -- -- -- (894) -- -- (894)
Cash flows 6,304 -- 6,304 1,404 (6,933) (2,533) (1,758)
Exchange movements (277) -- (277) (465) (4,515) 15 (5,242)
Other non-cash changes -- -- -- -- (1,274) (3,614) (4,888)
Other movements -- -- -- (16,942) 16,942 -- --
------------------------------------------------------------------------------------------------------------------------------
At 31 December 1999 10,521 -- 10,521 (31,575) (129,559) (6,366) (156,979)
==============================================================================================================================
</TABLE>
28 Major Non-Cash Transactions
================================================================================
The consideration for the purchase of the remaining 30% of the UK subsidiary
Muscat Limited comprised shares. Further details of the acquisition are set out
in Note 11.
29 Capital Commitments
================================================================================
Capital commitments as at 31 December 1999 were as follows:
--------------------------------------------------------------------------------
1999 1998
(pound) 000 (pound) 000
--------------------------------------------------------------------------------
Authorised and contracted for 403 139
--------------------------------------------------------------------------------
Authorised but not contracted for - 344
================================================================================
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
64
30 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP)
================================================================================
Accounting principles
These consolidated financial statements have been prepared in accordance with UK
GAAP which differs in certain significant respects from US GAAP. A description
of the relevant accounting principles which differ materially is given below.
Turnover
It is the Company's policy to recognise online subscriptions in full when
contractually due and invoiced and to provide in full for the cost of related
service obligations. Under US GAAP, online subscription revenues are recognised
rateably over the subscription term which is usually 12 months. No adjustment is
required under US GAAP for the 'modular pricing' subscriptions since these
subscriptions are recognised rateably over the subscription term.
In 1999, the Company has recognised revenue in respect of technology
sales and exclusive distribution rights when contractually due and invoiced.
Under US GAAP, this revenue is deferred over the contract period of ten years.
Intangible fixed assets
It is the Company's policy to capitalise costs associated with the development
of the host computer system and product development and amortise over a period
of five and three years, respectively. Under US GAAP, costs associated with the
host computer are expensed as incurred, as are product development costs
incurred to establish technological feasibility. Statement of Financial
Accounting Standards No. 86 requires that product development costs incurred
subsequent to establishing technological feasibility up until the product's
general release are capitalised; however in the Company's case the period
between the establishment of technical feasibility, as evidenced by a product
design and the completion and testing of a working model, and the product's
release is short and the associated costs insignificant. Consequently, under US
GAAP, no product development costs have been capitalised. Product development
costs capitalised under UK GAAP include interest (note 6) which would not be
capitalisable under US GAAP. These amounts are included in this adjustment.
Indexing costs
The Company's policy is to defer database indexing costs and amortise these
costs on a straight line basis over two years. Under US GAAP, database indexing
costs are expensed as incurred.
Deferred taxation
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
temporary differences and a valuation allowance is established to reduce
deferred tax assets to the amount which 'more likely than not' will be realised
in future tax returns. Deferred tax amounts also arise as a result of the other
US GAAP adjustments.
The UK deferred tax liability can be reconciled as follows to the US GAAP net
deferred tax asset:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1999 1999 1998 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UK liability (89) (128)
Liabilities not provided for under UK GAAP (2,704) (1,530)
----------------------------------------------------------------------------------------------------------
Full potential deferred tax liability under UK GAAP (2,793) (1,658)
Unprovided deferred tax asset on tax losses 18,594 9,090
Tax effects of US GAAP adjustments:
Revenue recognition 5,695 1,045
System and product development costs 8,109 8,804
Deferred indexing costs 89 168
Acquisition accounting 31,819 17,745
Sale and leaseback 298 -
----------------------------------------------------------------------------------------------------------
Gross deferred tax asset in accordance with US GAAP 64,604 36,852
----------------------------------------------------------------------------------------------------------
Total net deferred tax asset under US GAAP 61,811 35,194
Deferred tax asset valuation allowance (61,811) (35,194)
----------------------------------------------------------------------------------------------------------
Net deferred tax asset in accordance with US GAAP - -
==========================================================================================================
</TABLE>
Management believes that the available objective evidence creates sufficient
uncertainty regarding realisability of these items so that a full valuation
allowance has been recorded.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
65
30 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP) continued
================================================================================
The US GAAP basis tax provision is comprised as follows:
--------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
Current:
UK corporation tax (65) - -
Non-UK tax 1,569 776 332
--------------------------------------------------------------------------------
1,504 776 332
================================================================================
The US GAAP tax provision is reconciled to the benefit derived by applying the
UK statutory rate to the US GAAP loss before tax as follows:
--------------------------------------------------------------------------------
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
US GAAP amounts at UK statutory rate of
30% (1998: 31%; 1997: 31.5%) (18,166) (10,223) (7,877)
Disallowed expenditure 989 1,306 304
Differential tax rates 1,747 (3,277) -
Change in valuation allowance 16,899 12,897 8,006
Other 35 73 (101)
--------------------------------------------------------------------------------
US GAAP tax provision 1,504 776 332
================================================================================
Acquisition accounting
Under UK GAAP, the Company has written off purchased goodwill, defined as the
excess of the acquisition price over the fair value of the net assets acquired,
against reserves for all acquisitions made prior to 31 December 1997. For US
GAAP purposes, the acquisition price is allocated to all tangible and intangible
assets acquired based on their fair value, including in-process research and
development. Amounts allocated to in-process research and development are then
immediately expensed.
Goodwill and other acquisition-related intangible assets are recognised
on the balance sheet and amortised by charges against income over its estimated
useful life, not to exceed 40 years.
Under UK GAAP, for all acquisitions made since 1 January 1998, goodwill
is capitalised and subsequently written off over its estimated useful life,
which currently ranges from 10 to 20 years.
The Group has accounted for its acquisition of KRII in accordance with
FRS7, 'Fair values in acquisition accounting'. This standard sets out rules for
accounting for acquisitions in consolidated financial statements and states that
the fair value balance sheet of an acquired company cannot include provisions
for integration and reorganisation costs set up by the acquiring company. Under
US GAAP, certain integration and reorganisation costs may be considered
liabilities assumed and included in the allocation of the acquisition cost.
Employee costs
During 1993, certain share allocations were made to certain of the Company's
employees at par value which were below deemed market value. Under UK GAAP these
share issues were recorded at their par value, whereas under US GAAP the
difference between the par value and the deemed market value is considered to be
employee compensation and expensed in total in the year.
In addition, prior to December 1995, options were granted under the
Sharesave Scheme at a 20% discount (15% with effect from December 1995 onwards)
from the fair market value of the stock at the date of grant. Under UK GAAP, the
share issues are recorded at their discounted price when the options are
exercised. Under US GAAP, the discount is considered to be employee compensation
and is expensed over the five year savings period of the scheme.
Under US GAAP, the Company applies Accounting Principle Board Opinion
No. 25 'Accounting for Stock Issued to Employees' and related interpretations in
accounting for its schemes. Had compensation expense for the Company's share
option schemes been determined based upon the fair value at the grant date for
awards under these schemes consistent with the methodology prescribed under SFAS
No. 123 'Accounting for Stock-Based Compensation', the Company's US GAAP net
loss and loss per share would have been increased in 1999 by (pound)1,615,000
and 1.1 pence per share (1998: (pound)995,000 and 0.7 pence per share; 1997:
(pound)369,000 and 0.2 pence per share).
The fair value of the options granted has been estimated using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0% (1998 and 1997: 0%), volatility of 79% (1998: 63%; 1997: 59%),
risk-free investment rate of 5.5% (1998: 5.5%; 1997: 6.5%), assumed forfeiture
rate of 0% (1998 and 1997: 0%) and an expected life of six years (1998 and 1997:
six years). The average value of the options granted during 1999 is estimated as
being 107 pence (1998: 113 pence; 1997: 119 pence) for each Ordinary share.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
66
30 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP) continued
================================================================================
Investments in debt and equity securities Under UK GAAP, fixed asset investments
are held at cost unless there is a permanent diminution in value where upon
provision is made for such diminution through the profit and loss account. Under
US GAAP, debt and equity investments that meet the definition of
'available-for-sale securities', as defined by Statement of Financial Accounting
Standards No. 115 ('SFAS 115'), are held at their market value; unrealised
holding gains and losses are excluded from earnings and reported as a net amount
as a component of shareholders' equity until realised.
Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with FRS 1
(revised) presents substantially the same information as that required under US
GAAP. Under US GAAP, however, there are certain differences from UK GAAP with
regard to the classification of items within the cash flow statement and with
regard to the definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for trading
activities, returns in investments and servicing of finance, taxation, capital
expenditure and financial investment, acquisition and disposals, equity
dividends paid, management of liquid resources and financing activities.
Under US GAAP, however, only three categories of cash flow activity are
reported, being operating activities, investing activities and financing
activities. Cash flows from taxation and returns on investments and servicing of
finance would be included under operating activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include overdrafts, but
do include investments repayable within three months of maturity when acquired.
Set out below, for illustrative purposes, is a summary consolidated statement of
cash flows under US GAAP:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
1999 1998 1997
Year ended 31 December (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by/(used in) operating activities 3,746 5,240 (122)
Net cash used in investing activities (5,646) (4,120) (256,054)
Net cash provided by/(used in) financing activities 8,205 (9,671) 263,128
--------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents 6,305 (8,551) 6,952
Cash and cash equivalents at beginning of period 4,494 13,722 6,538
Effect of foreign exchange rate changes (278) (677) 232
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 10,521 4,494 13,722
============================================================================================
</TABLE>
Fair value of financial instruments
The carrying amounts and estimated fair values of the Group's financial
instruments at 31 December 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
1999 1999 1998 1998
(pound) 000 (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and bank deposits 10,521 10,521 4,494 4,494
Senior Credit Facility (55,424) (55,424) (46,052) (46,052)
Senior Subordinated Notes (111,663) (53,598) (108,186) (104,399)
Obligations under finance leases (6,366) (6,366) (234) (234)
Interest rate cap agreement -- 30 148 34
--------------------------------------------------------------------------------------
</TABLE>
The amounts in the table are stated gross of unamortised finance costs
The carrying amounts of Senior Subordinated Notes were based on the
quoted market prices for these instruments.
The carrying amount of cash and bank deposits is a reasonable estimate
of fair value.
The Senior Credit Facility bears interest on a floating rate basis
based on the current value of US Dollar LIBOR. Therefore the fair value of this
instrument is considered to approximate its carrying amount.
In the opinion of the Directors, the market value of the finance lease
obligations approximates the carrying amount, having regard to the interest
rates available to the Group for similar borrowings at the balance sheet date.
The fair value of the interest rate cap agreement has been estimated
upon the available market price for a similar instrument at 31 December 1999 and
1998.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
67
30 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP) continued
================================================================================
Exceptional items
Under UK GAAP, certain exceptional items are shown separately on the face of the
profit and loss account after operating profit and before interest. Under US
GAAP, exceptional items should be included as a normal operating item so that
operating profit/(loss) includes these costs. The adjustments to operating
profit/(loss) under US GAAP can be reconciled as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
1999 1998 1997
Year ended 31 December (pound) 000 (pound) 000 (pound) 000
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit/(loss) in accordance with UK GAAP 15,115 20,726 (22,307)
Reclassification of exceptional item (911) 2,069 4,035
-----------------------------------------------------------------------------------------
Operating profit/(loss) in accordance with US GAAP 14,204 22,795 (18,272)
=========================================================================================
</TABLE>
Sale and leaseback transactions
Under UK GAAP, impairment of fixed assets is measured by comparing the carrying
value of the fixed asset with its recoverable amount. The recoverable amount is
the higher of the amounts that can be obtained from selling the fixed asset (net
realisable value) or using the fixed asset (value in use). However, under US
GAAP, when the fair value of assets subject to a sale and leaseback transaction
is less than the book value, a loss needs to be recognised in the profit and
loss account.
Recent accounting pronouncements
In December 1999, the United States Securities and Exchange Commission ("SEC")
issued SAB 101, "Revenue Recognition", which summarises certain of the SEC staff
views in applying generally accepted accounting principles to revenue
recognition in financial statements. The SEC staff issued SAB 101B in June 2000.
SAB 101B delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after 15 December 1999. The
Company is currently in the process of determining what the impact of such
adoption will have on these financial statements.
On 19 May 1999, the Financial Accounting Standards Board decided to
delay the effective date of SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities", to all fiscal quarters of all fiscal years beginning after
15 June 2000. SFAS 133 requires that all derivative financial instruments be
recognised as either assets or liabilities on the balance sheet at their fair
values and that accounting for the changes in their fair values is dependent
upon the intended use of the derivatives and their resulting designations. The
new standard will supersede or amend existing standards that deal with hedge
accounting and derivatives. The Company has not determined the effect that
adopting this standard will have on its financial statements.
The adjustments to net loss and shareholders' equity under US GAAP can be
reconciled as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
1999 1998 1997
Year ended 31 December (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adjustments to net loss
Retained (deficit)/profit in accordance with UK GAAP (5,385) 4,439 (20,744)
US GAAP adjustments:
Revenue recognition (15,614) 667 (405)
System and product development costs:
- capitalised during the year (12,734) (11,762) (3,964)
- amortisation 9,391 8,308 11,548
Deferred indexing costs 245 312 (151)
Acquisition accounting (36,963) (36,037) (14,606)
Fair value adjustments - - 3,029
Employee costs (29) (28) (23)
Loss on sale and leaseback transaction (991) - -
Income taxes (26) (7) (9)
--------------------------------------------------------------------------------------------
Net loss in accordance with US GAAP (62,106) (34,108) (25,325)
============================================================================================
Net loss per share in accordance with US GAAP (pence) (40.9) (22.65) (25.06)
============================================================================================
</TABLE>
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
68
30 Summary of differences between UK and US Generally Accepted Accounting
Principles (GAAP) continued
<TABLE>
<CAPTION>
============================================================================================================
1999 1998 1997
(pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adjustments to shareholders' equity
Ordinary shareholders' funds in accordance with UK GAAP (102,838) (94,818) (91,681)
US GAAP adjustments:
Revenue recognition (18,984) (3,370) (4,037)
Capitalised system and product development costs net of amortisation (27,030) (23,154) (21,624)
Deferred indexing costs (296) (541) (853)
Acquisition accounting 163,449 194,242 221,540
Investment in available-for-sale securities - - (681)
Loss on sale and leaseback transaction (993) - -
Income taxes 89 120 119
------------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with US GAAP 13,397 72,479 102,783
============================================================================================================
</TABLE>
31 Subsequent events
================================================================================
Disposal of ISD
On 23 March 2000 the Company announced the restructuring of the Group through
the proposed sale of the ISD to Thomson for $275 million in cash. In connection
with this transaction, the Company launched a cash tender offer and consent
solicitation on 24 March 2000 to the holders of its $180 million 11% Senior
Subordinated Notes which was accepted by the bondholders on 20 April 2000. The
proposals were approved by the Company's shareholders at an Extraordinary
General Meeting held on 27 April 2000, and the transfer was completed on 4 May
2000.
On completion of the sale, the Company and Thomson formed a strategic
alliance, involving Thomson licensing and acting as reseller for the
technologies of the Company and the Company acting as reseller of Thomson's
content. The proceeds of the sale enabled the Group to repay in full all of its
outstanding senior and high yield debt of approximately $275 million. As part of
the transaction, Thomson agreed to subscribe for 9,297,290 new Ordinary shares
in the Company at 170.5 pence per Ordinary share, for an aggregate cash
consideration of (pound)15.9 million. Thomson's holding as a percentage of the
issued share capital is shown on page 22 of this report.
On completion of the sale, Jiyu Holdings, a private investment company
unconnected to any of the Company's existing shareholders or investors, also
agreed to subscribe for 7,038,123 new Ordinary shares at a subscription price of
170.5 pence per Ordinary share, for an aggregate cash consideration of (pound)12
million. Jiyu's holding as a percentage of the issued share capital is shown on
page 22 of this report.
During the first quarter of 2000, the Company provided (pound)106
million in respect of the loss on this disposal. The loss arises as a result of
the reinstatement of goodwill previously written off to reserves upon the
acquisition of KRII.
As a result of the sale of the ISD to Thomson, Jason Molle, Ciaran
Morton and Stephen Maller resigned as directors of the Company upon their
transfer with the ISD to Thomson. Patrick Sommers also transferred to Thomson
but remains a Non-Executive Director of the continuing Group. On completion of
the sale, the Company paid Patrick Sommers a bonus of $1.5 million, half in cash
and the remainder by the issue of 71,361 ADSs, equivalent to 285,444 Ordinary
shares, credited as fully paid, at a price of 168 pence per share, such price
being the average mid market closing price for the Ordinary shares during the
period from 8 March 2000 to 7 April 2000. Patrick Sommers is restricted from
disposing of the Ordinary shares for a period of 12 months from the date of
issue. The Company also agreed to grant options to Patrick Sommers, in
connection with the sale, to subscribe for an additional 71,361 ADSs, equivalent
to 285,444 Ordinary shares at a strike price of 168 pence per share, which
become exercisable 12 months after issue and expire 7 years after issue.
Deferred consideration
On 12 May 2000, the Company settled the first of two deferred consideration
instalments relating to the acquisition of Write Works (see note 11). The total
amount of consideration was (pound)1,673,000 being 91% of the maximum. This
consideration was settled through a cash payment of (pound)1,260,000 and the
issue of 420,508 new Ordinary shares at a price of 98.3 pence per share. This
led to a write-off of goodwill arising on the acquisition of Write Works of
(pound)152,000. Following this payment, the remaining deferred consideration
instalment has a maximum potential value of (pound)1,990,000 and is dependent
upon the achievement of an earnings target during the year ended 31 December
2000. Payment of the final instalment is due in March 2001.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
69
31 Subsequent events continued
================================================================================
Significant acquisition
On 30 May 2000, the Company announced that it had agreed to acquire key
eCommerce technology assets and associated intellectual property rights of
boo.com, from KPMG, the company's provisional liquidators for (pound)250,000.
The Company has subsequently negotiated with several of boo.com's lessors to
acquire computer hardware and office equipment for a sum of approximately
(pound)1.2 million. It is the Company's intention to incorporate these
technology assets into Sparza, the Company's existing eCommerce technology
business to provide a business to consumer element to complement Sparza's
existing business to business software solution.
32 Contingent Liabilities
================================================================================
On 22 October 1997, immediately prior to the Company's acquisition of KRII, a
class action was instituted against KRII and its subsidiary, The UnCover
Company, in the United States District Court for the Northern District of
California. The class action was instituted by Joan Ryan, Jim Tunney, Arlie
Russell Hochschild, Lyn Hejinian and Ronald Silliman, all individuals, and on
behalf of all those similarly situated against CARL Corporation, a Colorado
corporation, individually and doing business as The UnCover Company, and The
UnCover Company, a Colorado corporation, The Uncover Company, a partnership and
KRII, a California corporation.
Plaintiffs are the authors of certain written material which was being
distributed by defendants pursuant to licenses obtained from the publishers of
such material. Plaintiffs alleged copyright infringement on the theory that
Plaintiffs (as authors of the written material in question) are the rightful
owners of the copyright and therefore the only party with the right to license
the distribution rights to the material. Plaintiffs sought unspecified statutory
damages.
The Company sold The UnCover Company in 1998 and has agreed to
settlement terms with the representative plaintiffs. The settlement must be
submitted to class members for objection and must ultimately be approved by the
trial court. Under the terms of the settlement, the Company's monetary
contribution will not be material. If the settlement is not approved, continued
litigation could result in a judgment that would have a material adverse effect
on the Company. The Company believes that its ultimate exposure in this matter
could be reduced as a result of indemnity and insurance claims it has against
third parties.
The Company and its subsidiaries are also parties to legal proceedings
that are considered to be ordinary routine litigation incidental to their
business and not material to the Group's financial position.
33 FinanciaI Instruments
================================================================================
The Group's principal financial instruments comprise a Senior Credit Facility,
incorporating a bank overdraft (see note 16), Senior Subordinated high-yield
notes (see note 16), finance leases (see note 24) and cash and short-term
deposits. The main purpose of the Senior Credit Facility and high yield notes
was to finance the acquisition of KRII. Finance leases are used to finance major
asset purchases. The group has various other financial instruments, such as
trade debtors and trade creditors, that arise directly from its operations.
The Group is exposed to a number of different market risks including
interest rates and foreign currency rates. The Board reviews and agrees policies
managing each of the risks. The key risks are:
Interest rate risk
The Group borrows in appropriate currencies at both fixed and floating rates of
interest and uses interest rate cap agreements to generate an appropriate
interest profile and to manage the Group's exposure to interest fluctuations.
Foreign currency risk
The Group mitigates the effect of foreign currency exposure by arranging to
match assets owned in foreign countries with borrowings in that same currency.
Credit risk
The Group's policy is to place its cash and investments with high-quality
financial institutions in order to limit the amount of credit exposure. The
Group performs ongoing evaluations of its customers' financial condition and
maintains provisions against potential credit losses. Such losses in the
aggregate, have not exceeded management expectations. Financial instruments
which expose the Group to credit risk are cash, investments and trade debtors,
which generally are not collateralised.
Annual Report 1999
Notes to the Financial Statements
www.brightstation.com
Technology born for business
70
33 Financial Instruments continued
================================================================================
Liquidity risk
The Group maintains a balance between continuity of funding and flexibility
through the use of borrowings with a range of maturities. Short-term flexibility
is achieved by overdraft facilities.
Short-term debtors and creditors have been excluded from this note as permitted
under FRS 13.
As permitted by FRS 13, comparative figures have not been provided.
Interest rate risk profile of financial liabilities
The interest rate risk profile of financial liabilities of the Group at 31
December 1999 was as follows:
--------------------------------------------------------------------------------
Fixed rate Floating rate
financial financial
liabilities liabilities Total
Currency (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------
US Dollar 114,550 52,910 167,460
Euro related 47 - 47
--------------------------------------------------------------------------------
Total 114,597 52,910 167,507
================================================================================
--------------------------------------------------------------------------------
Fixed rate financial liabilities
--------------------------------------------------------------------------------
Weighted
Weighted average period
average for which rates
interest rate are fixed
Currency % Years
--------------------------------------------------------------------------------
US Dollar 11.0 6.7
Euro related 11.4 1.7
--------------------------------------------------------------------------------
Average 11.0 6.7
================================================================================
The floating rate financial liabilities principally comprise the US Dollar
denominated Senior Credit Facility (including overdraft) bearing interest at
rates from 2.25 to 4.5 percentage points above US Dollar LIBOR (see note 16).
Interest rate risk of financial assets
The interest rate risk of financial assets of the Group at 31 December 1999 was
as follows:
--------------------------------------------------------------------------------
Cash and
bank deposits
Currency (pound) 000
--------------------------------------------------------------------------------
Sterling 4,404
Euro related 797
US Dollar 5,055
Other 265
--------------------------------------------------------------------------------
Total 10,521
================================================================================
At 31 December 1999, no interest was paid on any of the Group's cash balances.
Currency exposures
At 31 December 1999, the Group bears a translation exposure only on the balance
of its US denominated debt. Subsequent to the year end, these balances have been
repaid in full (see note 31).
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at 31 December 1999 is
shown in note 16 to the financial statements.
Fair values of financial assets and financial liabilities
A comparison by category of book values and fair values of all the Group's
financial assets and financial liabilities at 31 December 1999 is shown in note
30 to the financial statements.
Annual Report 1999
www.brightstation.com
Technology born for business
71
Shareholder Information
Nature of Trading Market
The Company's Ordinary shares are traded on the London Stock Exchange, under the
symbol "BSN" (formerly "DLG") and American Depositary Shares ("ADSs"), each
representing four Ordinary shares, are listed for trading in the NASDAQ National
Market System under the symbol, "BSTN" (formerly "DIAL"). The ADSs are evidenced
by ADRs issued by The Bank of New York, as Depositary, under a Deposit Agreement
dated as of 21 November 1995 among M.A.I.D, the Depositary and the holders from
time to time of ADRs. The ADSs are registered under the Securities Exchange Act
of 1934, as amended.
The following tables set forth, for the periods indicated, (1) the
reported high and low closing sale prices for the Ordinary shares based on the
Daily Official List of the London Stock Exchange and (2) the reported high and
low closing sale prices of the ADSs on NASDAQ since the commencement of trading
of the ADSs on 22 November 1995. The tables do not reflect trading after the
official close of the London Stock Exchange and NASDAQ for which no official
quotations exist.
--------------------------------------------------------------------------------
The London Stock Exchange NASDAQ
Pounds Per Share U.S. Dollars per ADS
--------------------------------------------------------------------------------
High Low High Low
--------------------------------------------------------------------------------
2000
2nd Quarter 1.44 0.59 8-15/16 3-3/4
1st Quarter 2.33 0.90 15 5-3/4
--------------------------------------------------------------------------------
1999
4th Quarter 1.06 0.63 6-7/8 4
3rd Quarter 0.95 0.61 51-5/16 3-1/2
2nd Quarter 1.48 0.85 9-3/4 5-3/8
1st Quarter 1.22 0.57 8-1/16 41/4
--------------------------------------------------------------------------------
1998
4th Quarter 1.83 0.47 12-1/8 3
3rd Quarter 2.36 1.48 16-1/4 9-5/8
2nd Quarter 1.95 1.41 14 9-1/8
1st Quarter 1.88 1.32 12-5/16 8-7/8
--------------------------------------------------------------------------------
1997
4th Quarter 2.37 1.39 14 8-3/4
3rd Quarter 2.37 1.52 15-1/8 10-1/4
2nd Quarter 2.46 1.50 16-3/8 10-1/4
1st Quarter 2.05 1.50 13-3/8 10
--------------------------------------------------------------------------------
1996
4th Quarter 3.14 1.86 20-3/8 12-1/2
3rd Quarter 3.28 2.59 20-1/2 15-3/4
2nd Quarter 3.41 1.96 20-1/2 11-3/4
1st Quarter 2.49 1.53 14-7/8 9-3/8
--------------------------------------------------------------------------------
1995
4th Quarter 3.54 2.13 18-1/4* 13-1/8*
3rd Quarter 2.56 0.82 -- --
2nd Quarter 0.90 0.77 -- --
1st Quarter 0.85 0.63 -- --
--------------------------------------------------------------------------------
1994
4th Quarter 0.71 0.45 -- --
3rd Quarter 0.81 0.46 -- --
2nd Quarter 0.87 0.43 -- --
1st Quarter 1.10** 0.87** -- --
--------------------------------------------------------------------------------
On 30 June 2000, the closing market price of the Company's Ordinary shares was
(pound)0.825 per share and the ADS price was $5-3/16 per ADS. On such date,
992,508 Ordinary shares and ADRs evidencing 2,647,745 ADSs (representing
10,590,980 Ordinary shares) were held of record in the US. These Ordinary shares
and ADRs were held by 31 record holders and 39 record holders, respectively, and
represented 0.575% and evidenced ADSs representing 6.136% respectively, of the
total number of Ordinary shares outstanding. Since certain of these Ordinary
shares and ADRs were held by brokers or other nominees, the number of record
holders in the US may not be representative of the number of beneficial holders
or of where the beneficial holders are resident.
*(from 22 November)
**(from 25 March)
Annual Report 1999
Shareholder Information
www.brightstation.com
Technology born for business
72
Exchange Controls and Other Limitations Affecting Security Holders
There are currently no United Kingdom foreign exchange control restrictions on
remittances of dividends on Ordinary shares or on the conduct of the Group's
operations.
Under English Law and the Company's Memorandum and Articles of
Association, persons who are neither residents nor nationals of the United
Kingdom may freely hold, vote and transfer their Ordinary shares in the same
manner as United Kingdom residents or nationals.
Taxation
The following is a summary of certain US Federal income and UK tax consequences
generally applicable to ownership by a beneficial owner of ADSs representing
Ordinary shares and of Ordinary shares not in ADS form that is not resident in
the United Kingdom and is (i) a citizen or resident of the United States, (ii) a
corporation created or organised in the United States or under the laws of the
United States or of any state, or (iii) an estate or trust, the income of which
is included in gross income for United States federal income tax purposes
regardless of its source ("US Holder") for the purpose of the current double
taxation convention between the United States and the United Kingdom (the
"Convention"). The summary is based on tax laws in effect in the United Kingdom,
the provisions of the US Internal Revenue Code of 1986, as amended (the "Code"),
the final, temporary and proposed US Treasury regulations under the Code and the
administrative and judicial interpretations thereof, and the Convention, all as
in effect as of the date of this report, and all of which are subject to change
(possibly on a retroactive basis) and to differing interpretations. There can be
no assurance that the taxing authority of the United Kingdom or the US Internal
Revenue Service (the "IRS") will not take a contrary view, and no ruling from
such taxing authorities has been or will be sought.
This summary assumes a US holder holds ADSs as a capital asset, and
elects to credit, rather than deduct, foreign income taxes against the US tax
liability.
The following discussion does not consider all aspects of United States
Federal income taxation that may be relevant to holders in light of their
personal circumstances. Further, it does not consider holders in special tax
situations, (including dealers in securities, financial institutions, insurance
companies, tax exempt organisations, holders of securities held as part of a
"straddle", "hedge" or "conversion transaction" with other investments, US
holders liable to Alternative Minimum Tax, US holders who are domestic
corporations and actually or constructively own 10% or more of the voting shares
of the Company, or situations in which the "functional currency" within the
meaning of Section 985(b) of the Code of an investor is not the US dollar). This
summary also does not discuss the source of gain or loss from the disposition of
ADSs for purposes of foreign tax credit limitations. The following summary does
not discuss the United States estate or gift tax consequences or state and local
tax consequences of holding or disposing of ADSs representing Ordinary shares or
Ordinary shares not in ADS form, or tax consequences in countries other than the
United Kingdom or the United States. This summary does not address aspects of US
taxation other than US Federal income taxation that may be relevant to a US
holder, such as state and local taxation. Holders of ADSs should consult their
own tax advisers as to the particular tax consequences to them of ownership of
the ADSs or the Ordinary shares.
For the purposes of the Convention and the Code, beneficial owners of
ADSs who are US persons will be treated as the beneficial owners of the
underlying Ordinary shares represented by the ADSs evidenced by the ADRs.
Taxation of Dividends Under UK Law and Refunds of Tax Credits
The Company does not expect to pay dividends for the foreseeable future.
Should the Company begin paying dividends, under current UK taxation
legislation, no tax will be withheld from dividend payments by the Company. It
should be noted that, due to a change in UK tax legislation, dividends paid
after 5 April 1999 no longer carry a requirement to account for advance
corporation tax.
There is a tax credit in respect of any dividend paid by the Company at
a rate of 10% of the sum of the dividend and the tax credit on it (equivalent to
11.11% of the cash dividend).
US residents may in certain circumstances be able to recover part of
the tax credit ("tax credit refund") under The Convention, as follows:
(a) Under the Convention, a US Holder which is a US corporation which, alone or
together with one or more associated corporations, controls, directly or
indirectly, at least 10% of the voting shares of the Company, and whose holding
is not effectively connected with a permanent establishment in the UK through
which it carries on business, will generally be entitled to receive a tax credit
refund equal to one half of the tax credit to which a UK resident individual
would be entitled, subject to a withholding tax equal to 5% of the aggregate of
the dividend and the refunded half of the tax credit. Thus on a dividend of
(pound)100 (chosen for illustrative purposes only), the US Holder will be
entitled to receive a tax credit refund of (pound)0.28. The procedure for
obtaining the repayment will be by completion of "US Corporation Credit" Form
(FD13).
(b) Under the Convention, a US Holder who is an individual or corporation (other
than a corporation falling within paragraph (a) above) will generally not be
entitled to receive a tax credit refund.
Special rules also apply to a US Holder which is a US corporation and
(a) is a resident of the UK, or (b) at least 25% of the capital of which is
held, directly or indirectly, by persons that are not individual residents or
citizens of the United States, and (i) which has imposed on it by the United
States in respect of a dividend a tax substantially less than the tax generally
imposed
Annual Report 1999
Shareholder Information
www.brightstation.com
Technology born for business
73
by the United States on corporate profits, or (ii) which receives more than 80%
of its gross income from sources outside the United States as determined in
accordance with the Convention. Additional special rules apply if the US Holder
is exempt from US Federal income tax on the dividend received or if the US
Holder owns 10% or more of the class of shares in respect of which the dividend
is paid. All such US Holders should consult their own tax advisors with respect
to such rules.
Under Section 812 of the Income and Corporation Taxes Act of 1988, the
UK Treasury has power to deny the payment of tax credit refunds under the UK's
income tax conventions to certain corporations if they or an associated company
(as described in Section 812) have qualifying presence in a state which operates
a unitary system of corporation taxation. These provisions come into force only
if the UK Treasury so determines by statutory instrument. No determination has
been made to date.
UK Taxation of Capital Gains
All US Holders, who are not resident or ordinarily resident in the United
Kingdom for UK tax purposes, provided that they have not recently left the UK
and intend to return within five years of departure and that they were not
resident in the UK for four out of the seven years prior to their departure from
the UK, will not be liable for UK tax on capital gains realised on the disposal
of their ADSs or Ordinary shares unless the ADSs or Ordinary shares are held in
connection with a trade, profession or vocation carried on in the United Kingdom
through a UK branch or agency. Generally, gains realised in the course of
dealing in securities will be regarded as arising in the course of carrying on a
trade. In this case, a different UK treatment applies.
US Federal Income Taxation of Dividends
The gross amount of any dividend paid to a US Holder (that is, the amount of the
dividend plus the related tax credit and before reduction for withholding tax)
will be included in gross income and treated as foreign source dividend income
of such US Holder for US Federal income tax purposes. For US Federal income tax
purposes, a distribution will constitute a dividend only to the extent paid out
of current or accumulated earnings and profits of the Company (as determined for
US Federal income tax purposes). The dividend will not be eligible for the
dividends received deduction allowed to US corporations. The amount includable
in income will be the US Dollar value of the payment (as of the time of payment)
regardless of whether the payment is in fact converted into US Dollars.
Generally, any gain or loss resulting from currency exchange fluctuations during
the period from the date of the dividend payment to the date such dividend
payment is converted into US Dollars will be treated as ordinary income or loss.
Subject to certain limitations, the applicable UK withholding tax will be
treated as a foreign tax eligible for credit against the US Holder's Federal
income tax. Special rules apply for purposes of determining the foreign tax
credit available to a US corporation which controls 10% or more of the voting
shares of the Company.
US Federal Income Taxation of Gains from Sale
A US Holder will, upon the sale or exchange of an ADS or an Ordinary share,
recognise the gain or loss for US Federal income tax purposes in an amount equal
to the difference between the amount realised (or the US dollar value of the
consideration received determined at the spot rate on the date of disposition if
the amount realised is denominated in a foreign currency) and the US Holder's
tax basis (determined in US Dollars) in the ADS or the Ordinary share. Except as
described below under "US, Passive Foreign Investment Company Status", the gain
or loss will be a capital gain or loss if the ADS or the Ordinary share was a
capital asset in the hands of the US Holder and will be long-term if the ADS or
the Ordinary share was held for more than 12 months. Special rules apply to US
persons holding 10% or more of the stock, if the company is a Controlled Foreign
Corporation.
If a US Holder receives any foreign currency on the sale of ADSs or
Ordinary shares, the US Holder may recognise an ordinary gain or loss as a
result of currency fluctuations between the date of the sale and the date the
sale proceeds are converted into US Dollars.
Neither the surrender of ADSs in exchange for the deposited Ordinary
shares represented by the surrendered ADSs nor the deposit of Ordinary shares
for ADSs representing the Ordinary shares will be a taxable event for purposes
of US Federal income tax, UK income and corporation tax or UK capital gains tax.
Accordingly, US Holders will not recognise any gain or loss upon the surrender
of ADSs for Ordinary shares or the deposit of Ordinary shares for ADSs. See "UK
Stamp Duty and Stamp Duty Reserve Tax".
US Passive Foreign Investment Company Status
Because the Company will receive interest income and may receive royalties and
other passive types of income, the Company may be, or may in the future become,
a Passive Foreign Investment Company ("PFIC") for US Federal income tax
purposes. The Company will be a PFIC if either 75% or more of its gross income
in a tax year is passive income or the average percentage of its assets (by
value or, if the PFIC elects, the adjusted tax basis) which produce or are held
for the production of passive income is at least 50%. The Company will monitor
its status and will, promptly following the end of any taxable year for which it
determines it was a PFIC, notify US Holders of such status.
Annual Report 1999
Shareholder Information
www.brightstation.com
Technology born for business
74
If the Company is a PFIC, the direct and certain indirect US Holders must either
(i) elect to report currently their pro rata share of the Company's ordinary
earnings and net capital gain even if they do not receive distributions from the
Company (the "qualified election"), or (ii) upon disposition of the Ordinary
shares or ADSs or receipt of an "excess distribution" (as defined in the Code),
be subject generally to tax as if the gain or distribution were ordinary income
earned rateably over the period in which the Ordinary shares or ADSs were held
(including payment of an interest charge on the deferred tax) and face other
adverse tax consequences.
The qualified election is made on a shareholder-by-shareholder basis.
Each shareholder should consult with its own tax adviser to decide whether to
make the qualified election. This election is made by attaching the shareholder
election statement, the PFIC annual information statement and Form 8621 to such
shareholder's timely filed income tax return with a copy of the shareholder
election statement being sent to the Internal Revenue Service Center, P.O. Box
21086, Philadelphia, Pennsylvania 19114. If the Company is (or under the
circumstances described above, was) a PFIC, copies of the Form 8621 must also be
filed every year, both with such shareholder's tax return and with the Internal
Revenue Service Center in Philadelphia, whether or not the qualified election is
made.
A shareholder may recognise foreign currency gain or loss, if any, with
respect to income included if the "qualified election" is made at the time it
received an actual distribution form the Company.
If the Company is a US controlled foreign corporation (see below), the
PFIC rules only apply for any shareholder who owns less than 10% of the voting
stock of the Company.
US Controlled Foreign Corporations
If a US Holder owns 10% or more of a "controlled foreign corporation" (i.e., a
foreign corporation more than 50% of the vote or value of which is held
(directly, indirectly or constructively) by "United States Shareholders" as
defined in Section 951(b) of the Code and hereinafter referred to as a "US
Shareholder" and such controlled foreign corporation has certain types of
earnings or "United States property" (as defined in Section 956(c) of the Code)
then US Shareholders may have to include certain amounts in their gross income,
irrespective of whether the controlled foreign corporation has made
distributions. Further, US persons who directly, indirectly or constructively
own at least 10%, or have acquired at least 5% in the year, of the voting shares
of a non-US corporation may be required to file Form 5471 with the IRS.
US Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Company's outstanding shares is owned, directly
or indirectly, by five or fewer individuals who are citizens or residents of the
United States and 60% or more of the Company's gross income for such year was
derived from certain passive sources (e.g., from dividends received from its
subsidiaries), the Company would be treated as a "foreign personal holding
company". In that event, US Holders that hold shares of the Company would be
required to include in gross income for such year their allowable portions of
such passive income to the extent the Company does not actually distribute such
income.
US Foreign Investment Company
If 50% or more of the combined voting power or total value of the Company's
outstanding shares are held, directly or indirectly, by citizens or residents of
the United States domestic partnerships or corporations, or estates or trusts
other than foreign estates or trusts (as defined by the Code Section
7701(a)(31)), and the Company is found to be engaged primarily in the business
of investing, reinvesting, or trading in securities, commodities, or any
interest therein, it is possible that the Company might be treated as a "foreign
investment company" as defined in Section 1246 of the Code, causing all or part
of any gain realised by a US Holder selling or exchanging shares of the Company
to be treated as ordinary income rather than capital gain.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to dividend payments
(or other taxable distribution) in respect of ADSs made within the US to a
non-corporate US person, and "backup withholding" at a rate of 31% will apply to
such payments if the holder or beneficial owner fails to provide an accurate
taxpayer identification number in the manner required by US law and applicable
regulations, if there has been notification from the Internal Revenue Service of
a failure by the holder or beneficial owner to report all interest or dividends
required to be shown on its federal income tax returns or, in certain
circumstances, if the holder or beneficial owner fails to comply with applicable
certification requirements. Certain corporations and persons that are not US
persons may be required to establish their exemption from information reporting
and backup withholding by certifying their status on Internal Revenue Services
Forms W-8 BEN or W-9. The term "US person" means a citizen or resident of the
US, a domestic partnership, a domestic corporation, and any estate or trust
(other than a foreign estate or trust).
In general, payment of the proceeds from the sale of ADSs to or through
a US office of a broker is subject to both US backup withholding and information
reporting unless the holder or beneficial owner certifies its non-US status
under penalties of perjury or otherwise establishes an exemption. US information
reporting and backup withholding generally will not apply to a payment made
outside the US of the proceeds of a sale of ADSs through an office outside the
US of a non-US broker. However, US information reporting requirements (but not
backup withholding) will apply to a payment made outside
Annual Report 1999
Shareholder Information
www.brightstation.com
Technology born for business
75
the US of the proceeds of a sale of ADSs through an office outside the US of a
broker that is a US person, that derives 50% or more of its gross income for a
specified three year period from the conduct of a trade or business in the US,
or that is a "controlled foreign corporation" as to the US, unless the broker
has documentary evidence in its files that the holder or beneficial owner is a
non-US person or the holder or beneficial owner otherwise establishes an
exemption.
Amounts withheld under the backup withholding rules may be credited
against a holder's tax liability, and a holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the US Internal Revenue Service.
UK Estate and Gift Tax
UK Inheritance ("IHT") is a tax levied at death on the value of an individual's
estate at death. IHT is also levied in respect of any gifts made within seven
years before an individual's death. It may also apply to certain lifetime
transfers or to property comprised in a trust or settlement. An American
domiciliary need only be concerned about liability for IHT to the extent he is
or is deemed to be also a UK domiciliary (or was a UK domiciliary at the time he
created any trust or settlement) or otherwise to the limited extent of his UK
assets. Under the Convention between the US and the UK relating to estate and
gift taxes, ADSs or Ordinary shares held by an individual who is domiciled for
the purpose of the Convention in the United States and is not for the purposes
of the Convention a national of the United Kingdom will not, provided any
applicable US tax is paid, be subject to IHT on the individual's death or on a
gift of the ADSs or the Ordinary shares within seven years of his death unless
the ADSs or the Ordinary shares form part of the business property of a
permanent establishment of the individual in the United Kingdom or, in the case
of a holder who performed independent personal services, pertain to a fixed base
in the United Kingdom used for the performance of independent personal services.
In the exceptional case where the ADSs or Ordinary shares are subject both to
IHT and to US Federal gift or estate tax, the Convention generally provides for
tax paid in the United Kingdom to be credited against tax payable in the United
States or for tax paid in the United States to be credited against tax payable
in the United Kingdom based on priority rules set forth in the Convention.
UK Stamp Duty and Stamp Duty Reserve Tax
UK stamp duty is payable in respect of certain documents and UK Stamp Duty
Reserve Tax ("SDRT") is imposed in respect of certain transactions in
securities. Transfers of the Ordinary shares will be subject to ad valorem stamp
duty at the rate of (pound)0.50 per (pound)100 (or part of (pound)100) of the
full consideration given irrespective of the identity of the parties to the
transfer and the place of execution of any instrument of transfer.
There is generally no ad valorem stamp duty on a gift or on an
instrument of transfer which is neither a sale nor made in contemplation of
sale. In those cases, the instrument of transfer will either be exempt from
stamp duty or a fixed stamp duty of (pound)0.50 ((pound)5.00 on or after 1
October 1999) per instrument of transfer will be payable.
An agreement to transfer the Ordinary shares or any interest therein
(but not an agreement to transfer an interest in an ADS) for money or money's
worth will normally give rise to a charge to SDRT at the rate of 0.5% of the
amount or value of the consideration given. The charge will generally not arise,
however, if an instrument transferring the Ordinary shares is executed in
pursuance of the agreement and is duly stamped.
Charges to stamp duty at the rate of (pound)1.50 per (pound)100 (or
part of (pound)100) or SDRT at the rate of 1.5% of the transfer price or value
or of the issue price will generally arise on the transfer or issue of Ordinary
shares to, or a deposit of Ordinary shares with, the Depositary or certain
persons providing clearance services (or their nominees or agents). In
accordance with the terms of the Deposit Agreement, any tax or duty payable by
the Depositary on deposits of the Ordinary shares will be charged by the
Depositary to the party to whom ADRs are delivered against the deposits.
No UK stamp duty will be payable on the transfer of, or agreement to
transfer, an ADS or beneficial ownership of an ADS, so long as the instrument of
transfer and/or written agreement to transfer remains at all times outside the
UK, and so long as any instrument of transfer an/or written agreement to
transfer is not executed in the UK and the transfer does not relate to any
matter or thing done or to be done in the UK. In any other case, the transfer
of, or agreement to transfer, an ADS or beneficial ownership of an ADS could,
depending on all the circumstances of the transfer, give rise to a charge to ad
valorem stamp duty. The current rate of ad valorem stamp duty on a transfer of
stock or marketable securities, which would include the Ordinary shares and
ADSs, is (pound)0.50 per (pound)100 (or part of (pound)100) of the value of the
consideration (a transfer in contemplation of sale being stampable by reference
to the value of the property transferred).
A transfer of Ordinary shares underlying ADSs by the Depositary at the
direction of the ADS seller directly to a purchaser may give rise to a liability
to ad valorem stamp duty. A transfer of Ordinary shares from the Depositary to a
US Holder or registered holder of an ADS upon cancellation of the ADS is subject
to a fixed UK stamp duty of (pound)0.50 ((pound)5.00 on or after 1 October 1999)
per instrument of transfer.
Annual Report 1999
Shareholder Information
www.brightstation.com
Technology born for business
76
Selected Financial Data
Consolidated Statements of Income Data In thousands, except for per Share and
per ADS Data
<TABLE>
<CAPTION>
==============================================================================================================================
Amounts in accordance with UK GAAP:
------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
Year ended 31 December (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 13,642 21,443 46,082 170,762 174,452
Cost of Sales (5,231) (7,237) (17,166) (71,618) (68,174)
-------------------------------------------------------------------------------------------------------------------------------
Gross profit 8,411 14,206 28,916 99,144 106,278
Selling and marketing expenses (6,063) (9,933) (17,013) (21,560) (22,118)
General and administrative expenses (5,742) (9,975) (22,662) (46,798) (54,677)
Amortisation of development costs (744) (2,170) (11,548) (7,760) (9,749)
Amounts written off investments -- -- -- (2,300) (4,619)
-------------------------------------------------------------------------------------------------------------------------------
(Loss)/income from operations (4,138) (7,872) (22,307) 20,726 15,115
Exceptional item
- provision for closure of business -- -- -- -- (911)
- gain on sale of fixed asset investment -- -- 4,035 2,069 --
Interest Income 388 1,027 338 205 305
Interest Expense (295) (189) (2,498) (17,436)
-------------------------------------------------------------------------------------------------------------------------------
(Loss)/income before benefit/(provision) for income taxes (4,045) (7,034) 5,564 (3,857) (3,857)
Benefit/(provision) for income taxes 416 (164) (323) (769) (1,478)
-------------------------------------------------------------------------------------------------------------------------------
(3,629) (7,198) (20,755) 4,795 (5,335)
-------------------------------------------------------------------------------------------------------------------------------
Minority equity interest (5) (28) 11 (356) (50)
Net (loss)/income (3,634) (7,226) (20,744) 4,439 (5,385)
-------------------------------------------------------------------------------------------------------------------------------
Net (loss)/income per share (0.044) (0.078) (0.205) 0.029 (0.035)
-------------------------------------------------------------------------------------------------------------------------------
Shares used to compute net (loss)/income per share 82,183 92,364 101,077 150,579 151,929
Equivalent net (loss)/income per ADS (0.177) (0.313) (0.821) 0.118 (0.142)
===============================================================================================================================
</TABLE>
Annual Report 1999
www.brightstation.com
Technology born for business
77
Consolidated Balance Sheets Data Amounts in accordance with UK GAAP:
<TABLE>
<CAPTION>
==================================================================================================
1995 1996 1997 1998 1999
Year ended 31 December (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital 21,313 9,581 19,957 (10,357) (24,303)
Total assets 39,035 33,705 124,510 109,542 108,079
Long-term liabilities 1,742 938 170,264 144,438 138,800
Ordinary shareholders' equity 31,659 26,037 (90,955) (93,741) (102,295)
==================================================================================================
</TABLE>
Dividends
The Company has never declared or paid any cash dividends on its Ordinary
shares. Any payment of dividends would be subject, under English law, to the
Companies Act 1985, which requires that all dividends must be approved by the
Company's Board of Directors and, in some cases, the shareholders, and may only
be paid from the Company's distributable profits and only to the extent that the
Company has retained earnings, both determined on an unconsolidated basis.
Exchange Rates
The following table sets forth, for the period and dates indicated, the average,
high, low and end of period Midmarket Rates for Pounds Sterling expressed in US
Dollars per Pound Sterling. These translations should not be construed as a
representation that the Pounds Sterling amounts actually represent such Dollar
amounts or could be converted into Dollars at such rates. Such rates are not
used by the Company in the preparation of its Financial Statements included
elsewhere herein.
--------------------------------------------------------------------------------
Average(1) High Low Period end
Year ended 31 December $ $ $ $
--------------------------------------------------------------------------------
1995 1.578 1.641 1.527 1.553
1996 1.562 1.711 1.497 1.711
1997 1.634 1.711 1.578 1.645
1998 1.658 1.719 1.615 1.664
1999 1.614 1.679 1.547 1.612
2000 1.570 1.657 1.466 1.518(2)
================================================================================
(1) Represents the average of the Midmarket Rates on the last day of each month
during the relevant period.
(2) On 30 June 2000 the Midmarket Rate was $1.518 to(pound)1.00.
Fluctuations in the exchange rate between the Pound Sterling and the US Dollar
will affect the US Dollar amounts received by holders of the ADSs upon
conversion by the Depositary of cash dividends paid in Pounds Sterling on the
Ordinary shares represented by the ADSs in the event of dividends being declared
and may affect the relative market prices of the ADSs in the US and the Ordinary
shares in the UK
The Company does not believe that changes in the exchange rates have
had a material effect on operating results from international operations.
However, management anticipates that the continued strength of Sterling in the
first quarter of 2000 will have an adverse impact on future reported revenues.
Annual Report 1999
www.brightstation.com
Technology born for business
78
Five Year Financial Summary
<TABLE>
<CAPTION>
====================================================================================================================================
Restruc- Restruc-
turing turing
Total costs and Total Total costs and Total
before other after before other after
restructuring exceptional restructuring restructuring exceptional restructuring
costs items costs costs items costs
1999 1998 1998 1998 1997 1997 1997
(pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000 (pound) 000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover 174,452 170,762 - 170,762 46,082 - 46,082
Cost of sales (68,174) (71,618) - (71,618) (17,166) - (17,166)
------------------------------------------------------------------------------------------------------------------------------------
Gross Profit 106,278 99,144 - 99,144 28,916 - 28,916
Distribution costs (22,118) (21,605) 45 (21,560) (15,700) (1,313) (17,013)
Administrative expenses (54,677) (44,170) (2,628) (46,798) (13,415) (9,247) (22,662)
Amortisation of
development costs (9,749) (7,760) - (7,760) (3,558) (7,990) (11,548)
Amounts written off investments (4,619) - (2,300) (2,300) - - -
------------------------------------------------------------------------------------------------------------------------------------
Operating Profit/(Loss) 15,115 25,609 (4,883) 20,726 (3,757) (18,550) (22,307)
Exceptional item
- provision for closure of business (911) - - - - - -
- gain on sale of fixed asset
investment - - 2,069 2,069 - 4,035 4,035
Interest receivable 305 205 - 205 338 - 338
Interest payable and
similar charges (18,366) (17,436) - (17,436) (2,498) - (2,498)
------------------------------------------------------------------------------------------------------------------------------------
(Loss)/Profit on Ordinary
Activities before taxation (3,857) 8,378 (2,814) 5,564 (5,917) (14,515) (20,432)
Taxation on (loss)/profit on
ordinary activities (1,478) (769) - (769) (323) - (323)
------------------------------------------------------------------------------------------------------------------------------------
(Loss)/Profit on Ordinary
Activities after taxation (5,335) 7,609 (2,814) 4,795 (6,240) (14,515) (20,755)
Minority equity interests (50) (356) - (356) 11 - 11
------------------------------------------------------------------------------------------------------------------------------------
Retained (Deficit)/Profit (5,385) 7,253 (2,814) 4,439 (6,229) (14,515) (20,744)
====================================================================================================================================
(Loss)/Earnings per share (pence) (3.5) 4.8 - 2.9 (6.2) - (20.5)
====================================================================================================================================
<CAPTION>
=============================================================
1996 1995
(pound) 000 (pound) 000
-------------------------------------------------------------
<S> <C> <C>
Turnover 21,443 13,642
Cost of sales (7,237) (5,231)
-------------------------------------------------------------
Gross Profit 14,206 8,411
Distribution costs (9,933) (6,063)
Administrative expenses (9,975) (5,742)
Amortisation of
development costs (2,170) (744)
Amounts written off investments - -
-------------------------------------------------------------
Operating Profit/(Loss) (7,872) (4,138)
Exceptional item
- provision for closure of business - -
- gain on sale of fixed asset
investment - -
Interest receivable 1,027 388
Interest payable and
similar charges (189) (295)
-------------------------------------------------------------
(Loss)/Profit on Ordinary
Activities before taxation (7,034) (4,045)
Taxation on (loss)/profit on
ordinary activities (164) 416
-------------------------------------------------------------
(Loss)/Profit on Ordinary
Activities after taxation (7,198) (3,629)
Minority equity interests (28) (5)
-------------------------------------------------------------
Retained (Deficit)/Profit (7,266) (3,634)
=============================================================
(Loss)/Earnings per share (pence) (7.8) (4.4)
=============================================================
</TABLE>
Annual Report 1999
www.brightstation.com
Technology born for business
79
Accounting Glossary
<TABLE>
<S> <C>
Terms used in Annual Report US equivalent or brief description
-----------------------------------------------------------------------------------------------------------------------------
Administration expenses General and administration expenses
-----------------------------------------------------------------------------------------------------------------------------
Allotted Issued
-----------------------------------------------------------------------------------------------------------------------------
Called up share capital Ordinary shares, issued and fully paid
-----------------------------------------------------------------------------------------------------------------------------
Capital allowances Tax term equivalent to US tax depreciation allowances
-----------------------------------------------------------------------------------------------------------------------------
Cash at bank and in hand Cash
-----------------------------------------------------------------------------------------------------------------------------
Class of business Industry segment
-----------------------------------------------------------------------------------------------------------------------------
Creditors Accounts payable
-----------------------------------------------------------------------------------------------------------------------------
Creditors: Amounts falling due after more than one year Long-term liabilities
-----------------------------------------------------------------------------------------------------------------------------
Creditors: Amounts falling due within one year Current liabilities
-----------------------------------------------------------------------------------------------------------------------------
Debtors Accounts receivable
-----------------------------------------------------------------------------------------------------------------------------
(Deficit)/retained profit Net (loss)/income
-----------------------------------------------------------------------------------------------------------------------------
Distribution costs Selling and marketing expenses
-----------------------------------------------------------------------------------------------------------------------------
Destination (of revenue) The geographical area to which goods or services are supplied
-----------------------------------------------------------------------------------------------------------------------------
Finance lease Capital lease
-----------------------------------------------------------------------------------------------------------------------------
Interest payable and other similar charges Interest expense
-----------------------------------------------------------------------------------------------------------------------------
Interest receivable Interest income
-----------------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit (Loss)/income from operations
-----------------------------------------------------------------------------------------------------------------------------
Profit Income
-----------------------------------------------------------------------------------------------------------------------------
Profit and loss account Income statement
-----------------------------------------------------------------------------------------------------------------------------
Profit and loss reserve (under 'capital and reserves') Retained earnings
-----------------------------------------------------------------------------------------------------------------------------
Share capital Ordinary shares, capital stock or common stock issued
and fully paid
-----------------------------------------------------------------------------------------------------------------------------
Share premium account Additional paid-in capital or paid-in surplus (not distributable)
-----------------------------------------------------------------------------------------------------------------------------
Shares in issue Shares outstanding
-----------------------------------------------------------------------------------------------------------------------------
Source (of revenue) The geographical area from which goods or services are
supplied to a third party or another geographical area
-----------------------------------------------------------------------------------------------------------------------------
Stocks Inventories
-----------------------------------------------------------------------------------------------------------------------------
Tangible fixed assets Property and equipment
-----------------------------------------------------------------------------------------------------------------------------
Taxation on (loss)/profit on ordinary activities (Provision)/benefit for income taxes
-----------------------------------------------------------------------------------------------------------------------------
Turnover Revenues
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Report 1999
www.brightstation.com
Technology born for business
80
The Bright Station plc Proposed Long Term Incentive Plan, Subsidiary Share
Option Schemes, Employee Benefit Trust and Proposed Amendments to Existing Share
Schemes
Following the recent reorganisation of the Company, the Remuneration Committee
(the "Committee") believes that this is an appropriate time to establish
powerful incentive arrangements which will strengthen the union of interest
between the shareholders and key executives. Consequently, the Company proposes
to introduce a new long term incentive arrangement, the Bright Station plc Long
Term Incentive Plan (the "LTIP") and new Subsidiary Share Option Schemes in
respect of four designated subsidiaries of the Company. Under these
arrangements, which will operate in conjunction with the Company's existing
share schemes (the "Existing Share Schemes"), participants will only benefit if
testing performance criteria are achieved. It is also proposed that the Company
establish an Employee Benefit Trust which will be operated in conjunction with
the LTIP, and where appropriate, any other share based schemes operated by the
Company.
Shareholders are also being asked to consider and, if thought
appropriate, approve certain amendments to the provisions in the rules of the
Existing Share Schemes relating to the limits on the number of shares that may
be issued under such schemes.
The Bright Station Long Term Incentive Plan
The key features of the LTIP are detailed below. The LTIP will be administered
by the Committee, all the members of which are non-executive directors. While
the LTIP is open to all employees who are key to the future success of the
business, it is the present intention of the Committee that initial grants will
be restricted to a small group of senior individuals. Future participation in
both the LTIP and the Subsidiary Share Option Schemes is not precluded but any
such multiple participation will be coordinated by the Committee to produce a
single rational remuneration package. Neither awards granted under the LTIP nor
the Subsidiary Share Option Schemes will be pensionable.
Under the LTIP, awards will normally be made annually at the discretion
of the Committee. The value of the shares that are the subject of an annual
award cannot exceed two times a participant's "Basic Salary" (as such term is
defined in the rules of the LTIP) and will only vest subject to the achievement
of predetermined performance criteria. In the case of the first award,
performance will be measured against the growth in value of the Company's share
price against specific targets.
Subsidiary Share Option Schemes
The Board have identified certain parts of the Group's continuing activities as
areas requiring a distinct development strategy. Briefly, these areas are:
- WebTop
WebTop.com (www.webtop.com) is an Internet search engine that combines Muscat's
"concept based" retrieval technology with InfoSort's powerful indexing system to
return accurate results from the Internet grouped into different "zones".
WebTop.com has three main components - the WebTop.com search engine itself, the
customisable WebCheck application it distributes, and real estate called "zones"
on the WebTop.com site. The Company believes that WebTop.com is an Internet
search engine that will gain a wider audience because of its "concept based"
searching, accurate results, and ease of further refining searches using
InfoSort.
- OfficeShopper
OfficeShopper.com (www.officeshopper.com) is the UK's first fully integrated
online shop for over 40,000 office products offering medium-sized businesses a
supremely cost-effective way of managing all their office purchases. The service
features an enhanced, user-friendly interface and search capability, making
business purchasing quick and easy. In addition, users are able to create
personalised catalogues and access automatically generated "frequent buy" lists.
Customers are also able to track, control and authorise purchasing online by
employee, department or product, using OfficeShopper's live budget control
features which enable businesses to effectively manage purchasing costs.
The Company expects to accelerate the growth of business in the UK
through investment in sales staff and by the recent addition of 10,000 new
product items in the software and computer consumables area. In addition, the
Company will continue to pursue strategic alliances, such as the Freeserve
alliance, as a means of broadening its online user base.
- Smartlogik
As companies begin to rely more on their intranets to share and distribute
information and on the management of externally sourced information, the Company
believes that there will be a growing demand for automatic sorting and
intelligent search technologies such as the range of products offered by
Smartlogik.
Smartlogik's products - InfoSort, Discovery and Alert - address the
processes of information categorisation, retrieval and alerting. These solutions
leverage the InfoSort and Muscat technologies for the knowledge management,
corporate intranet and Internet markets, collecting data from external feeds,
internal databases, internal documentation on corporate intranets, or the Web.
This information is then filtered through Smartlogik's indexing and search
tools to deliver the right information to the right employee at the right time.
An organisation may adopt the full suite, or opt to utilise an appropriate
selection, depending on its requirements.
Current customers include the BBC, NASA, BAA and the British Library.
- Sparza
In 1999, Sparza Limited (www.sparza.com) was established as a dedicated
business, licencing the suite of Sparza eCommerce technologies to offer software
solutions to manufacturers, wholesalers, resellers and retailers.
Sparza provides the means for businesses to go online, offering them
the highest levels of control and profitability. Each of the four modules in the
suite is linked to a different point in the supply chain: Sparza Buy; Sparza
Sell; Sparza Resell and Sparza Host. Each solution is supported by Sparza's own
professionals, who are able to tailor solutions to specific requirements and
help buyers and sellers create a free-flowing, low cost electronic supply chain.
Sparza provides eCommerce technologies to enable manufacturers and
wholesalers to more efficiently and profitably manage their supply chain.
OfficeShopper, using Sparza technology, illustrates the powerful capabilities of
this technology.
In May 2000, Sparza acquired the technology assets from
Annual Report 1999
The Bright Station plc Proposed Long Term Incentive Plan, Subsidiary Share
Option Schemes, Employee Benefit Trust and Proposed Amendments to Existing Share
Schemes
www.brightstation.com
Technology born for business
81
boo.com, the online fashion retailer, which significantly enhanced the Company's
capabilities and product offerings.
The Board consider that in order to maximise shareholder value these businesses
should be developed as separate entities within the Group with the expectation
that they will be eventually floated or sold. The Board have invested
considerable time in assembling management teams for each of the businesses who
have the expertise and ambition to drive them forward. An important factor in
ensuring the success of the Board's strategy is to tie the fortunes of the
management teams to the success of the ventures for which they have day to day
responsibility. After much consideration as to how best to accomplish this
objective, the Board consider that this will be best achieved by establishing
share option schemes under which options may be granted to the management teams
over each of the relevant business subsidiary's shares, up to a maximum of 15%
of the subsidiary's issued share capital (the "Equity Pool"). The Equity Pool
will be allocated between the management team at the discretion of the Board.
The proportion which may be allocated to any individual member of the team will
not be limited as the Board believe that the traditional individual limits on
participation are not appropriate for the following reasons:-
- it is essential that awards granted to the members of the management teams are
market competitive and sufficient to truly incentivise them to drive the value
of their respective subsidiary and, therefore, shareholder value;
- in determining the price at which options are granted, it is the intention of
the Board to treat the fair market value of the subsidiary's shares as a
minimum benchmark. Where appropriate, options will be granted at a premium to
this figure.
The Board believe that the creation and allocation of an Equity Pool in
respect of each of the relevant subsidiaries is the most appropriate way to
ensure the management's commitment to the success of their respective business
units and, as a result, generate shareholder value in a cost effective and
targeted manner.
Employee Benefit Trust (the "Trust")
Where appropriate, the shares for the LTIP and any other share based schemes
operated by the Company will be subscribed for or purchased in the market by the
Trust, although any such subscription will be subject to certain limits. A
summary of the main terms of the Trust can be found below.
Amendments to the Rules of the Existing Share Schemes The Company currently
operates the following share schemes:-
- the Bright Station plc 1994 Unapproved Executive Share Option Scheme;
- the Bright Station plc 1994 Executive Share Option Scheme;
- the Bright Station plc 1994 Savings Related Share Option Scheme;
- the Bright Station plc 1997 Stock Option Plan; and
- the Bright Station plc 1998 Employee Stock Purchase Plan.
The rules of each of the Existing Share Schemes contain limits on the number of
shares that may be issued to satisfy awards made under these schemes. The rules
of the LTIP (as described more fully below) also contain limits on the number of
shares that may be issued to satisfy awards made under that arrangement, save
that for the purposes of the limits in the rules of the LTIP there shall be
ignored awards made under any employees' share scheme operated by the Company
prior to the date on which the LTIP is adopted by the Company to individuals who
ceased employment with any Group Company as a result of the disposal by the
Company of the ISD to Thomson.
So as to ensure continuity between the rules of the Existing Share
Schemes and the rules of the LTIP, it is proposed that the relevant rules of the
Existing Share Schemes relating to the limits on the number of shares that may
be issued to satisfy awards made under these schemes be amended so that, for the
purposes of these limits, there shall also be ignored awards made under these
schemes to individuals who ceased employment with any Group Company as a result
of the disposal by the Company of the ISD to Thomson.
Summary of the Bright Station Long Term Incentive Plan
1. Eligible Employees
The Committee, all the members of which are non-executive directors, will select
those key executives who are to participate in the LTIP from those employees who
are required to devote substantially the whole of their working time to the
business of the Group.
2. Awards
Awards will take the form of either nil cost options or a deferred promise by
the Company to provide shares for no cost, both subject to the satisfaction of
the predetermined performance criteria described below. Awards will be made
under the LTIP, at the Committee's discretion, following the adoption of the
LTIP by shareholders.
3. Form and Vesting of Awards
Awards will be made under the LTIP in respect of a specified number of Ordinary
shares which will normally vest following the achievement of the predetermined
performance criteria described below and generally provided that the participant
is still in the employment of the Company or any other Group Company.
However, on release of awards, benefits will be provided either in the
form of Ordinary shares of the Company or cash at the discretion of the Company.
4. Performance Criteria in Respect of the Awards
No award will normally vest unless the predetermined performance criteria set by
the Committee have been achieved. The performance criteria relating to
subsisting awards may be varied if events occur which cause the Committee to
consider that the existing performance criteria have become inappropriate, save
that any varied performance requirements will not be materially more or less
difficult to satisfy than was originally intended.
For the initial grant of awards, it is proposed that the release of
such awards shall be dependent upon whether the price of an Ordinary share in
the capital of the Company has risen to certain predetermined levels during the
three year period following the date on which the award is made (the
Annual Report 1999
The Bright Station plc Proposed Long Term Incentive Plan, Subsidiary Share
Option Schemes, Employee Benefit Trust and Proposed Amendments to Existing Share
Schemes
www.brightstation.com
Technology born for business
82
"Restricted Period").
It is the Committee's present view that the target share prices that
are chosen should represent a substantial premium to current share price so as
to ensure that benefits are only provided to participants under the LTIP if
there is a material increase in the current value of a shareholder's investment
over the Restricted Period.
For the purposes of the initial grant of awards, to ensure that the
release of such awards is not disproportionately biased by any volatility in the
Company's share price at the end of the Restricted Period, it is proposed that
the final share price will be calculated by averaging the mid market quotations
of an Ordinary share in the capital of the Company over a period of no longer
than six months prior to the date on which the Restricted Period expires as
determined by the Committee.
Any portion of the Award that is not released shall lapse on the expiry
of the Restricted Period.
5. Individual Limits
The maximum value of awards (calculated by reference to the average mid market
quotations of an Ordinary share in the capital of the Company over a period of
no longer than 12 months prior to the date of grant) made to a participant in
any year in which the LTIP operates shall be determined by the Committee but
shall not exceed 200% of a participant's Basic Salary (as such term is defined
in the rules of the Plan).
It is the Committee's current view that initial awards of up to 200% of
the participant's Basic Salary are appropriate, followed with subsequent annual
awards to a value of 100% thereafter. The vesting of all awards will be tied to
testing performance criteria.
6. Plan Limits
In respect of awards that may be satisfied by the issue of shares in the
Company, no such award shall be granted on any date of grant which causes, when
such number of shares in the Company over which the Award is made is aggregated
with the number of shares in the Company issued or remaining issuable pursuant
to rights to subscribe for shares in the Company granted under the LTIP, or any
other employees' share scheme established by the Company during the preceding 10
years, to exceed 10% of the number of shares in the Company in issue from time
to time on the relevant date of grant.
For the purposes of this limit there shall be ignored the following:-
- awards that may be satisfied by the issue of shares in the Company and any
other rights granted under any employees' share scheme which have lapsed, become
void, been cancelled or which have otherwise become incapable of release or
exercise; and
- awards made under any employees' share scheme operated by the Company prior to
the date on which the LTIP was adopted by the Company to individuals who ceased
employment with any Group Company as a result of the disposal by the Company of
the ISD to Thomson.
7. Release in Exceptional Circumstances
If a participant leaves employment before awards have been released, such awards
will normally lapse unless the Committee determines that the reason for the
cessation of employment is such that it would be appropriate to allow the award
(or part thereof) to be released or made subject to the achievement of such
amended performance criteria or other requirements as the Committee may
determine.
In the event of a take-over, reconstruction, amalgamation or winding up
of the Company, or in the event of any of the businesses of the Group being
merged or demerged, the Committee shall determine in their absolute discretion
the extent to which awards are released (if at all) and shall take into account
when making such determination how the growth in the price of a share between
the date of grant and the occurrence of the relevant event compares to the share
price growth that would be required during the Restricted Period to achieve the
predetermined share price targets (assuming a straight-line growth in share
price during the Restricted Period).
8. Non-Transferability of Awards
Awards are not transferable (except that in the case of a participant for whom a
trustee is acting, in which case the trustee will be able to transfer the
benefit to the participant).
9. Duration of the LTIP
Awards may not be granted under the LTIP more than five years after its adoption
by the Company, unless the LTIP is extended pursuant to a shareholder authority
for a further period of five years.
10. Grant of Awards
Awards will only be made at times permitted by the Model Code contained in the
Listing Rules issued by the Financial Services Authority (as amended from time
to time) or any code adopted by the Company or order or regulation governing
dealing in shares that may be issued from time to time.
Awards released in the form of shares may be in the form of newly
subscribed shares or shares bought in the market.
11. Adjustment of Awards
On a variation of the capital of the Company or a demerger, the price payable
(if any) by participants on release of an award and/or the number of shares the
subject of an award may be adjusted in such manner as the Committee determines
and the external advisors of the Company confirm, in their opinion, to be fair
and reasonable.
12. Amendments to the Plan
The LTIP will be administered by the Committee. Amendments to the rules may be
made at their discretion, but the basic structure and in particular the
limitations on participation, eligibility to participate, the basis for
determining a participant's entitlement to an award, the maximum value of awards
that may be made to participants, the adjustments that may be made following a
rights issue or any other variation of capital and the limitations on the number
of shares that may be issued, cannot be altered to the advantage of participants
without prior shareholder approval except for minor amendments to benefit the
administration of
Annual Report 1999
The Bright Station plc Proposed Long Term Incentive Plan, Subsidiary Share
Option Schemes, Employee Benefit Trust and Proposed Amendments to Existing Share
Schemes
www.brightstation.com
Technology born for business
83
the LTIP, to take account of a change in legislation or to obtain or maintain
favourable tax, exchange control or regulatory treatment for participants or for
the Group.
The Committee may add, vary or amend the rules of the LTIP by way of a
separate schedule (should the Company wish to extend the LTIP overseas), in each
country so that the LTIP may operate to take account of local legislative and
regulatory treatment for participants or the relevant Group Company provided
that the parameters of these arrangements are not such that they would require
approval by shareholders.
13. Allotment and Transfer of Shares
Shares subscribed will not rank for dividends payable by reference to a record
date falling before the date on which the shares are acquired but will otherwise
rank pari passu with existing shares.
Application will be made to the London Stock Exchange for admission to
the Official List for shares that are to be issued following the release of
Awards.
Summary of the Subsidiary Share Option Schemes
1. Introduction
The proposal is to establish share option schemes (the "Schemes") in respect of
four designated subsidiaries of Bright Station: WebTop; OfficeShopper;
Smartlogik and Sparza. The rules of each scheme shall be in the same form, the
principal terms of which are described below.
Under the Schemes, eligible employees may be granted options to acquire
Ordinary shares in the relevant subsidiary ("Ordinary shares"). The Schemes will
be administered by the Board of Directors of Bright Station (the "Board") in
accordance with the rules of the Schemes. The Schemes will not be approved by
the Inland Revenue pursuant to Schedule 9 of the Income and Corporation Taxes
Act 1988.
Benefits under the Schemes are not pensionable.
2. Share Rights
Shares allotted on the exercise of options granted under the Schemes will rank
pari passu in all respects with Ordinary shares then in issue, but will not
participate in any dividend or other rights attaching to shares by reference to
a record date preceding the date of exercise of an option.
3. Eligibility
Under the Schemes all bona fide employees of the Group are eligible to
participate. The Board may at its discretion grant options under the Scheme to
any eligible person but will do so on the basis of their contribution to the
relevant subsidiary.
4. Individual Limit on Participation
There will be no limit on the value of options that may be granted to an
individual under the Schemes.
5. Grant/Exercise Price
Options may be granted within 42 days from adoption of the Schemes. Thereafter
Options may be granted in the period of 42 days following the announcement of
Bright Station's quarterly results.
No payment will be required for the grant of an option.
The price at which Ordinary shares may be subscribed for on exercise of options
by participants cannot be less than the higher of: (a) the aggregate nominal
value of the Ordinary shares under option; or (b) the aggregate market value of
the Ordinary shares under Option at the date of grant as determined by the
Board.
In determining the price at which options are granted, it is the
intention of the Board to treat the fair market value of the subsidiary's shares
at a minimum benchmark. Where appropriate, options will be granted at a premium
to this figure.
6. Limits
The limits on the number of shares which may be issued pursuant to options
granted under the Schemes are that in any ten year period, no more than 15% of
the relevant subsidiary's issued ordinary share capital for the time being may
be allocated under employee share schemes;
No options may be granted under the Schemes more than 10 years after
the date on which options are first granted without further authorisation from
shareholders.
7. Non transferability
An option may only be exercised by the person to whom it is granted or his
personal representatives and is not transferable.
8. Exercise Rights
Options may be exercised at the time or times specified by the Board. Options
not exercised before the expiry of ten years from the date of grant shall lapse.
However, no option may be exercised (subject to paragraph 9 below) unless the
relevant subsidiary's shares are listed or traded on an exchange which qualifies
as recognised exchange for the purposes of the Financial Services Act 1986
("Listing"). The Board retains a discretion to vary or waive this performance
target in the event that they consider that a Listing is no longer a strategic
goal of the relevant subsidiary. If the Board does waive the performance target,
options will become exercisable from the date specified by the Board at grant.
If options are exercised in these circumstances the Board has a discretion to
pay the cash equivalent of any gain in the value of the Ordinary shares under
option between the date of grant and the date of exercise.
If a participant ceases to hold an office or employment within the
Group, options which would have been exercisable but for a Listing (i.e.
vested), remain exercisable for a period of three years subject to the Listing
requirement. If a participant leaves for a specified reason (e.g. serious
misconduct) any unexercised options (whether vested or not) lapse. All unvested
options lapse from the date of leaving irrespective of the reason for such
cessation.
9. Early exercise
Exercise of options before the shares would otherwise become exercisable (i.e.
prior to a Listing) is only permitted where there is a change in control of the
Company or a voluntary winding-up of the Company. In the event of a change in
control, participants may release their options in substitution for the grant of
equivalent options over shares in the acquiring
Annual Report 1999
The Bright Station plc Proposed Long Term Incentive Plan, Subsidiary Share
Option Schemes, Employee Benefit Trust and Proposed Amendments to Existing Share
Schemes
www.brightstation.com
Technology born for business
84
company, subject to the consent of the acquiring company. Alternatively, rather
than allotting new shares under a Scheme, the Board has a discretion to pay the
cash equivalent of any gain in the value of the Ordinary shares under option
between the date of grant and the change of control.
10. Variation of capital
In the event of any variation in the share capital of the relevant subsidiary,
including a capitalisation or rights issue, the number of shares subject to any
option and the exercise price relating to it may be adjusted subject to (except
in the case of a capitalisation issue) the auditors confirming in writing that
such adjustment is, in their opinion, fair and reasonable.
11. Alterations to the Schemes
The Board may amend the Schemes as they consider appropriate except that any
alteration to the advantage of participants to the provisions relating to (i)
the persons who may be granted an option (ii) the limitations on the grant of an
option (iii) the adjustment of the number of Ordinary shares subject to an
option and (iv) the rights attaching to shares subject to an option or the
provisions of the amendment rules requires the prior approval of shareholders
(unless they are minor amendments to benefit the administration of the Schemes,
to take account of a change in legislation or to obtain or maintain favourable
tax, exchange control or regulatory treatment for the Company or any Group
company or any participant).
Summary of the Bright Station plc Employee Benefit Trust (the "Trust")
1. Beneficiaries
Potential beneficiaries will be employees of the Company or other Group Company,
ex-employees of such companies and the spouse and dependants of such employees
or ex-employees.
2. Function of the Trust
The purposes of the Trust are to facilitate and encourage the ownership of
shares by employees of the Group. This will be achieved by the Trust acquiring
shares in the Company subject to certain limits and distributing such shares in
accordance with the terms of employee share schemes.
3. Limits
The number of shares that may be held by the Trust at any time shall not exceed
10% of the issued share capital. Similar limits as are contained in the rules of
the LTIP shall limit the number of shares that can be subscribed for by the
Trust.
4. Amendments
The Trust may be amended by the Company and the trustees provided that no
amendment shall have the effect of causing the Trust to cease to be an
employees' share scheme within the meaning of section 743 of the Companies Act
1985 and the limitations on the number of shares that may be issued to the Trust
cannot be altered without prior shareholder approval.
5. Administration
The trustee will be independent of the Company and the general operation and
administration of the Trust will be monitored by the Committee.
Note: The above summarise the main features of the rules of the Bright Station
Long Term Incentive Plan, the Subsidiary Share Option Schemes and the Bright
Station plc Employee Benefit Trust, but do not form part of them and should not
be taken as affecting the interpretation of the detailed terms and conditions
constituting the rules or Trust deed. Copies of the rules of the LTIP, the
Subsidiary Share Option Schemes, Trust deed and the rules of the Existing Share
Schemes marked to show the proposed amendments to these schemes will be
available for inspection at the registered office of the Company during usual
business hours on weekdays (Saturdays, Sundays and Bank Holidays excepted) up to
the date of the meeting, and at the meeting itself. The Directors reserve the
right up to the time of the meeting to make such amendments and additions as
they may consider necessary or desirable, provided that such amendments and
additions do not conflict in any material respect with the summaries set out
above.
Annual Report 1999
www.brightstation.com
Technology born for business
85
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of the Company will be
held at The Institute of Directors, 116 Pall Mall, London SW1Y 5ED, on Tuesday 5
September at 10.0 a.m. for the following purposes:
Ordinary Business
1. To receive the Accounts for the year ended 31 December 1999, together with
the reports of the Directors and Auditors thereon.
2. To re-elect Allen Thomas as a Director (Mr Thomas being due to retire in
accordance with the Company's Articles of Association).
3. To re-appoint PricewaterhouseCoopers as auditors of the Company and to
authorise the Directors to set their remuneration.
To consider and, if thought fit, to pass the following resolutions which will be
proposed as Ordinary Resolutions:
Special Business
4. That the Subsidiary Share Option Schemes (the "Schemes"), in the form of the
Rules produced to the meeting and signed for the purposes of identification by
the Chairman hereby be approved and that the Directors be authorised to do all
acts and things necessary to establish the Schemes and carry such schemes into
effect.
5. That the Bright Station Long Term Incentive Plan (the "LTIP"), in the form of
the Rules produced to the Meeting and signed by the Chairman for the purpose of
identification, be and is hereby approved and adopted and that the Directors be
authorised to do all acts and things necessary to establish the LTIP and carry
such plan into effect.
6. That the Bright Station Employee Benefit Trust (the "Trust"), and the Trust
deed in the form produced to the Meeting and signed by the Chairman for the
purpose of identification, be and are hereby approved and adopted and that the
Directors be authorised to do all acts and things necessary to establish the
Trust and carry such trust into effect.
7. That the rules relating to the limits on the number of shares that may be
issued to satisfy awards made under the Bright Station plc 1994 Unapproved
Executive Share Option Scheme, the Bright Station plc 1994 Executive Share
Option Scheme, the Bright Station plc 1994 Savings Related Share Option Scheme,
the Bright Station plc 1997 Stock Option Plan and the Bright Station plc 1998
Employee Stock Purchase Plan be amended so that, for the purposes of these
limits, there shall be ignored awards made under these schemes to individuals
who ceased employment with any Group Company as a result of the disposal by the
Company of the Information Services Division to The Thomson Corporation.
By order of the Board
/s/ J Ball
J Ball
Company Secretary
14 July 2000
Registered Office:
The Communications Building
48 Leicester Square
London WC2H 7DB
Annual Report 1999
Notice of Annual General Meeting
www.brightstation.com
Technology born for business
86
Notes
1. Pursuant to Regulation 34 of the Uncertificated Securities Regulations 1995,
the Company hereby specifies that a person must be the registered holder of
Ordinary shares of the Company at 10.0 a.m. on 3 September 2000 in order to be
entitled to attend and vote at the meeting or adjourned meeting in respect of
those shares. Changes to entries on the register of members after 10.0 a.m. on 3
September 2000 shall be disregarded in determining the rights of any person to
attend or vote at the meeting.
2. A member entitled to attend and vote may appoint a proxy or proxies, who need
not be a member of the Company, to attend (and on a poll to vote) instead of him
or her.
3. A proxy form accompanies this notice which, in order to be valid, must be
deposited together with any authority under which it is executed (or a copy of
the authority notarially certified or in some other way approved by the Board)
with Computershare Services PLC, PO Box 457, Owen House, 8 Bankhead Crossway
North, Edinburgh EH11 0XG not later than 48 hours before the time appointed for
the meeting. Completion of a form of proxy will not preclude a member from
attending and voting in person at the meeting or any adjournment thereof.
4. Brief biographical details of all the Directors, including those who present
themselves for election or re-election, are set out on page 18.
5. In accordance with the Companies Act 1985 and with the requirements of the
London Stock Exchange, copies of the following documents will be available for
inspection at the Company's Registered Office and at the offices of Theodore
Goddard, 150 Aldersgate Street, London, EC1A 4EJ during normal business hours
from the date of this notice until the date of the Annual General Meeting and
will also be available at the place of the meeting for inspection for at least
15 minutes prior to and during the meeting:
(i) The Register of Directors' Interests in the share capital and debentures of
the Company; and (ii) Copies of service agreements under which Directors of the
Company are employed and terms of engagement for non-executive Directors; and
(iii) Copies of the Rules of the 1994 Savings Related Share Option Scheme, the
1994 Executive Share Option Scheme, the 1994 Unapproved Executive Share Option
Scheme, the 1997 US Stock Option Plan and the 1998 Employee Stock Purchase Plan,
the Subsidiary Share Option Schemes, the Long Term Incentive Plan and the Bright
Station Employee Benefit Trust.
6. Establishment of Subsidiary Share Option Schemes (the "Schemes") (item 4 on
the agenda). The ordinary resolution at item 4 seeks authority for the Board to
establish new discretionary share-option schemes in respect of four designated
subsidiaries of Bright Station - WebTop, OfficeShopper, Smartlogik and Sparza
for the incentivisation and benefit of key management and personnel within these
subsidiaries. The strategy of the Board is to develop these businesses as
separate entities within the Group with the expectation that they will
eventually be floated or sold. The Board considers that an important factor in
ensuring the success of this strategy is to tie the fortunes of the management
teams to the success of the ventures for which they have specific responsibility
by granting options over shares in the relevant business. Details of the the
proposed Schemes are on pages 80-84.
7. Establishment of Bright Station Long Term Incentive Plan (item 5 on the
agenda). The ordinary resolution at item 5 seeks authority for the Board to
establish a new discretionary share-based incentive arrangement which the Board
believes will meet its objective of incentivising senior employees to generate a
material increase in the current value of a shareholder's investment. A summary
of the main features of the LTIP are summarised on pages 80-84.
8. Establishment of an Employee Benefit Trust (item 6 on the agenda). The
ordinary resolution at item 6 seeks authority for the establishment of an
Employee Benefit Trust for the subscription or purchase of Bright Station shares
for the equity incentive schemes operated by the Company. The main features of
the Trust are summarised on pages 80-84.
9. Amendment of the Rules of the Company's existing share option schemes (item 7
on the agenda). The ordinary resolution at item 7 seeks authority for the Board
to amend the rules of the existing share schemes to ensure continuity amongst
all the Company's equity incentive plans. To this end, it is proposed that
awards made to individuals who no longer work for the Company as a result of the
sale of the ISD to Thomson shall be disregarded for the purposes of calculating
the maximum scheme limits. Details of the proposed amendments are set out on
pages 80-84.
10. Please note that the Institute of Directors operates a dress code of shirt
and tie with suit or sports jacket for men. The IoD reserves the right to refuse
admission for failure to adhere to its dress code.
Annual Report 1999 www.brightstation.com 87
Technology born for business
Shareholders Contacts
<TABLE>
<CAPTION>
<S> <C> <C>
Directors and Advisors Investor Relations Registrar/Depositary:
Allen Thomas* Chairman Nick Chaloner for duplicate mailings and address
Daniel Wagner Chief Executive Bright Station plc changes Ordinary shares
David Mattey Chief Financial Officer The Communications Building Computershare Services plc
Patrick Sommers* 48 Leicester Square PO Box 435
Ian Barton* London WC2H 7DB Owen House
Marmaduke Hussey* 8 Bankhead Crossway North
Richard Swank* Tel: +44 (0)20 7930 6900 Edinburgh EH11 4BR
Fax: +44 (0)20 7925 7700
*Non-Executive Tel: +44 870 702 0010
John Olsen Fax: +44 131 442 4924
Company Secretary and Hogarth Partnership Limited
Registered Office The Butlers Wharf Building American Depositary Shares
Jonathan Ball 36 Shad Thames The Bank of New York
The Communications Building London SE1 2YE Investor Relations Department
48 Leicester Square PO Box 11258
London WC2H 7DB Tel: +44 (0)20 7357 9477 Church Street Station
Fax: +44 (0)20 7357 8533 New York
Register Number NY 10286 - 1258
1890236 David Collins/Robert Rinderman
Jaffoni & Collins Incorporated Tel: +1 402 963 9394
Auditors 104 Fifth Avenue - 14th Floor or toll free for US residents only
PricewaterhouseCoopers New York, NY 10011 1-888-BNY-ADRS
1 Embankment Place Fax: +1 212 815 4023
London WC2N 6NN Tel: +1 212 835 8500
Fax: +1 212 835 8525 Listings
Principal Bankers London Stock Exchange
The Royal Bank of Scotland plc Home Page Ordinary shares
London Belgravia Branch http://www.brightstation.com Symbol: BSN (previously DLG)
24 Grosvenor Place
London SW1X 7HP NASDAQ
American Depositary Shares
Stockbroker Symbol: BSTN (previously DIAL)
Hoare Govett Limited
250 Bishopsgate
London EC2M 4AA
Legal Advisors
UK
Theodore Goddard
150 Aldersgate Street
London EC1A 4EJ
Mishcon De Reya
21 Southampton Row
London WC1B 5HS
US
Shearman & Sterling
599 Lexington Avenue
New York
NY 10022
USA
</TABLE>
Annual Report 1999
www.brightstation.com
Technology born for business
Information for Investors
Form 20-F
Filed with US Securities and Exchange Commission. Form 20-F corresponds to the
Form 10-K filed by US public companies. Available from the registered office of
Bright Station plc;
Low-cost dealing service
Hoare Govett Limited has established a low-cost dealing service which enables
investors to buy or sell certified holdings of the Company's shares in a simple
economic manner. Basic commission is 1% with a minimum charge of (pound)10.
Transactions are executed and settled by Pershing Securities Limited. Forms can
be obtained from Hoare Govett Limited, 250 Bishopsgate, London EC2M 4AA (Tel:
020 7678 8000).
Share price information
Share price information about Bright Station plc is available with the following
references:
Ordinary shares:
Reuters RIC Code - BSN.L (previously DLG.L)
Ordinary shares: London Stock
Exchange SEDOL code - 558-305
ADSs traded on NASDAQ - BSTN (previously DIAL)
Shareholder information on the Internet
Holders of Ordinary shares in Bright Station plc can access details of their
shareholding at http://www.computershare.com. This site also includes
information on recent trends in the Company's share price.
Financial Diary for 2000
23 March Results for the year ended 31 December 1999 announced
27 April EGM to approve the sale of the ISD to Thomson
30 June First quarter trading statement issued
3 August Annual report/20F posted to shareholders
Mid-August Results for the first six months of 2000 announced
5 September Annual General Meeting
Mid-November Third quarter trading statement issued
Photography by Chris Moyse
Printed by Hyway Pennington
London
Bright Station plc
The Communications Building
48 Leicester Square
London
WC2H 7DB
Tel: +44 (0)20 7930 6900
Fax: +44 (0)20 7925 7700
Oxford (eCommerce)
Bright Station
Meridian House
Weston Business Park
Weston on the Green
Oxon
OX6 8SY
Tel: +44 (0)1869 342342
Fax: +44 (0)1869 342343
Cambridge (Web Solutions)
Bright Station
Part 2/nd/ Floor, Block D
The Westbrook Centre
Milton Road
Cambridge
CB4 1YG
Tel: +44 (0)1223 715000
Fax: +44 (0)1223 715001
www.brightstation.com
[BRIGHTSTATION LOGO APPEARS HERE]
Exhibit 10.4
Following are portions (indicated by reference to the original page numbers) of
the Company's listing particulars issued April 3, 2000, which was attached as
Exhibit 99.1 to the Company's Report on Form 6-K dated April 10, 2000:
PAGE 45:
______________
The Senior Subordinated Notes are for a term of 10 years and interest is fixed
at 11 per cent. throughout the term.
The Senior Credit Facility is repayable over five years and interest is fixed
every three to six months at a rate of 2.25 percentage points over US Dollar
LIBOR. The Company has entered into an interest rate cap agreement that limits
the exposure of 75 per cent. of the balance of the Senior Credit Facility to a
maximum US Dollar LIBOR rate of 6.50 per cent.
Repayments on the Senior Subordinated Notes and Senior Credit Facility fall due
as follows:
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
Within 1 year 13,158 3,039 13,158 3,039
Within 1 - 2 years 13,158 15,193 13,158 15,193
Within 2 - 5 years 19,736 37,985 19,736 37,985
After 5 years 108,186 109,396 108,186 109,396
------- ------- ------- -------
154,238 165,613 154,238 165,613
Less: Unamortised finance costs (5,779) (6,768) (5,779) (6,768)
------- ------- ------- -------
148,459 158,845 148,459 158,845
======= ======= ======= =======
The Company's obligations with respect to the Senior Credit Facility and finance
leases are secured on the assets of the Company and certain of its subsidiaries.
The Senior Subordinated Notes are unsecured.
Obligations under finance leases are due as follows:
GROUP COMPANY
1998 1997 1998 1997
GBP'000 GBP'000 GBP'000 GBP'000
Within 1 year 222 491 210 --
Within 1 - 2 years 12 278 12 --
Within 2 - 5 years -- 12 -- --
----- ----- ----- -----
234 781 222 --
===== ===== ===== =====
PAGE 75:
______________
MUSCAT UNAPPROVED SCHEME
In November 1999, the Company acquired the remaining 30 per cent. of the issued
share capital of Muscat Limited. Pursuant to this transaction, various employees
holding in aggregate 436 options at exercise prices ranging from GBP627 to
GBP1,100 under the 1998 Muscat Unapproved Share Option Scheme were offered and
accepted a total of 642,822 replacement options over ordinary shares of The
Dialog Corporation plc at exercise prices ranging from 43p to 67p per share.
PAGE 82-84
________________
(iii) On 24 March 2000, the Company launched a cash tender offer and consent
solicitation relating to its $180,000,000 11% Senior Subordinated Notes
due 2007 (the "Notes"). The cash tender offer consists of an offer to
purchase any or all of the outstanding Notes tendered pursuant to the
offer at a price of $1,000 per $1,000 principal amount of the Notes
together with accrued and unpaid interest thereon up to but not
including the date of payment. In conjunction with the tender offer, the
Company is also soliciting consents from the holders of the Notes to the
adoption of certain proposed amendments to the Indenture governing the
Notes. These proposed amendments if adopted, would have the effect of
eliminating or amending certain covenants and eliminating or amending
certain events of default in the Indenture. The tender offer will remain
open until 12:00 midnight (New York City time) on 20 April 2000 (the
"Expiration Date") unless extended. The tender offer is subject to a
number of conditions including:
- that at least 95 per cent. of the outstanding principal amount
of the Notes be validly tendered and not withdrawn prior to the
Expiration Date;
- receipts of consents from the holders of a majority of the
outstanding principal amount of the Notes and the execution of
the Supplemental Indenture providing for those amendments;
- the consummation of the Sale with the Thomson Corporation; and
- the repayment of all obligations of the Company, including the
payment of any unpaid and accrued interest and fees, to the
extent such fees are not waived, under and in respect of the
Company's Facility Agreement.
(iv) an agreement dated 13 October 1999 between the Company and the holders
of the shares in Muscat Limited (the "Vendors") pursuant to which the
Company purchased 30% of the issued share capital of Muscat Limited for
consideration of GBP2.5 million, giving the Company 100% ownership. The
consideration was satisfied by the issue of 3,012,936 Ordinary
Shares....
(vi) an Agreement dated 23 March 2000 between the Company (1), and Thomson
(2) pursuant to which the Company has agreed to sell to Thomson and
Thomson has agreed to purchase Dialog's Information Services Division
comprising the entire issued share capitals of The Dialog Corporation
and various subsidiaries of The Dialog Corporation plc and Dotcom
Investments BV together with the business of the Information Services
Division as carried on by The Dialog Corporation plc comprising the
business of "Dialog", "Profound" and "Datastar" for a consideration of
$115 million payable in cash and the repayment to the Company of
intra-group debt totalling $160 million on Completion. The consideration
is subject to adjustment in accordance with the provisions of clause 4
of the Agreement having reference to Working Capital. The ISD will also
be sold cash free which together with the working capital adjustment
allows Dialog to retain the benefit of operating profits made by the ISD
up to Completion.
Pursuant to the terms of the Sale Agreement Dialog has also agreed on
Completion to allot to Thomson 9,297,290 Ordinary Shares (conditional on
Admission) for a total subscription price of GBP15,851,879 million
payable on Admission.
The Sale Agreement contains warranties given by Dialog to Thomson in
respect of the Companies and the Business being sold. The warranties are
given at the date of the Agreement and are to be repeated on the
Business Day prior to Completion. Dialog's liability under such
warranties is limited to $150 million. Also, no liability shall attach
to Dialog unless the aggregate amount of such liability under the
warranties shall exceed $2.5 million and $250,000 in respect of taxation
claims. Other limitations on Dialog's liability are contained in Clause
7 of the Agreement.
Under certain circumstances, and in particular if there has been a
material breach of the warranties or a claim for class action
litigation, as described in paragraph 9(b)(i) above, before Completion,
Thomson may rescind the contract. If Thomson rescinds the Agreement,
Dialog has agreed to indemnify Thomson against all costs, charges and
expenses incurred by Thomson in connection with the negotiation,
preparation and rescission of the Agreement.
Completion is conditional upon:
- the shareholders of the Company approving the Sale;
- all filings having been made and all or any appropriate waiting
periods under the US Hart Scott Rodino Anti-Trust Improvements
Act 1976 having expired, lapsed or been terminated in respect of
the Sale;
- the agreement of the London Stock Exchange to admit the shares
to be subscribed by Thomson and by Jiyu to listing on the London
Stock Exchange;
- Dialog having received consents from the holders of a majority
of the Notes to the adoption of various proposed amendments to
the Indenture, the Trustee having executed a supplemental
indenture in connection with such proposed amendments, and
Noteholders holding at least 95% (or such lesser percentage as
the Company may agree but not less than a majority) of the
outstanding principal of the Notes having tendered and not
withdrawn their Notes for redemption;
- each of the Banks and the Facility Agent (both as defined in the
Facility Agreement dated 17 October 1997 (as amended) ("Facility
Agreement ") having executed a letter providing for the waiver
of certain provisions of, and payment and satisfaction of
Dialog's obligations under, the Facility Agreement;
- there having been no transfer of intellectual property rights
since 1 March 2000 and the Facility Agent having confirmed this
in writing to Thomson; and
- approval from the German Federal Cartel Office in terms
reasonably satisfactory to Thomson.
all such conditions having been met or waived by or on 15 June 2000.
If the condition as to Shareholders' approval is not satisfied and the
Directors have ceased to recommend the Shareholders to approve the Sale,
Dialog has undertaken to pay forthwith the sum of US$2.75 million to
Thomson as compensation for Thomson's costs and expenses incurred in
connection with the Sale. The Sale Agreement contains certain
restrictions on Dialog including preventing it for 30 months after
Completion from engaging in or operating a business that engaging in or
operating any business which directly or indirectly aggregates, stores
and distributes for general consumption information similar to that
offered by the Seller in relation to the Business or the companies being
sold prior to Completion.
On Completion, Dialog is under an obligation to enter into the following
agreements:
- a Tax Deed which will operate to indemnify Thomson for certain
tax liabilities in connection with the Information Services
Division;
- a Distribution Agreement between the Company and The Dialog
Corporation Inc (the "Licensor") for the distribution by the
Company of the Licensed Information. Under the Distribution
Agreement, the Company will be granted a world-wide right and
non-exclusive licence to distribute all information made and
distributed by the Licensor in connection with the products and
services controlled and operated by the Company. The term of the
Distribution Agreement will be for an initial period of three
years automatically renewable for further three year periods
thereafter subject to termination by either party on not less
than 12 months' written notice immediately prior to the
expiration of the then current term. Dialog will have the right
to determine the prices at which it sells the products and
services and the licensed information contained therein. Dialog
will pay the Licensor a distribution fee equivalent to 75 per
cent. of the Licensor's list price for the licensed information
(as amended from time to time) such fee to be paid monthly
within 45 days of demand. Either party may terminate the
Agreement for an unremedied material breach by or liquidation of
the other;
(vii) a Software Licence and Maintenance Agreement between Dialog and a
Thomson Nominated Subsidiary ("Licensee") whereby Dialog will grant to
the Licensee and its present and future subsidiaries a non-exclusive,
non-transferable, non-assignable, royalty-free, perpetual and world wide
licence to use software owned by Dialog in relation to the business of
its Information Services Division carried on by Dialog immediately prior
to the date of the agreement or 1 May 2000 ("Effective Date") comprising
the business of "Dialog", "Profound", and "DataStar". The agreement will
commence on the Effective Date and will continue in force until
terminated by either party in accordance with its terms, namely, 30
days' written notice on the occurrence of an unremedied or a breach
incapable of remedy. Under the agreement, Dialog will agree to provide
to the Licensee various maintenance services in respect of the InfoSort
software used in connection with the products the subject of the
agreement. Fees are to be paid by the Licensee to Dialog within 30 days
of invoice. The agreement will contain limited warranties given by
Dialog to the licensee in respect of the software. Licensor's liability
for breach of warranty, shall for each event or series of connected
events be limited to the amount of fees paid to the Licensor under the
agreement; and
(viii) a subscription agreement dated 23 March 2000 between the Company and
Jiyu Holdings for either, at Jiyu's option, such number of ordinary
shares of 1 pence each in the capital of the Company whose value when
ascertained in accordance with the terms of the agreement shall be
nearest to but not less than GBP12,000,000 or up to 10 million ordinary
shares of 1 pence each in the capital of the Company at a price per
share calculated in accordance with the terms of the agreement but not
to exceed GBP12,000,000.
The agreement is conditional upon completion of the Sale, the provision
of evidence reasonably required by Jiyu that the bond tender was
successful, the Company's senior indebtedness has been repaid, the
creation by the Company of an internet/e-commerce incubator fund,
shareholder approval for the issue of the New Shares, admission of the
New Shares to the Official List, no breach of the warranties as
contained in the subscription agreement, and Thomson having entered into
an agreement with the Company to subscribe ordinary shares in the
capital of the Company having an aggregate subscription price of not
less than $15,000,000. All such conditions are to be satisfied by 5 June
2000, or such later date as may be agreed in writing.
The subscription agreement gives Jiyu, whilst it holds not less than 70
per cent. of the shares issued to it under the agreement, an entitlement
to nominate a representative to sit on the investment committee of the
Company's new internet/e-commerce incubator fund.
The Company gives certain warranties to Jiyu on the basis that they will
remain true and accurate from 6 March 2000 to completion of the
subscription. No liability shall attach to the Company for a claim under
the warranties unless it materially adversely affects the interests of
Jiyu in the context of the subscription. No liability under the
warranties shall arise unless a claim exceeds GBP100,000 in which case
the Company is liable for the whole amount and not just the excess. The
Company's liability under the warranties is capped at the total
subscription price, and expires on 31 August 2001.
(b) INFORMATION SERVICES DIVISION
The following contracts have been entered into by companies comprised within the
Information Services Division otherwise than in the ordinary course of business,
which (a) have been entered into in the two years immediately preceding the date
of this document and which are or may be material and/or (b) contain provisions
under which any such company has any obligation or entitlement which is material
to the Information Services Division as at the date of this document:
(i) On 10 November 1999, the Company entered into an outsourcing agreement
with ICL whereby ICL has agreed to manage the Company's data centre in
Palo Alto, California, host to the Dialog information services. Under
the terms of the agreement, Dialog received an initial payment of $4.0
million (GBP2.5 million) for the transfer of management of the data
centre and its assets to ICL. In addition, ICL will invest $3.5 million
(GBP2.2 million) to upgrade the data centre hardware and systems.
Pursuant to the agreement, Dialog continues to maintain the lease on the
property.
EXHIBIT 10.5
Following are portions (indicated by reference to the original page numbers) of
the Company's Circular proposing the Placing and Open Offer, which was attached
as Exhibit 99.2 to the Company's Report on Form 6-K dated June 21, 2001:
Pages 77-78:
(c) Directors' and Proposed Directors' other interests
(i) The Directors and Proposed Directors currently hold the following
directorships and have held the following directorships within the
five years prior to the publication of this document (in each case
other than in relation to the Group) and are or were partners in the
following firms within the five years prior to publication of this
document:
<TABLE>
<CAPTION>
<S> <C> <C>
Current directorships Former directorships
and partnership: and partnerships:
Allen Lloyd Thomas (61) Blue Ocean Associates plc First Rail Leasing Limited
Eidos plc Kingsmead Underwriting
Moves Group Limited Agency Limited
Ockham Holdings plc
Penna Consulting plc
Prideaux & Associates Limited
Daniel Wagner (37) Fifteen Wedderburn Road 4th Network Inc.
Limited
David Gary Mattey (38) Easynet Group plc Ultratown Investments Limited
Uphill Estates Limited Ultratown Limited
Patrick Charles Sommers (53) SIRSI Inc Dialog Holdings Ltd
Dialog Multimedia Ltd
Medicus Systems Corporation
Mini-Data Inc
Profound Ltd
Tesseract Systems Inc
The Dialog Corporation Ltd
Usertec Systems Inc
Virtual Business Information Ltd.
Virtual Intelligence Ltd
Ian Joseph Barton (55) Barton Associates Limited Central Europe Trust
Distributed Information Processing Limited
Company Limited Financial and Commodity Computer Services
Limited
Octagon Information Industries Limited
Octagon Nominees Limited
Robot (UK) Limited
Wincanton Security Products
Limited
David George Jefferies (67) 24/Seven Utilities Services plc Electricity Association Services Limited
Costain Group plc Electricity Pensions Limited
Incorporated Benevolent Fund of Electricity Pensions Services Limited
Institution of Electrical Electricity Pensions Trustee Limited
Engineers Limited (The) ESN Holdings Limited
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
National Grid International
Limited National Grid Group plc
Rosemead Estates Limited Viridian Group plc
Strategic Rail Authority
Stephen James Hill (45) Analytical Applications Limited Interleaf France SA
Interleaf GmbH
Interleaf Italia
Interleaf Schweiz SA
Interleaf UK Limited
Simon Anthony Charles Canham (36) ARIBA AB None
James Henry Bair (57) None None
Robert Kurt Lomnitz (36) Composer.com Limited None
Continental Ore Company
Limited
Continential Resources
Limited
Coromin Limited
Etraco Limited
Healers World Limited
iVenturi Inc
Schoolsforschools.com Limited
Youreable.com Limited
</TABLE>
Pages 80:
Proposed Directors
Stephen Hill is a party to an agreement with the Company dated 13 June
2001, under which, conditional on Admission, he will be appointed as
Chief Executive Officer of Bright Station. The agreement may be
terminated by either party giving to the other not less than 12
months' notice in writing. The salary currently payable under this
agreement is (Pounds)150,000 per annum, and the agreement provides for
the payment of a guaranteed bonus of (Pounds)75,000 and a
discretionary bonus of up to (Pounds)75,000. He is also entitled to be
paid his reasonable expenses incurred by the proper performance of his
duties, and to participate in any pension scheme and permanent health
and medical expenses insurance schemes operated by the Company from
time to time. The agreement contains certain post-employment
restrictions which would prevent Mr Hill from engaging in activities
which compete with the business of the Company.
Simon Canham is a party to an agreement with the Company dated 13 June
2001 under which, conditional on Admission, he will be appointed as
Chief Financial Officer of Bright Station. The agreement may be
terminated by either party giving to the other not less than 12
months' notice in writing, and the salary currently payable under this
agreement is (Pounds)120,000 per annum, together with a bonus of up to
(Pounds)30,000, based on management objectives. Mr Canham is also
entitled to a car allowance of up to (Pounds)600 per month. The
agreement is, in all other respects, on the same terms as the
agreement with Stephen Hill.
Robert Lomnitz has entered into an agreement with the Company dated 13
June 2001 under which, conditional on Admission, he will be appointed
as Director of Business Development of Bright Station. The agreement
may be terminated by either party giving to the other not less than 12
months' notice in writing, and the salary currently payable under this
agreement is (Pounds)130,000 per annum, together with a bonus of up to
(Pounds)130,000, based on the achievement of management objectives.
The agreement is, in all other respects, on the same terms as the
agreement with Stephen Hill.
Messrs Hill and Canham have also entered into letter agreements with
the Company dated the same date as this document (conditional on
Admission) and Mr Lomnitz has entered into a letter agreement with the
Company dated 2 January 2001whereby in the event of any person (or any
persons acting in concert within the meaning of the City Code on
Takeovers and Mergers) acquiring direct or indirect control of a
Controlling Interest (as defined below) in the Company and who was not
or were not in possession of that control at the date of this
document, they shall be entitled to terminate their employment by
serving not less than one month's notice of termination on the Company
at any time during the period of 12 months after the
date of the said acquisition, in which event, the relevant Directors
shall be paid:
(i) a sum of money equal to the gross annual salary and benefits being
paid immediately prior to the date of the said acquisition; and
(ii) a bonus equal to 50 per cent. of the gross annual salary being paid
immediately prior to the date of the said acquisition.
The relevant Directors' health care benefits will also be maintained
by the Company for a period of twelve months from the termination of
employment or, if such cover is not available from the Company's
insurers, the Directors will be paid an amount equal to the cost of
such cover.
Additionally, in the event that the relevant Directors' share options
do not automatically become exercisable upon the change of control,
all share options granted to the Director under the Company's 1994
Executive Share Option Scheme will become capable of exercise upon the
termination of employment and will remain so for a period of twelve
months after the date of termination of employment.
For the purpose of these arrangements, "Controlling Interest" means an
interest (within the meaning of Part I of Schedule 13 to the Companies
Act 1985) in any shares in the capital of the Company conferring in
aggregate 50 per cent. or more of the total voting rights conferred by
all the shares in the capital of the Company from time to time in
issue and conferring the right to vote at all general meetings of the
Company or any other interest which directly or indirectly leads to a
majority control of the Board of Directors.
David Jefferies has entered into a letter of appointment with the
Company dated 13 June 2001 whereby, conditional on Admission, he will
act as a non-executive director of the Company. The appointment is
terminable on 12 months' written notice by either party. Mr Jefferies
will be paid an annual fee of (Pounds)30,000 for his services.
James Bair has entered into a letter of appointment with the Company
dated 13 June 2001 whereby, conditional on Admission, he will act as a
non-executive director of the Company. The appointment is terminable
on 1 month's written notice by either party. Mr Bair will be paid an
annual fee of US$25,000 (approximately (Pounds)18,000) for his
services.
Exhibit 10.6
Following is the Schedule 10. Notification of Major Interests in Shares which
was attached as Exhibit 99.1 to the Company's Report on Form 6-K dated July 9,
2001:
SCHEDULE 10
NOTIFICATION OF MAJOR INTERESTS IN SHARES
1) Name of company
BRIGHT STATION PLC
2) Name of shareholder having a major interest
PRUDENTIAL PLC
3) Please state whether notification indicates that it is in respect of
holding of the shareholder named in 2 above or in respect of a non-beneficial
interest or in the case of an individual holder if it is a holding of that
person's spouse or children under the age of 18
AS IN 2
4) Name of the registered holder(s) and, if more than one holder, the number
of shares held by each of them
PRUDENTIAL CLIENT HSBC GIS NOMINEES (UK) PAC ACCOUNT - 8,941,400
PRUDENTIAL CLIENT HSBC GIS NOMINEES (UK) PPL ACCOUNT - 703,675
5) Number of shares/amount of stock acquired
NOT DISCLOSED
6) Percentage of issued class
NOT DISCLOSED
7) Number of shares/amount of stock disposed
NOT DISCLOSED
8) Percentage of issued class
NOT DISCLOSED
9) Class of security
ORDINARY SHARES OF ONE PENCE
10) Date of transaction
NOT DISCLOSED
11) Date company informed
11 JUNE 2001
12) Total holding following this notification
11,858,514 ORDINARY SHARES IN THE FOLLOWING ACCOUNTS:
PRUDENTIAL CLIENT HSBC GIS NOMINEES (UK) PAC ACCOUNT - 8,000,000
PRUDENTIAL CLIENT HSBC GIS NOMINEES (UK) PPL ACCOUNT - 703,675
CLYDESDALE BANK NOMINEES LTD MGT ACCOUNT - 7,800
CLYDESDALE BANK NOMINEES LTD MGIN ACCOUNT - 1,271,206
CLYDESDALE BANK NOMINEES LTD MGC ACCOUNT - 1,854,833
NORTRUST NOMINEES LTD - 21,000
13) Total percentage holding of issued class following this notification
6.84%
14) Any additional information
INFORMATION CONCERNING MATERIAL AND NON-MATERIAL HOLDINGS HAS BEEN DISCLOSED, AS
OBTAINED FROM PRUDENTIAL PLC PURSUANT TO S212 OF THE COMPANIES ACT 1985.
15) Name of contact and telephone number for queries
JONATHAN BALL - 020 7925 7698
16) Name and signature of authorised company official responsible for
making this notification
JONATHAN BALL
Date of notification 12 JUNE 2001