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SHELF DOCUMENT
This document, which comprises the shelf document of QXL ricardo plc approved by the Financial Services
Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the “UK
Listing Authority”) on 11 March 2002, does not constitute listing particulars of QXL ricardo plc and may not
be relied upon as such. Only a combination of this shelf document together with an issue note prepared in
accordance with the Listing Rules made under Part VI of the Financial Services and Markets Act 2000 may
constitute or be relied upon as listing particulars.
This shelf document will remain current until the earliest of publication of the Company’s annual report and
accounts for the period ending 31 March 2002, the first anniversary of the date on which this shelf document is
published on the website of the UK Listing Authority, or the date on which this shelf document is removed from
the website of the UK Listing Authority at the written request of the Company. This shelf document was
published on the UK Listing Authority’s website on 11 March 2002.
QXL ricardo plc
(Incorporated and registered in England and Wales
under the Companies Act 1985 with registered no. 3430894)
SHELF DOCUMENT
The Directors, whose names appear on page 2 of this shelf document, accept responsibility for the information
contained in this document. To the best of the knowledge and belief of the Directors (who have taken all
reasonable care to ensure that such is the case) the information contained in this document is in accordance with
the facts and does not omit anything likely to affect the import of such information.
This shelf document will not be updated, but in the event of the publication by the Company of an issue note
prepared in accordance with the Listing Rules in connection with the issue of Ordinary Shares that issue note
will give details of significant changes and new matters as required by the Listing Rules.
11 March 2002
TABLE OF CONTENTS
PART I INFORMATION ABOUT QXL ............................................................................................................3
PART II FINANCIAL INFORMATION...........................................................................................................12
PART III THE REGULATORY ENVIRONMENT..........................................................................................65
PART IV RISK FACTORS ...............................................................................................................................71
PART V TAXATION........................................................................................................................................81
PART VI ADDITIONAL INFORMATION......................................................................................................83
PART VII DEFINITIONS ...............................................................................................................................103
PART VIII GLOSSARY..................................................................................................................................105
DIRECTORS, COMPANY SECRETARY,
REGISTERED OFFICE, ADVISERS AND REGISTRAR
Directors, Company Secretary and Registered Office
Jonathan Brereton Bulkeley (Non-executive Chairman of the Board)
James Malcolm Rose (Non-executive Deputy Chairman of the Board)
Mark Xavier Zaleski (Chief Executive Officer)
Robert Simon Dighero (Chief Financial Officer)
Peter David Englander, Ph.D. (Non-executive Director)
Thomas Peter Power (Non-executive Director)
Thomas Turner Parkinson (Company Secretary)
All of Landmark House, Hammersmith Bridge Road, London W6 9EJ, the registered office of QXL
Advisers
Sponsor and Corporate Stockbrokers Registered Auditors and Reporting
Accountants to the Company
Altium Capital Limited PricewaterhouseCoopers
30 St James’s Square 1 Embankment Place
London SW1Y 4AL London WC2N 6RH
Legal Advisers to the Company
Shaw Pittman
Tower 42, Level 23
25 Old Broad Street
London EC2N 1HQ
Registrar Principal Bankers
Lloyds TSB Registrars NatWest Bank plc
Worthing 1 Princes Street
West Sussex BN99 6DA London EC2R 8PA
2
PART I
INFORMATION ABOUT QXL
General Information
QXL is a pan-European online auction community. QXL aims to facilitate consumer-to-consumer and business-
to-consumer auctions 24 hours a day, 7 days a week. A wide selection of new and second-hand merchandise is
available for purchase in these auctions, including computer hardware, DVDs and videos, cars, real estate,
holidays and other travel items, collectibles and sports equipment.
The Company provides access to the QXL trading community in the following languages and through the
following web addresses:
• English, through www.qxl.com and www.qxl.co.uk
• German, through www.ricardo.de and www.ricardo.ch
• French, through www.qxl.fr and www.ricardo.ch
• Danish, through www.qxl.dk
• Dutch, through www.ricardo.nl
• Finnish, through www.qxl.fi
• Italian, through www.qxl.it
• Norwegian, through www.qxl.no
• Polish, through www.allegro.pl
• Spanish, through www.qxl.es
• Swedish, through www.qxl.se
Historically, QXL frequently acted as principal in transactions with members and sold goods on its own behalf.
However, in the past two years the Company has pursued a policy of reducing the number of auctions of this
kind. In almost all cases now, QXL simply provides the marketplace to enable a transaction between members
and charges the seller a fee for so doing. In the 9 months to 31 December 2001, gross auction value was in
excess of £75 million.
Business Development and Prospects
QXL’s aim is to create a thriving online marketplace where goods and services can be bought in an entertaining,
efficient and safe environment.
In the past two years, QXL has begun to establish its brands in certain major Western European markets while
changing its business model to one where it provides services on an agency basis. QXL has also now introduced
fees in most countries where it operates and consolidated most of the different technology platforms that were
inherited through corporate acquisitions onto one platform based in London.
Going forward, QXL’s focus is on growing and developing its existing businesses so as to operate profitably.
Although there will be some differences in the way that this is achieved from country to country (to reflect the
local legal, cultural and economic environment), the key elements of QXL’s strategy are:
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Enhance Member Experience QXL believes in continually improving the functionality of its web sites to
deliver a more convenient and sustaining member experience. By enhancing its
e-commerce community experience, the Company believes that it will be able
to expand membership through “word-of-mouth” recommendation from
existing members.
Leverage Existing Traffic QXL believes that repeat customers can be expected to generate a significant
portion of revenue. The Company will continue to emphasize member services
as a key tool for retaining loyal members and encouraging them to recommend
its service to their friends. In addition, QXL intends to develop more systematic
reporting tools to help major sellers develop their business on its websites and
to help the Company target members more effectively with information on
auctions that are likely to be of interest to them.
Implement Additional Revenue QXL believes that opportunities exist to develop revenue streams, including:
Streams • transaction fees, including commissions on successful transactions, and fees
for the posting and featuring of products on the Company’s web sites in all of
the languages in which it conducts auctions;
• merchant and supplier promotions, such as product placement and
sponsorship of merchandise and service categories;
• additional pre- and post-trade value-added services for members, such as
insurance services for merchandise sold on the Company’s web sites; and
• advertising, including targeting selected groups within its pan-European
community according to their individual purchasing patterns and
demographics.
Leverage and Further Develop Although the Company has reduced its spending on high-traffic Internet sites,
Strategic Relationships such as portals and content providers, QXL believes it will continue to develop
strategic relationships with certain providers to enhance the Company’s brand
recognition and to increase member acquisitions and sales.
The QXL Solution
The Auction Process
Registration. While any visitor to the Company’s web sites can browse through all of its services and view the
items listed for auction, buyers and sellers must first register and become QXL members in order to bid for an
item or to list an item for sale. Members register by completing a short online form and thereafter can
immediately bid for an item or list an item for sale.
Buying on QXL. Buyers typically enter QXL through its home page, which contains a listing of product
categories that allows for an easy search of current auctions. Bidders can search by keyword or browse through a
list of auctions within a category and then “click through” to a detailed description of a particular item. Bidders
can select whether they want to see items for sale by any seller or by a particular type of seller. Bidders can also
select whether they want to see only local country auctions or all international auctions. Users can view the
member rating for a particular seller of an item or they can view the other auctions of that member.
Once a bidder has found an item of interest and has registered, the bidder enters the maximum amount he or she
is willing to pay at that time. In the event of competitive bids, a bidder can elect for the Company’s system to
automatically increase bidding in pre-defined increments up to the bidder’s maximum price. During the course of
the auction, bidders can be notified via e-mail immediately after they are outbid, and successful bidders are
automatically notified by e-mail of their purchase. Some auctions offer bidders the opportunity to buy the item
immediately for a fixed price.
Selling on QXL. A seller registered with QXL can list a product for auction on the Company’s sites by
completing a short online form. The seller selects a minimum price for opening bids for the item and chooses the
length of the auction, which may be one day or longer. Additionally, a seller may select a reserve price of an
item, which is the minimum price at which the seller is willing to sell the item and is typically higher than the
price set for opening bids. The reserve price is not disclosed to bidders. A seller can also include a description of
the product and a photograph. For those merchants and members with large transaction volumes, QXL provides
tools to allow them to upload easily large volumes of items for auction and to download auction results in a
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convenient format, thereby managing their inventory and transactions in the QXL community. A number of the
more important sellers operate on the Company’s sites as so-called “Merchant Partners”.
Completion of auctions. Bids are considered final once made unless stated otherwise. Similarly, under the terms
of the Company’s user agreements, if a seller receives one or more bids above the stated minimum or reserve
price, whichever is higher, the seller is obliged to complete a transaction to sell the listed item. However QXL
has no power to force the seller or bidder to complete the transaction other than to suspend the member from
using its service.
On completion of an auction, the seller is notified of all relevant closing details, including the final bid price and
the e-mail address of the successful bidder. At no point during the process does QXL take possession of either
the item being sold or the buyer’s payment for the item listed. The buyer and seller must independently arrange
for the shipment of and payment for the item, with the buyer typically paying for shipping. A seller can view the
buyer’s member rating and then determine the manner of payment such as personal cheque, cashier’s cheque or
credit card, and also whether to ship the item before or after the payment is received.
Fees and billing. QXL does not charge bidders for making bids on the QXL community and the fees charged to
sellers vary from country to country and the nature of the seller. Currently, sellers listing any items in the United
Kingdom pay listing or placement fees to list those items for sale. Sellers in Denmark, Germany, the
Netherlands, Norway, Switzerland, Poland and Sweden pay listing fees for placing “premium listings” for items
for sale (e.g. listings that appear in bold, or at the top of the page). In most cases, where the seller is registered
on the Company’s sites in the United Kingdom, Germany, Denmark, the Netherlands, Norway, Poland, Sweden
or Switzerland, the Company charges the seller a success fee that represents a percentage of the purchase price.
A success fee is charged only once an auction has closed with one or more winning bids. Sellers pay a success
fee for each item sold. This success fee varies from country to country but typically ranges from 0.5% to 5.0%
depending on the value of the item sold.
Many of these fees have been introduced recently and involve different billing systems. Collection rates have,
historically, been unsatisfactory in certain jurisdictions and QXL is working to rationalise its billing processes
and make collection more efficient and consistent to address this. Sellers often have credit card details on file
with the Company, in which case the credit card is charged when the invoice is sent. The Company is seeking to
extend the adoption of electronic payment systems.
Member ratings and member service
QXL seeks to establish a trusted trading environment within its community by encouraging individuals to record
comments about transactions, merchandise and other QXL members with whom they have interacted. Each
member is issued a trading profile, where users who have conducted business or interacted with a particular
member may submit comments, compliments or criticism. This information is recorded in a member profile that
includes a rating for that member and comments from other QXL members who have recently interacted with
that member. QXL users may review a member profile to check on the member’s reputation within the trading
community before deciding to bid on an item listed by that member or in determining how to complete the
payment for and delivery of the item.
QXL also provides multi-lingual telephone and e-mail support during local business hours for its members and
merchants. Member support for each language is handled in-house by multi-lingual support staff. The majority of
this activity comprises e-mail communication with members. Generally, only a limited number of members
telephone for direct assistance.
Marketing
QXL is able to use the interactive nature of the Internet to send periodic e-mail notification of new offerings on
its web sites to multiple member lists with different merchandise or service interests. Visitors to the QXL trading
community can also add themselves to the electronic mailing list. The Company regularly sends e-mail messages
announcing new items available at each auction, special products available, web site changes and new features.
These e-mails are timely and informative and provide the e-mail subscriber with the convenience of reaching the
product bid page with a single mouse click. The Company has a strict policy of not sending any unsolicited e-
mail, and a member can remove his or her name from the mailing list at any time.
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The Company has established marketing relationships with certain key Internet service providers and other web
sites with heavy traffic to increase its access to online customers and to build recognition of the QXL brand.
QXL typically pays a fixed or variable fee to each of the entities with whom it has a marketing relationship. QXL
recently reached agreement with Microsoft to implement technologies delivered within the Microsoft .NET
program, including Passport authentication and the .NET Framework. The Company’s services will be featured
on Microsoft’s Windows XP operating system as well as through Windows Messenger, Microsoft’s instant
messaging service.
Advertising Sales
Many Internet users visit the Company’s web sites and, as a result, QXL believes that its web sites offer
attractive advertising space for third parties. QXL offers advertising space to suitable manufacturers, service
providers, trading and media companies. QXL has a variety of advertising sales relationships across different
countries.
Geographic Markets
The following table, which has been extracted from page 21 of Part II of this document, sets out the QXL
Group’s consolidated turnover.
Country Years ended 31 March
2001 2000 1999
£’000 £’000 £’000
United Kingdom………………………………………… 6,242 6,892 2,545
Rest of Europe…………………………………………... 8,813 -- --
Total Turnover………………………………………….. 15,055 6,892 2,545
* please note: Investors should read the whole document and not just rely on the key or summarised information
Competition
QXL, currently or potentially, competes with a variety of other companies. The Company’s direct competitors
include:
• various Internet auction houses offering consumer-to-consumer and/or business-to-consumer auctions, such
as eBay, Yahoo! Auctions and uBid;
• companies that offer merchandise and services similar to QXL’s on the Internet but through a traditional
fixed-price format, such as Amazon.com; and
• companies that offer business-to-consumer trading services and classified advertising services, including
AOL, Lycos and Microsoft Corporation;
QXL also competes for members, advertisers and e-commerce marketers with the following:
• Internet retrieval companies, search engines and other Internet “portal” companies (such as Lycos and
Yahoo!);
• large online communities and services that have expertise in developing online commerce and in facilitating
online person-to-person interaction, such as Yahoo! and GeoCities; and
• general purpose consumer online services, such as T-Online, AOL and Microsoft Network.
Many of QXL’s current and potential competitors have longer operating histories, larger customer bases and
Internet markets and significantly greater financial, technical, marketing and other resources than the Company.
As a result, these competitors may be able to offer sellers more favourable terms than QXL is able to do and may
be able to respond more quickly to changes in customer preferences or to devote greater resources to the
development and promotion of their businesses than QXL.
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QXL believes that it has competed effectively to date. To succeed in the future, the Company must respond
promptly and effectively to the challenges presented by its competitors by continually enhancing its offer to
ensure that the QXL e-commerce community has critical mass, advanced functionality, brand recognition and
member loyalty.
QXL’s Technology and Intellectual Property
The Company uses a combination of its own proprietary technology and licensed, commercially-available
technology to operate its e-commerce community.
The proprietary components QXL has developed, either alone or in conjunction with third party software
developers, include:
QXL Auction Engine. This is the Company’s main bid and auction processing component. Whenever a bid is
made on a QXL web site, or an auction is created or modified, this component receives the information, applies
the QXL auction business rules and modifies the relevant member, bid, product or auction information. The
engine is responsible for automatically sending e-mails to bidders and sellers on the status of the auctions in
which they participate as well as for storing the auction information used for charging buyers and sellers. The
QXL Auction Engine was adapted from third party software by the Company’s in-house development team.
QXL Buyer/Seller Interface. The QXL Buyer/Seller Interface includes a sophisticated set of programs integrated
with software licensed from third parties such as Oracle Corporation. The interfaces are used for the majority of
the interactions between members and QXL’s online auctions. The functions available to buyers include the
ability to view current auctions, rate other members, bid on auctions and view the history of bids in particular
auctions. Functions available to sellers include the ability to create and modify their auctions and view sale
histories.
All software objects have been designed to be portable and scaleable. The QXL Buyer/Seller Interface was
developed by an experienced software development company working alongside the Company’s in-house
development team.
QXL’s online auctions in Polish as well as the Swiss component of its auctions in French and German are
currently using a different auction engine and buyer/seller interface.
Systems Operations
The uninterrupted operation of QXL’s web sites is critical to its business and the Company strives to minimise
the downtime of its web sites. The Company’s principal network servers are hosted by Cable & Wireless plc
(“Cable & Wireless”) at a site operated by Telecity plc in London, United Kingdom, which aims to provide
dedicated connectivity to the Internet via multiple diverse ATM networks 24 hours a day, seven days a week.
QXL manages and monitors its servers and network remotely from its London office.
QXL’s centralized platform has a high degree of headroom and none of the servers are running at more than
40% load. The Company believes its hardware and software systems are capable of withstanding likely future
demands. It is possible to more than double current volumes comfortably with the current environment. Due to
the three tier nature of the system it is a simple process to increase capacity at web server, application server or
database server layers should the need arise. However QXL cannot guarantee that systems interruptions will not
occur.
The web servers conducting the Company’s online auctions are run on Enterprise servers from Sun
Microsystems which are linked to an EMC disk sub-system. All network and disk connections have redundancy.
If a server fails, another server should automatically assume the load of the failed server. In addition, all of the
hard disks are fully mirrored. QXL has procedures which fully back up the web sites, all associated data and
databases every day, while incremental disk backups are run throughout the day to provide continual updates. In
addition, the Company uses a third-party web monitoring service to monitor specific web pages and the
Company’s performance characteristics at five-minute intervals, 24 hours a day, seven days a week.
QXL anticipates that it will continue to devote significant resources to product development as it develops and
improves new and current features and adds increased functionality to the Company’s service.
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The Company regards the protection of its copyrights, service marks, trademarks and trade secrets as critical to
its future success. QXL relies on a combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect its proprietary rights in products and services. QXL pursues the
registration of its trademarks and service marks in the United Kingdom and internationally. QXL’s standard
employment contracts include confidentiality and invention assignment provisions, and the Company has non-
disclosure agreements with most of its suppliers and strategic partners in order to limit access to and disclosure
of its proprietary information.
To date, QXL has not been notified that its technologies infringe the proprietary rights of third parties, but the
Company cannot provide assurance that third parties will not claim infringement by the Company with respect to
past, current or future technologies. The Company expects that participants in its markets will be increasingly
subject to infringement claims.
Employees
For the year ended 31 March 2001, the Company had an average of 383 employees, including 87 in technology
and product development, 211 in sales, marketing and business development and 85 in finance, general
management and administration. The Company has never had a work stoppage, and no employees are
represented under collective bargaining agreements. The Company considers its relations with its employees to
be good, and believes that its future success will depend in part on its continued ability to attract, integrate, retain
and motivate highly qualified technical and managerial personnel, and upon the continued service of its senior
management and key technical personnel.
The following table sets out the average number of people employed by QXL, by department, for the periods
indicated:
Years ended
31 March
Department 2001 2000 1999
Technical.............................................................................................. 87 17 8
Sales and marketing ............................................................................. 211 59 8
General and administration .................................................................. 85 32 12
383 108 28
The Company estimates that it had approximately 240 employees at 31 December 2001.
Facilities
The Company’s headquarters are located at Landmark House, Hammersmith Bridge Road, London, United
Kingdom, where it leases approximately 11,900 square feet (1,100 m2) of office space for an annual rental fee of
£321,300(subject to standard upward only rent reviews, the next being due in March 2002). The lease for the
Company’s headquarters ends in March 2012.
The QXL Group also leases office space in Paris, France; Hamburg, Germany; Amsterdam, The Netherlands;
Baar, Switzerland; Stockholm, Sweden; Helsinki, Finland and Madrid, Spain. It uses serviced office facilities in
Oslo, Norway; Copenhagen, Denmark; and Poznan, Poland.
Legal Proceedings
On April 6 2000 Montres Rolex, S.A. filed a trademark claim with the Regional Court of Cologne against
ricardo in Germany, alleging that replica Rolex watches were being traded on ricardo’s web site. Under this
claim Rolex sought an injunction preventing ricardo from allowing further replica Rolex watches to be offered
on its web site, seeking a penalty fine of DM 500,000 for each infringement. On 31 October 2000 judgement
was made by the Cologne Regional Court prohibiting ricardo from either selling or allowing replica Rolex
watches to appear on its web site but Rolex’s claim was dismissed by the Cologne Higher Regional Court on 2
November 2001. Rolex is currently appealing this decision to the German Federal Civil Court in Karlsruhe but
the Directors believe that ricardo has a good prospect of successfully defending this appeal. If Rolex’s appeal is
successful then the exact number of infringements and/or the level of damages to be awarded in respect of any
infringements has yet to be quantified and is still uncertain, and although the Directors do not expect this amount
to be material, it is possible that it may be.
8
Save as set out above, neither the Company nor any of its subsidiaries is, or has been, engaged in any legal or
arbitration proceedings, including any such proceedings which are pending or threatened of which the Company
is aware, which may have, or has had during the twelve months prior to the date hereof, a significant effect on
the QXL Group's financial position.
Recent Developments
On 20 October 2000, QXL closed its public tender offer for shares in Bidlet, having already acquired
approximately 50.4 per cent of that company by way of an acquisition agreement with certain shareholders on 30
June 2000. QXL currently holds approximately 99.6 per cent of the fully diluted share capital of Bidlet.
On 24 November 2000, QXL merged with ricardo.de AG (the “ricardo Combination”) The consideration for the
ricardo Combination was 34 Ordinary Shares for each share in ricardo issued and to be issued. Under the terms
of an agreement (the “ricardo Combination Agreement”) between the Company and a number of ricardo
shareholders then representing approximately 54% of ricardo’s fully diluted share capital (the “Vendors”), the
Vendors initially retained part of their shareholdings in ricardo and also transferred part of their shareholdings to
QXL GmbH in exchange for newly issued shares in QXL GmbH. Since 24 November 2000 all of the Vendors
have exchanged these shares in QXL GmbH and their remaining shares in ricardo for shares in the Company in
accordance with the terms of the ricardo Combination Agreement. QXL currently holds (either directly or
through QXL GmbH) approximately 92% of the issued share capital of ricardo and approximately 91% on the
basis of the fully diluted share capital of ricardo.
On 18 January 2001, the Company entered into an agreement with the Subscribers (the “Subscription
Agreement”) under which the Company secured £15 million before expenses, by way of a private placement of
three series of unsecured convertible bonds (the “Convertible Bonds”) and related Warrants (“Warrants”)
exercisable into new Ordinary Shares in the Company. The Warrants are separate from the Convertible Bonds
and are non callable.
The Company has received the £15 million due in respect of the Convertible Bonds in equal instalments of £5
million payable on 14 February 2001, 31 May 2001 and 9 November 2001 and has issued all the Convertible
Bonds and Warrants in relation to such funding.
The Convertible Bonds issued in relation to the first £5 million instalment (the “A Bonds”) are convertible into a
maximum of 116,133,228 Ordinary Shares at a price equal to the lower of 12.6192 pence and the average of the
three highest of the five lowest daily volume weighted average prices during the 15 trading days prior to the date
of delivery of the relevant conversion notice (the “Floating Conversion Price”). 26,187,186 Ordinary Shares
were issued to some of the Subscribers on 11 February 2002 following the receipt by the Company of a
conversion notice in respect of £600,000 of the A Bonds. The Warrants issued to the Subscribers in relation to
this instalment of the funding are in respect of 19,811,081 Ordinary Shares at an exercise price of 15.7740 pence
per share.
The Convertible Bonds issued in relation to the second £5 million instalment (the “B Bonds”) are convertible
into a maximum of 128,154,743 Ordinary Shares at a price equal to the lower of 7.3154 pence and the Floating
Conversion Price. The Warrants issued to the Subscribers in relation to this instalment of the funding are in
respect of 35,793,031 Ordinary Shares at an exercise price of 8.7308 pence per share.
The Convertible Bonds issued in relation to the third £5 million instalment (the “C Bonds”) are convertible into
a maximum of 308,870,768 Ordinary Shares at a price equal to 3.3936 pence if converted prior to 9 May 2002
or thereafter at the lower of 3.3936 pence and the Floating Conversion Price. The Warrants issued to the
Subscribers in relation to this instalment of the funding are in respect of 73,668,081 Ordinary Shares at an
exercise price of 4.2420 pence per share.
Each tranche of Convertible Bonds converts automatically three years after the relevant issue date to the extent
not already redeemed or converted (“maturity”).
Interest is payable on the Convertible Bonds at a rate of 2% per annum up to the date of conversion or maturity,
either in cash or shares of the Company (at QXL’s discretion).
The maximum number of new Ordinary Shares that may be issued pursuant to the conversion of all outstanding
Convertible Bonds (but excluding the Warrants and any shares issued in respect of interest) is 527,447,392
representing 39.85 per cent. of the current issued ordinary share capital of the Company together with the shares
9
issued pursuant to such conversion. However, each Subscriber has undertaken not to exercise its conversion
rights or any Warrants if this would result in it being entitled to exercise voting rights in respect of more than
29.9% of QXL’s issued share capital.
In addition, under the terms of the Subscription Agreement, the Company is able to raise up to a further £15
million before expenses by way of the Equity Commitment on any date (not earlier than 16 trading days
following any previous notification) following 14 May 2001 and prior to 9 November 2004 and subject to
certain closed periods. The maximum amount that may be specified by the Company to be drawn in any one
notice will be the higher of (1) 15 per cent. of the previous 20 days trading value on the London Stock Exchange
or (2) 10 per cent. of the previous 20 days aggregate trading value on the London Stock Exchange and Nasdaq
National Market, provided that the maximum amount shall not be more than £2,500,000 and the minimum
amount shall not be less than £250,000. The Ordinary Shares will be issued to the Subscribers at a price
determined by reference to a formula and calculated after the relevant notification date. The Equity
Commitment can be terminated pursuant to a force majeure clause and, inter alia, in the event of a takeover of
the Company or if the minimum bid price requirements of the Nasdaq National Market applicable to the ADSs
on any trading day are not complied with. In November 2001 one of the Subscribers indicated to the Company
that for some days in September 2001, the ADS price had fallen below USD1 and that in their view this
represented a breach of the minimum bid price provision. The Directors believe that a breach has not occurred
and will only occur should the ADS price fall below USD1 for more than 30 consecutive trading days in
accordance with the Nasdaq National Market rules. The relevant Subscriber stated that at the time it was not
their intention to terminate the Equity Commitment and the Company has not received any further indication
from any Subscriber that they might seek to pursue this argument. In addition, the Subscribers may refuse to
take up any Ordinary Shares pursuant to any notice delivered during the period of 90 days after either (1) the
Company’s cash balance as shown by the previous quarterly balance sheet is less than £1.5 million or (2) the
Company makes any announcement as a result of which the daily volume weighted average price ("VWAP") of
the Ordinary Shares on the third trading day after the announcement is more than 50 per cent. lower than the
VWAP on the third trading day prior to the announcement.
To date, the Company has issued shares on two occasions in connection with the Equity Commitment. On 29
June 2001 the Company raised £2.5 million by the issue to the Subscribers of 33,799,313 Ordinary Shares at a
price of 7.3966 pence per share and on 26 July 2001 the Company raised a further £900,000 by the issue to the
Subscribers of 21,058,050 Ordinary Shares at a price of 4.2739 pence per share. On 12 February 2002, the
Company issued a further drawing notice which will involve raising £930,000 by the issue of 40,455,958 million
Ordinary Shares at an average price of 2.2988 pence per share.
On 9 November 2001, QXL announced the appointments of Jim Rose as non-Executive Deputy Chairman and
Mark Zaleski as Chief Executive Officer.
On 29 November 2001, QXL announced that it had entered into arrangements with TeleWest, The Times
Newspapers Limited and Flextech Interactive under which the Company would provide the exclusive auction
channel for these organisations through special co-branded pages.
On 10 December 2001, QXL announced it had signed an agreement with DoubleClick for the license to the
Company of DoubleClick’s Dartmail and DART for Publishers ad-serving technology.
On 28 December 2001, QXL announced its intention to change the ratio of its Ordinary Shares to its American
Depositary Shares ("ADS") to two hundred and fifty (250) Ordinary Shares for every one (1) ADS, effective 31
December 2001.
On 17 January 2002, QXL announced that it had signed a strategic marketing partnership with MSN covering
Denmark, France, Germany, Norway, Spain, Sweden and the UK providing the Company with a presence on the
MSN Auction Channel and Shopping Home Page.
On 5 February 2002, QXL announced the appointment of Thomas Power as a non-executive director of the
Company and the resignations of Peter Sederowsky and Adam Singer as directors of the Company. On the same
date, the Company also announced the launch of its Co-Branding Programme providing the Company’s partners
a simple solution to operate their own branded auction channel within their sites.
10
Current Trading and Prospects
Since 31 December 2001, the Company has continued to focus its resources on increasing its gross profits and
reducing its operating expenses. The change in its business model (from acting primarily as a principal in
transactions to only acting as an agent) has been effectively completed. This has resulted in a substantial decline
in turnover compared to the same period in the previous year as the agency model only recognises the value of
the commission charged, rather than the full value of the transaction, as turnover. However the continuing roll-
out of fee programmes (which now extends to eight countries and over 90% of gross auction value) has helped to
offset some volatility in advertising revenue. At the same time, the Company has migrated most of its websites
to its London-based servers and substantially reduced other operating expenses, such that trading losses have
reduced substantially compared to the same period in the previous year. These continuing losses have led to a
reduction in the Net Assets and cash balances of the Group.
Going forward, the Company expects that further strategic marketing partnerships and initiatives (such as the co-
branding programme) as well as continued product enhancements will provide a solid platform for future growth.
Although gross auction value has remained relatively flat in the past three quarters, the underlying increase in
transaction volumes demonstrates increasing liquidity and provides a solid base for further improvements as the
impact of recent fee introductions and platform migrations diminishes. The Company also expects that a number
of countries will start to trade profitably in the next two quarters and that the Group’s operating cashflow will be
positively impacted by its ongoing cost control programme.
The Company has not paid dividends on any of its shares since its incorporation. It intends to retain any future
earnings for investment in the development and expansion of its business and does not expect to pay any cash
dividends on its shares in the foreseeable future.
11
PART II
FINANCIAL INFORMATION
A. Financial Information relating to the QXL Group for the years ended 31 March 2001, 31 March
2000 and 31 March 1999
General
The financial information contained in Part A of this Part II does not constitute statutory accounts within the
meaning of Section 240 of the Act.
The consolidated financial information of the QXL Group for the financial year ended 31 March 2001 has been
extracted without material adjustment from the audited consolidated accounts of the Company for the financial
year ended 31 March 2001.
During the year ended 31 March 2001, the Company adopted the provisions of UITF 25. The introduction of
UITF 25 required a prior year adjustment in respect of National Insurance on share options – futher details are
set out in Note 3(c) on page 24. Accordingly, the consolidated financial information of the QXL Group for the
financial year ended 31 March 2000 has been extracted without material adjustment from the comparative
information included in the audited consolidated accounts of the Company for the financial year ended 31 March
2001.
The consolidated financial information of the QXL Group for the financial year ended 31 March 1999 has been
extracted without material adjustment from the audited consolidated accounts of the Company for the financial
year ended 31 March 1999. The introduction of UITF 25 has no effect on the financial information for the year
ended 31 March 1999 as Employer's National Insurance contributions are only payable on gains made when
employees exercise share options that were granted after 5 April 1999.
Copies of the accounts for each of the periods referred to above have been delivered to the Registrar of
Companies in England and Wales. PricewaterhouseCoopers, Chartered Accountants and Registered Auditors, of
1 Embankment Place, London WC2N 6RH, have made reports under Section 235 of the Act in respect of the
statutory accounts for each of the periods referred to above. Such reports were unqualified and did not contain a
statement under 237(2) or (3) of the Act.
12
QXL GROUP
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Year ended Year ended Year ended
31 March 31 March 31 March
Note 2001 2000 * 1999
£’000 £’000 £’000
Turnover
Operations before acquisitions......................................................... 6,284 6,870 2,545
Acquisitions ..................................................................................... 8,771 22 —
Continuing operations ...................................................................... 1 15,055 6,892 2,545
Cost of sales ..................................................................................... 2 (12,402) (6,151) (2,340)
Gross profit..................................................................................... 2,653 741 205
Distribution costs ............................................................................. 2 (43,384) (21,710) (836)
Exceptional items—goodwill impairment provision........................ 3 (72,948) (22,418) —
Total distribution costs..................................................................... (116,332) (44,128) (836)
Administrative expenses .................................................................. 2 (25,051) (11,818) (1,473)
Exceptional items—development expenditure and National
Insurance provision...................................................................... 3 (3,539) (13,226) —
Total administrative expenses .......................................................... (28,590) (25,044) (1,473)
Net operating expenses .................................................................. (144,922) (69,172) (2,309)
Operating loss
Continuing operations ...................................................................... 2,4 (35,444) (45,807) (2,104)
Acquisitions ..................................................................................... (106,825) (22,624) —
Operating loss ................................................................................ (142,269) (68,431) (2,104)
Share of operating loss of joint venture ........................................... (3,417) — —
Loss on ordinary activities before interest .................................. (145,686) (68,431) (2,104)
Interest receivable and similar income............................................. 7 2,874 1,777 59
Interest payable and similar charges ................................................ 8 (333) (13) (7)
Loss on ordinary activities before taxation.................................. (143,145) (66,667) (2,052)
Tax on loss on ordinary activities .................................................... 9 — — —
Loss on ordinary activities after taxation .................................... (143,145) (66,667) (2,052)
Equity minority interests .................................................................. 4,105 — —
Dividends and appropriations—non-equity ..................................... 10 — (2,112) (343)
Retained loss for the financial year .............................................. (139,040) (68,779) (2,395)
Loss per equity share
—basic and diluted .................................................................. 11 (30.0)p (23.8)p (2.4)p
There is no difference between the loss on ordinary activities before taxation and the retained loss for the period
stated above, and their historical cost equivalents.
* Restated for a prior year adjustment following the introduction of UITF 25.
13
QXL GROUP
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Year ended Year ended Year ended
31 March 31 March 31 March
2001 2000* 1999
£’000 £’000 £’000
Loss attributable to shareholders......................................... 139,040) 68,779) (2,052)
Exchange adjustments offset to reserves............................. 170 341 —
Total recognised loss for the year .................................... (138,870) (68,438) —
Prior year adjustment .......................................................... 9,125 — —
Total recognised losses since last annual report............. (129,745) (68,438) (2,052)
* Restated for a prior year adjustment following the introduction of UITF 25.
14
QXL GROUP
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
31 March 31 March 31 March
2001 2000* 1999
Note £’000 £’000 £’000
Fixed assets
Intangible assets ........................................................ 12 23,955 435 —
Tangible assets.......................................................... 13 6,337 7,233 181
Investments ............................................................... 14 232 — —
30,524 7,668 181
Current assets
Stock ......................................................................... 16 295 401 357
Debtors...................................................................... 17 7,901 6,374 437
Cash at bank and in hand .......................................... 18 24,285 77,662 6,557
32,481 84,437 7,351
Creditors: amounts falling due within one year ....... 19 (13,381) (9,731) (933)
Net current assets/(liabilities)................................. 19,100 74,706 6,418
Total assets less current liabilities ......................... 49,624 82,374 6,599
Creditors: amounts due after one year..................... 20 (413) (337) —
2% Convertible Bonds due 2004 .............................. 21 (5,011) — —
Provisions for liabilities and charges..................... 22 — (2 ,432) —
Net assets/(liabilities) .............................................. 44,200 79,605 6,599
Capital and reserves
Called up share capital .............................................. 23 635 119 1
Share capital to be issued .......................................... — 9,294 —
Share premium account............................................. 25 218,856 111,919 8,784
Merger reserve .......................................................... 25 9,137 6,617 —
Warrant reserve......................................................... 25 — — 7
Profit and loss account .............................................. 25 (187,053) (48,344) (2,193)
Total shareholders’ funds....................................... 26 41,575 79,605 6,599
Equity minority interests 2,625 — —
Capital employed 44,200 79,605 6,599
Analysed as:
Equity shareholders’ funds/(deficit).......................... 44,200 79,605 (819)
Non-equity shareholders’ funds ................................ — — 7,418
44,200 79,605 6,599
* Restated for a prior year adjustment following the introduction of UITF 25.
15
QXL GROUP
CONSOLIDATED CASHFLOW STATEMENT
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
31 March 31 March 31 March
2001 2000* 1999
Note £’000 £’000 £’000
Net cash outflow from operating activities ............................................ 29 (56,004) (28,954) (2,133)
Returns on investments and servicing of finance
Interest received ........................................................................................ 2,715 1,590 59
Interest paid............................................................................................... (25) (7) (7)
Issue costs of non-equity shares ................................................................ — (1,283) (248)
Issue costs of 2% Convertible Bond ......................................................... (241) — —
2,449 300 (196)
Capital expenditure and financial investment
Purchase of tangible fixed assets............................................................... (2,417) (7,718) (187)
Net cash outflow for capital expenditure and financial investment (2,417) (7,718) (187)
Acquisitions
Net cash balances acquired with subsidiaries............................................ 11,214 — —
Payments to acquire trades or businesses.................................................. (12,261) (1,027) —
Net cash outflow for acquisitions (1,047) (1,027) —
Cash outflow before management of liquid
resources and financing .......................................................................... (57,019) (37,399) (2,516)
Management of liquid resources
Reduction/(increase) in short term deposits with banks............................ 56,125 (69,167) —
Financing
Gross receipts from issuing shares and warrants....................................... 603 116,535 9,295
Issue costs of equity shares and warrants .................................................. (1,667) (7,832) (255)
Capital element of finance lease repaid..................................................... (294) (199) —
Gross receipts from issue of 2% Convertible Bonds ................................. 5,000 — —
Net cash inflow from financing 3,642 108,504 9,040
Increase in cash in the period ................................................................. 29 2,748 1,938 6,524
* Restated for a prior year adjustment following the introduction of UITF 25.
16
QXL GROUP
PRINCIPAL ACCOUNTING POLICIES
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
The financial information has been prepared in accordance with applicable Accounting Standards in the United
Kingdom. A summary of the more important accounting policies is set out below. They have been applied
consistently with the exception of a prior year adjustment in respect of National Insurance on share options
following the publication of UITF 25. This prior year adjustment has resulted in the loss for the year ended 31
March 2000 being reduced by £9.125 million. The year ended 31 March 2001 was affected by the same amount.
Basis of accounting
The financial information has been prepared under the historical cost convention and on a going concern basis.
Basis of consolidation
The consolidated profit and loss account and balance sheet include the financial statements of the Company and
its subsidiary undertakings made up to the year end. The results of subsidiaries acquired are included in the
consolidated profit and loss account from the date control passes. Intra-group sales and profits are eliminated
fully on consolidation.
On the acquisition of a subsidiary, all of the subsidiary’s assets and liabilities that exist at the date of acquisition
are recorded at their fair values reflecting their condition at that date. All changes to those assets and liabilities
and the resulting gains and losses that arise after the Group has gained control of the subsidiary are charged to
the post acquisition profit and loss account or statement of total recognised gains and losses.
The Companies Act 1985 normally requires goodwill arising on the acquisition of a subsidiary undertaking to be
calculated as the difference between the total acquisition cost of the undertaking and the fair value of the
Group’s share of the identifiable assets and liabilities at the date it became a subsidiary undertaking.
FRS 2 recognises that, where an investment in an associated undertaking is increased and it becomes a subsidiary
undertaking, in order to show a true and fair view goodwill should be calculated on each purchase as the
difference between the cost of that purchase and the fair value at the date of that purchase.
As a result the Company has not complied with the Companies Act and has taken a true and fair override.
The Company has complied with the merger relief provisions of Section 131 of the Companies Act 1985 and
accordingly has credited the premium arising on the issue of shares to the former owners of Idefi SA to the
merger reserve.
Goodwill
Goodwill arising on consolidation represents the excess of the fair value of the consideration paid over the fair
value of the identifiable assets acquired. Goodwill arising on each acquisition is reviewed separately for
impairment, and where appropriate, charged to the profit and loss account.
Capitalised goodwill is amortised on a straight-line basis over its expected useful economic life.
A significant proportion of the goodwill amortisation and impairment charges for the year are included within
distribution charges in the profit and loss account since the amounts expended on goodwill have provided
significant marketing benefit to the Group.
17
QXL GROUP
PRINCIPAL ACCOUNTING POLICIES
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Turnover
Turnover represents amounts receivable for merchandise and services net of VAT, returns and refunds.
Principal-based auctions
When the Group acts as principal, it recognises income once payment is received or authorised and merchandise
has been dispatched.
Agency-based auctions
When the Group acts as agent, it recognises listing and related fees on listing of an item for auction and success
fees and any other relevant commission on the completion of the auction.
Intangible fixed assets
Intangible fixed assets are included at cost or fair value on acquisition and depreciated on a straight-line basis
over their expected useful economic lives.
Tangible fixed assets
Tangible fixed assets are stated at cost or fair value on acquisition less depreciation. Depreciation is provided at
rates calculated to write off the cost less the estimated residual value of each asset over its expected useful
economic life, at the following annual rates:
Computer Systems and Equipment (including computer servers) at 25% or 33% per annum on a straight-line
basis.
Furniture and Office Equipment at 33% per annum on a straight-line basis.
Internal and External Computer Software at 33% or 50% per annum on a straight-line basis
The Group also capitalises directly identifiable bought in services and own staff costs incurred in developing its
websites and other internal software development costs incurred up to the date that the asset is brought into use.
Capitalised projects must have a measurable economic viability in their own right. Amounts capitalised are
written down over their expected useful economic lives on a straight-line basis at rates between 6.25% and
12.5% per month.
Development expenditure
Development expenditure includes expenses incurred by the Group to improve the current functionality of the
Group’s websites. Development costs are expensed through administrative costs as incurred except where, as
described above, separately identifiable expenditure has been incurred on bringing specific projects into use.
Stock
Stock is valued on a first-in-first-out basis and is stated at the lower of cost and net realisable value.
18
QXL GROUP
PRINCIPAL ACCOUNTING POLICIES
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Convertible Bonds
Convertible Bonds are stated at net proceeds after deducting issue costs. The interest due on the bonds is
charged to the profit and loss account on a monthly basis over the expected life of the bond on the assumption
that the bonds will not be converted.
The initial carrying value of the bonds is determined by reference to the initial proceeds and the market value of
the associated Warrants.
Warrants issued in association with the Convertible Bonds
The Warrants are stated separately from the bonds and are included as part of shareholders’ funds. The Warrants
are valued based on the market price of the Company’s ordinary shares at the time of issue taking into account
the exercise price of the Warrants.
Finance leases
Where assets are financed by leasing agreements that give rights and obligations approximating to ownership,
the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the
minimum lease payments during the lease term. The corresponding lease commitments are shown as obligations
to the lessor. Lease payments are split between capital and interest elements using the annuity method.
Depreciation on the relevant assets and interest are charged to the profit and loss account.
Operating leases
Amounts payable under operating leases are charged to profit and loss on a straight-line basis over the lease
term.
Foreign currency transactions
Assets and liabilities denominated in foreign currencies are translated into sterling at rates of exchange ruling at
the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange
ruling at the date of the transaction.
Assets and liabilities of subsidiaries in foreign currencies are translated into sterling at rates of exchange ruling
at the end of the year, and results of foreign subsidiaries are translated at the average rate of exchange ruling
throughout the year. Differences on exchange arising from the retranslation of the opening net investment in
subsidiary companies are taken to reserves and reported in the statement of total recognised gains and losses.
All other exchange differences are taken to the profit and loss account as they arise.
Related party transactions
Financial Reporting Standard 8, ‘Related Party Transactions’, requires the disclosure of the details of material
transactions between the reporting entity and related parties. The Company has taken advantage of exemptions
under Financial Reporting Standard 8 not to disclose transactions between Group companies.
19
QXL GROUP
PRINCIPAL ACCOUNTING POLICIES - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Issue and finance costs
In accordance with the provisions of Financial Reporting Standard 4, ‘Capital Instruments’, finance costs
relating to non-equity shareholders’ funds are treated as appropriations. Issue costs relating to debt are
recognised in the profit and loss account on a systematic basis taking into account the terms of the outstanding
obligations.
Shares
Stock compensation
The Company charges the difference between the fair value of share options at grant date and the exercise price
of the options to the profit and loss account on a straight-line basis over their vesting period.
National Insurance
Employers’ National Insurance Contributions become payable on exercise of unapproved share options issued
after 5 April 1999 on the difference between the market value of the Company’s ordinary shares at the date of
exercise and the exercise price of the underlying options. Provision for this liability is made based upon the
market value of options at the balance sheet date and spread over the vesting period of the options.
With effect from 1 January 2001, all options granted to UK employees under the Unapproved Employee Share
Option Scheme have been granted on the basis that the employee is liable for the employer’s National Insurance
Contributions.
Pension costs
The Group pays defined contributions to personal money purchase pension schemes for some employees. The
charge in the financial statements represents contributions payable in the year.
Deferred tax
Deferred taxation is provided at appropriate rates on all material timing differences using the liability method
after making allowances for tax losses available to the extent that there is a reasonable probability that a liability
will crystallise in the foreseeable future.
Financial instruments
The Group’s financial assets and liabilities are recorded at historical cost, other than the net assets and liabilities
of subsidiaries, which are translated into sterling at rates of exchange at the balance sheet date.
Advertising costs
All advertising costs are expensed through distribution costs as incurred.
20
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
1. Segment reporting
Geographical Year ended 31 March 2001 Year ended 31 March 2000 Year ended 31 March 1999
analysis
Turnover (Loss) before tax Turnover (Loss) before tax Turnover (Loss)
before tax
Before After Before After
exceptional exceptional exceptional exceptional
items items items items
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 6,242 (37,388) (35,010) 6,892 (31,023) (66,667) 2,545 (2,052)
Rest of Europe... 8,813 (29,270) (108,135) — — — — —
15,055 (66,658) (143,145) 6,892 (31,023) (66,667) 2,545 (2,052)
In the period under review materially all turnover and loss by origin and destination was generated from the
single activity of providing online auctions. There was no material difference between turnover by origin and
turnover by destination.
31 March 31 March 31 March
2001 2000 1999
Net Assets £'000 £'000 £'000
United Kingdom ........................................ 14,636 79,605 6,599
Rest of Europe ........................................... 29,564 — —
44,200 79,605 6,599
For the years ended 31 March 2000 and 31 March 1999 the activities and assets outside the United Kingdom are
immaterial for the understanding of the accounts. For the year ended 31 March 2001 turnover, loss and net
assets of 'Rest of Europe' are substantially those relating to acquisitions.
21
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
2. Cost of sales, gross profit, distribution costs and administrative expenses
31 March 2001 31 March 2000 31 March
1999
Excluding Total Excluding Total Total
acquisitions Acquisitions continuing acquisitions Acquisitions continuing continuing
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Turnover........................................... 6,284 8,771 15,055 6,870 22 6,892 2,545
Cost of sales ..................................... (4,402) (8,000) (12,402) (6,151) — (6,151) (2,340
Gross profit .................................... 1,882 771 2,653 719 22 741 205
Distribution costs ............................. (23,010) (20,374) (43,384) (21,610) (100) (21,710) (836)
Exceptional items—goodwill
impairment provision ....................... — (72,948) (72,948) — (22,418) (22,418) —
Total distribution costs..................... (23,010) (93,322) (116,332) (21,610) (22,518) (44,128) (836)
Administrative expenses .................. (16,694) (8,357) (25,051) (11,690) (128) (11,818) (1,473)
Exceptional items—development
expenditure and national insurance
provision ......................................... 2,378 (5,917) (3,539) (13,226) — (13,226) —
Total administrative
expenses ………………………… (14,316) (14,274) (28,590) (24,916) (128) (25,044) (1,473)
Net operating expenses .................... (37,326) (107,596) (144,922) (46,526) (22,646) (69,172) (2,309)
Operating loss…………………… (35,444) (106,825) (142,269) (45,807) (22,624) (68,431) (2,104)
There were no discontinued operations in the year ended 31 March 2001. Operations acquired during the year
ended 31 March 2001 included Bidlet, ibidlive NV and Ricardo.de.AG (Note 16).
There were no discontinued operations in the year ended 31 March 2000. Operations acquired during the year
ended 31 March 2000 comprised businesses in their start up phase (Note 16).
There were no discontinued operations and no operations were acquired in the year ended 31 March 1999.
3. Exceptional items
Note 31 March 31 March 31 March
2001 2000* 1999
£’000 £’000 £’000
Distribution costs:
Goodwill impairment provision ............................................................. (a) 72,948 22,418 —
Administration expenses:
Goodwill impairment provision ............................................................. (a) 4,993 — —
Development of ‘World of Antiques’ .................................................... (b) — 10,794 —
National Insurance provision ................................................................. (c) (2,378) 2,432 —
Restructuring Costs ................................................................................ (d) 924 — —
3,539 13,226 —
Restated for UITF25.
22
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
(a) Goodwill impairment provision
Note 12 details the goodwill that has arisen on the acquisitions of subsidiary undertakings during the year.
UK GAAP prescribes that the carrying value of goodwill should be no more than the higher of the standalone
value of the assets in use and their net realisable value.
Most of the goodwill arising during the year was attributable to the market value of the Company’s shares when
they were issued as consideration for acquisitions. Subsequent falls in the value of the Company’s shares have
been considered in assessing net realisable value. Stand alone valuations have been calculated using the present
value of discounted projected cash flows.
Having considered these tests, the initial carrying value of goodwill has been impaired primarily due to the
decrease in the market valuation of the Company’s shares between the date of acquisition and the balance sheet
date.
The carrying value of goodwill on the consolidated balance sheet is being amortised over periods up to 39
months from the date of acquisition.
(b) Development of “Hugh Scully’s World of Antiques”
On 19 October 1999, the Company entered into an agreement with Fine Art Productions Limited and Hugh
Scully to lead to the development of “Hugh Scully’s World of Antiques”, a new online valuation service offered
by the QXL.com Group. The total amount due under the agreement was £3.0 million which was payable in two
instalments. Additionally, the agreement granted options to Mr Scully for 1,025,641 shares at an exercise price
of, the then fair market value, £1.95 each, exercisable on the web site going live. The options were in two parts,
256,410 options were exercisable and were exercised on the signing of the contract. The remaining options
(adjusted for the 2 for 1 bonus issue on 6 April 2000) were exercisable when “Hugh Scully’s World of Antiques”
was launched.
“Hugh Scully’s World of Antiques” was launched on 11 April 2000 and Mr Scully has since exercised all
remaining options. Under UK GAAP, the options have been valued at the mid-market price as at the close of
business on 11 April 2000.
The fair value of the shares issued together with the cash element of £1 million amounts to £10.794 million and
has been written off in the year to 31 March 2000 as development expenditure.
Summary of the transaction
31 March
Note 2000
£’000
Cash amount due under the agreement..................................................................................... 3,000
Less exercise price for options................................................................................................. (2,000)
Net cash payable ...................................................................................................................... 1,000
Options exercised in October 1999.......................................................................................... 23 500
Options exercised in April 2000 .............................................................................................. 23 9,294
Value of development work—charged as exceptional development costs............................... 10,794
Of the £1 million net cash payable, £800,000 was paid in May 2000 and was included in other creditors at 31
March 2000.
23
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
(c) National Insurance provision on share options
The provision for the year ended 31 March 2000 has been restated in accordance with UITF 25 to account for
the potential liability arising on the exercise of share options based upon the market value of options at the
balance sheet date and spread over the vesting period of the options as opposed to a single charge at the time of
grant. For the year ended 31 March 2001 the provision for any potential National Insurance liability has
decreased in line with the movement in the Company’s share price.
(d) Restructuring costs
During the year ended 31 March 2001, the Company incurred exceptional restructuring costs as a result of its
acquisitions of ricardo.de AG and Bidlet AB totalling £924,000. The minority interest associated with these
costs is £370,000.
24
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
4. Operating loss
The operating loss is stated after charging:
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Exchange loss............................................................................................ (67) 478 12
Amortisation of intangible fixed assets ..................................................... 16,304 152 —
Exceptional write off of goodwill 77,941 22,418 —
Depreciation of tangible fixed assets—owned assets................................ 5,814 1,475 14
—under finance leases .............................................................................. 198 64 —
Loss on disposals of fixed assets............................................................... — 17 —
Operating lease rentals—land and buildings............................................. 384 241 63
Auditors remuneration—audit................................................................... 102 50 8
Auditor’s remuneration—other services* ................................................. 141 341 1
Development expenditure (excluding exceptional items in note 3)........... 1,012 2,840 248
* In addition to these amounts, in the year ended 31 March 2001, fees of £464,000 were also charged by
PricewaterhouseCoopers in connection with the Company’s obligations to report in accordance with the
Listing Rules in connection with acquisitions during the year. These have been capitalised as costs of
acquisition or included in share issue costs as appropriate. In the year ended 31 March 2000, fees of
£601,000 were also charged by PricewaterhouseCoopers in connection with the Company’s initial public
offering in October 1999. These have been charged against share premium.
5. Directors and employees
The average monthly number of persons (including directors) employed by the Group during the period was:
31 March 31 March 31 March
2001 2000 1999
Number Number Number
Sales and marketing .......................................................................... 211 59 8
Technical........................................................................................... 87 17 8
General and administration ............................................................... 85 32 12
383 108 28
Staff costs for the above persons:
31 March 31 March 31 March
2001 2000 1999
£’000 £’000 £’000
9,363
Wages and salaries............................................................................ 2,647 678
—
Charge for share awards.................................................................... 175 44
1,442
Social security costs .......................................................................... 273 57
National Insurance on share options (note 3).................................... — 2,432 —
243
Pension costs * ................................................................................. 9 14
11,048 5,536 793
* The Group contributes to a defined contribution group personal pension scheme for many of its employees.
25
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
6. Directors’ emoluments
All share information in this note is stated (comparatives restated) after reflecting the capital restructuring during
the year ended 31 March 2000 and the effective 9 for 1 bonus issue (note 23) and after the effects of the 2 for 1
bonus issue on 6 April 2000.
Directors’ remuneration
For the year ended 31 March 2001
Total
remuneration
excluding
Basic salary Benefits(1) Bonuses paid Fees pensions
£'000 £'000 £'000 £'000 £'000
Mr J B Bulkeley (Chairman)…………. - - - 15 15
Mr R S Dighero………………………… 111 1 - - 112
Mr P D Englander……………………. - - - 15 15
Mr S M A Laurent……………………. 110 1 - - 111
Mr J M Rose…………………………… 210 1 - - 211
Mr P U Sederowsky…… …………….. - - - 18 18
Mr A N Singer………………………… - - - - -
431 3 - 48 482
(1) Directors' benefits comprised permanent health insurance and life assurance.
(2) Directors' emoluments in aggregate including gains on share options were £1.6 million.
For the year ended 31 March 2000
Total
remuneration
excluding
Basic salary Benefits Bonuses paid Fees pensions
£'000 £'000 £'000 £'000 £'000
Mr J B Bulkeley (Chairman)…………. - - - 7 7
Mr R S Dighero………………………. 50 1 10 - 61
Mr P D Englander……………………. - - - 7 7
Mr S M A Laurent……………………. 50 1 10 - 61
Mr J M Rose…………………………… 174 1 - - 175
(1)
Mr T D A Jackson …………………… 13 - - 7 20
(2)
Mr F Tison ……………………… …… - - - 2 2
(3)
Mr J B Tellio ………………………… - - - - -
Ms E Marbach (4)………… …………… - - - - -
(5)
Mr S Kalish ………………………… - - - - -
287 3 20 23 333
(1) Mr T D A Jackson resigned on 26 March 2000
(2) Mr F Tison resigned on 25 November 1999
(3) Mr J B Tellio resigned on 10 September 1999
(4) Ms E Marbach resigned on 25 August 1999
(5) Mr S Kalish resigned on 25 August 1999
For the year ended 31 March 1999
Total
remuneration
excluding
Basic salary Benefits Bonuses paid Fees pensions
£'000 £'000 £'000 £'000 £'000
Mr J B Bulkeley (Chairman)…………. - - - - -
Mr P D Englander……………………. - - - - -
Mr T D A Jackson……………………. 68 - - - 68
Ms E Marbach………………………… - - - - -
Mr S Kalish…………………………… - - - - -
68 - - - 68
26
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Directors pension entitlements
Payments made Payments made Payments made
into a money into a money into a money
purchase scheme purchase scheme purchase scheme
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Mr R S Dighero.......................................................... 4 1 —
Mr S M A Laurent .................................................... 2 — —
Mr J M Rose ............................................................. 4 — —
Mr T D A Jackson...................................................... — 12 10
10 13 10
Directors’ interests in shares
The interests of the Directors in the shares of the Company, as disclosed by the register maintained pursuant to
Section 325 of the Companies Act 1985 as at 31 March 2001, together with their interests at 31 March 2000 and
1999 were as follows (comparatives restated for the effects of the 2 for 1 bonus issue on 6 April 2000):
Number of shares of £0.001 each
31 March 31 March 31 March 1999
2001 2000
Ordinary Ordinary Ordinary Series A Series B
shares shares shares Preference Preference
Shares Shares
Mr J B Bulkeley1..................................... 21,160,930 23,608,660 — 18,948,300 3,537,630
Mr T D A Jackson................................... — — 41,342,520 — —
Ms E Marbach......................................... — — 27,463,200 — —
(1) Mr J B Bulkeley is also a beneficiary of the Fenwick Trust which held 17,406,850 ordinary shares in the Company at 31 March 2001,
(2000: 19,104,580). The interests of Mr J Bulkeley in the table above includes the holdings of the Fenwick Trust.
Dr P D Englander does not hold shares in his own right but is interested in the shares held by Apax UK VI LP.
At 31 March 2001 60,997,440 ordinary shares (2000: 60,997,440 ordinary shares; 1999: 12,647,610 ordinary
shares and 48,349,830 preference shares) were held by the Apax UK VI LP fund, of which Apax Partners
Limited is the manager. Dr Englander is a director of Apax Partners Limited.
As at March 31 2001, Mr T D A Jackson was a trustee and beneficiary of the Argentarius Settlement. The shares
disclosed above in the third column relate to the total holding of the Argentarius Settlement.
As at March 31 2001, Ms E Marbach, the wife of Mr T D A Jackson, was a beneficiary of the Lakeville and
Artesian Trusts.
As at March 31 2001, The Argentarius Foundation held 5,340,130 shares. Mr T D A Jackson and Ms E Marbach
were trustees of the Foundation but have disclaimed beneficial ownership. The figures above do not include any
in respect of this Foundation.
27
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Directors’ interests in share options
All share information presented in this note is stated (comparatives restated) after the effects of the 2 for 1 bonus issue on 6 April 2000.
Number of Ordinary shares
1 April 2000 Granted Exercised Surrendered 31 March 2001 Exercise Market price Gain made Earliest
during the during the & lapsed or date of price on date of on exercise exercise Expiry
year year during year resignation exercise £'000 date date
Mr J B Bulkeley 1,125,000 - - - 1,125,000 £ 0.015 Mar-99 Mar-05
Mr J M Rose 8,000,310 - (833,333) - 7,166,977 £ 0.12 £0.50 310 Apr-00 Apr-09
2,666,790 - - - 2,666,790 £ 0.12 Apr-00 Apr-09
- 4,950,000 - (4,950,000) - £ 2.12 Apr-01 Apr-10
- 307,692 - - 307,692 £ 0.10 Feb-02 Feb-11
- 4,642,308 - - 4,642,308 £ 0.10 Feb-02 Feb-11
10,667,100 9,900,000 (833,333) (4,950,000) 14,783,767 310
Mr R S Dighero 5,885,880 - (833,334) - 5,052,546 £ 0.01 £0.50 404 Apr-99 Apr-08
1,177,170 - - (1,177,170) - £ 0.53 Jul-00 Jul-09
- 1,866,000 - (1,866,000) - £ 2.12 Apr-01 Apr-10
- 307,692 - - 307,692 £ 0.10 Feb-02 Feb-11
- 2,735,268 - - 2,735,268 £ 0.10 Feb-02 Feb-11
7,063,050 4,908,960 (833,334) (3,043,170) 8,095,506 404
Mr S M A Laurent 3,750,000 - (833,333) - 2,916,667 £ 0.03 £0.50 394 Sep-99 Sep-08
2,135,880 - - - 2,135,880 £ 0.07 Sep-99 Sep-08
588,600 - - (588,600) - £ 0.64 Sep-00 Sep-09
- 1,926,000 - (1,926,000) - £ 2.12 Apr-01 Apr-10
- 307,692 - - 307,692 £ 0.10 Feb-02 Feb-11
- 2,206,908 - - 2,206,908 £ 0.10 Feb-02 Feb-11
6,474,480 4,440,600 (833,333) (2,514,600) 7,567,147 394
Mr P U Sederowsky - 50,000 - (50,000) - £ 0.55 - Aug-01 Aug-10
Total 25,329,630 19,299,560 (2,500,000) (10,557,770) 31,571,420 1,108
* Denotes options held under the 1999 Approved Employee Share Option Scheme. All other options are held
under the 1999 Unapproved Employee Share Option Scheme.
The market price at the end of 31 March 2001 financial year was 6.5p and the range of market prices during the
year was between 5.75p and 606p.
Number of Ordinary shares
1 April 1999 Granted Exercised Surrendered 31 March 2000 Exercise Market price Gain made Earliest
or date of during the during the & lapsed or date of price* on date of on exercise exercise Expiry
appointment year year during year resignation exercise £'000 date date
(1)
Mr J B Bulkeley 2,250,000 - (1,125,000) - 1,125,000 £ 0.015 £ 0.643 708 Mar-99 Mar-05
Mr J M Rose 8,000,310 - - - 8,000,310 £ 0.12 Apr-00 Apr-09
2,666,790 - - - 2,666,790 £ 0.12
10,667,100 - - - 10,667,100
Mr R S Dighero 5,885,880 - - - 5,885,880 £ 0.01 Apr-00 Apr-08
1,177,170 - - - 1,177,170 £ 0.53 Jul-00 Jul-09
7,063,050 - - - 7,063,050
Mr S M A Laurent 3,750,000 - - - 3,750,000 £ 0.03 Apr-00 Sep-08
2,135,880 - - - 2,135,880 £ 0.07 Apr-00 Sep-08
588,600 - - - 588,600 £ 0.64 Sep-00 Sep-09
6,474,480 - - - 6,474,480
(2)
Mr S Kalish - 450,000 - - 450,000 £ 0.53 Jul-00 Jul-09
Total 26,454,630 450,000 (1,125,000) - 25,779,630
(1) Options over 2,250,000 ordinary shares were granted to J B Bulkeley during the year ended 31 March 1998. No other directors held share options prior to 1 April 1999.
7. Interest receivable and similar income
All interest receivable and similar income consisted of interest earned on bank and money market deposits.
28
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
8. Interest payable and similar charges
31 March 31 March 31 March
2001 2000 1999
£’000 £’000 £’000
Finance leases ..................................................................... 52 6 —
Bank loans and overdrafts................................................... 28 7 7
Interest and issue costs on 2% convertible bonds .............. 253 — —
333 13 7
Interest payable for the year ended 31 March 1999 represents interest on directors loan accounts calculated at the
rate of 2% above base rate. These loans were repaid by the Company during the year ended 31 March 1999
(Note 19).
9. Taxation
No taxation charges have arisen for the years. The Company has accumulated tax losses of £100.0 million (2000:
£43.7 million, 1999: £2 million) available to carry forward and offset against future trading profits. This
represents an unprovided deferred tax asset of approximately £30.0 million (2000: £13.5 million, 1999: £nil).
10. Dividends and appropriations
Non-equity dividends were appropriated as follows:
31 March 31 March 31 March
2001 2000 1999
£’000 £’000 £’000
Series C preference dividend at 8 per cent. of subscribed amount.................. — 319 88
Series D preference dividend at 8 per cent. of subscribed amount.................. — 510 —
Appropriation for issue costs .......................................................................... — 1,283 255
— 2,112 343
In accordance with Financial Reporting Standard 4, ‘Capital Instruments’, cumulative dividends and issue costs
relating to preference shares have been charged to the profit and loss account for the year ended 31 March 2000.
The dividend amounts have been added back to the profit and loss reserve, as the dividends are not payable until
declared. Under the articles of association of the Company, these dividends will not be declared since the
preference shares to which they relate converted into Ordinary Shares at the time of the initial public offering.
The issue cost appropriation is transferred to the share premium account.
29
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
11. Loss per equity share
31 March 31 March 31 March
2001 2000 1999
£’000 £’000 £’000
The calculation of earnings per share is based on:
Loss after taxation ...................................................... (139,040) (66,667) (2,052)
Less: appropriations for preference shares................. — (2,112) (343)
Loss attributable to ordinary shareholders ................. (139,040) (68,779) (2,395)
Weighted average no. of shares (‘000)....................... 462,706 288,548 99,014
Per share amount (pence) ........................................... (30.0) (23.8) (2.4)
In accordance with UK GAAP the weighted average number of shares takes account of the bonus issue of 6
April 2000.
The Group has or had share options, Warrants, convertible bonds and in 1999 had convertible preference shares,
which were potentially convertible into Ordinary Shares. However the impact on the net loss of these potential
ordinary shares is anti-dilutive.
12. Intangible assets
Goodwill Other Total
£’000 £’000 £’000
Net book value at 31 March 19991................................................................. — — —
Cost at 1 April 1999.......................................................................................... — — —
Goodwill arising from acquisitions during the year (note 15)........................... 23,005 — 23,005
31 March 2000.................................................................................................. 23,005 — 23,005
Amortisation at 1 April 1999 ............................................................................ — — —
Exceptional impairment provision (note 3)....................................................... 22,418 — 22,418
Charge for the year ........................................................................................... 152 — 152
31 March 2000.................................................................................................. 22,570 — 22,570
Net book value at 31 March 2000.................................................................. 435 — 435
Cost at 1 April 2000.......................................................................................... 23,005 — 23,005
Goodwill arising from acquisitions during the year (note 15)........................... 116,295 — 116,295
Additions during the year ................................................................................. 839 631 1,470
31 March 2001.................................................................................................. 140,139 631 140,770
Amortisation at 1 April 2000 ............................................................................ 22,570 — 22,570
Exceptional impairment provision (note 3)....................................................... 77,941 — 77,941
Charge for the year .......................................................................................... 16,164 140 16,304
31 March 2001.................................................................................................. 116,675 140 116,815
Net book value at 31 March 2001.................................................................. 23,464 491 23,995
(1) There were no additions or charges during the year ended 31 March 1999
30
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
13. Tangible fixed assets
Computer Internal External
Furniture systems and computer computer
& office equipment software software
equipment £’000 capitalised capitalised Total
£’000 £’000 £’000 £’000
Cost at 1 April 1998 ................................................. 11 — — — 11
Additions through acquisition................................... — — — — —
Additions .................................................................. 8 143 — 36 187
Disposals .................................................................. — - — — —
31 March 1999 ......................................................... 19 143 — 36 198
Depreciation at 1 April 1998 .................................... 3 — — — 3
Charge for year ......................................................... 1 13 — — 14
Disposals .................................................................. — — — — —
31 March 1999 ......................................................... 4 13 — — 17
Net book value at 31 March 1999.......................... 15 130 — 36 181
Cost at 1 April 1999 ................................................. 19 143 — 36 198
Additions through acquisiton.................................... — — — 174 174
Additions .................................................................. 276 5,368 2,324 466 8,434
Disposals .................................................................. (4) (19) — — (23)
31 March 2000 ......................................................... 291 5,492 2,324 676 8,783
Depreciation at 1 April 1999 .................................... 4 13 — — 17
Charge for year ......................................................... 65 722 653 98 1,538
Disposals .................................................................. (1) (5) — — (6)
31 March 2000 ......................................................... 68 730 653 98 1,550
Net book value at 31 March 2000.......................... 223 4,762 1,671 578 7,233
Cost at 1 April 2000 ................................................. 291 5,492 2,324 676 8,783
Additions through acquisition................................... 352 1,562 207 573 2,694
Additions .................................................................. -32 1,712 558 116 2,417
Disposals .................................................................. — (288) (364) — (652)
31 March 2001 ......................................................... 675 8,478 2,726 1,364 13,243
Depreciation at 1 April 2000 .................................... 68 730 653 98 1,550
Charge for year ......................................................... 216 3,337 2,072 383 6,010
Disposals .................................................................. — (288) (364) — (652)
31 March 2001 ......................................................... 284 3,779 2,362 481 6,906
Net book value at 31 March 2001.......................... 391 4,699 364 883 6,337
Included within ‘Computer systems and equipment’ are assets held under finance leases, with a net book value of
£573,000 (2000: £640,000, 1999: £nil). Depreciation charged during the year on these assets was £198,000
(2000: £63,000, 1999: £nil).
14. Investments
31 March 31 March 31 March
2001 2000 1999
Group £'000 £'000 £'000
At 1 April ....................................................... — — —
Additions through acquisition ......................... 1,616 — —
Impairment provision ...................................... (1,384) — —
At 31 March.................................................. 232 — —
31
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
15. Acquisitions
QXL ricardo plc made a number of acquisitions during the year ended 31 March 2001, some of which were
piecemeal. The details of these acquisitions are given below.
ibidlive NV
On 3 April 2000, QXL ricardo plc acquired 50% of ibidlive NV a company incorporated in the Netherlands for a
consideration of £4,800,966 satisfied by the issue of 506,431 new ordinary shares at £9.48 each. The fair value
of the share of the net assets acquired was £2,070,495.
During the period in which ibidlive NV was a joint venture the Group's share of net losses was £3.4 million.
On 24 October 2000, QXL ricardo plc increased its stake in ibidlive NV from 50% to 62% for a consideration
of £1,676,525 satisfied by the issue of 56,158,539 ordinary shares at £0.325 each.
The fair value of the Group’s share of the net liabilities acquired from this secondary transaction after minority
interests was £98,744.
If goodwill on the acquisition of ibidlive NV on 24 October 2000 had been calculated in accordance with the
basis set out in the Companies Act 1985, £2.5 million of the Group's share of the retained losses of ibidlive NV
would have been reclassified as goodwill and the total goodwill would have been £7.3 million.
Applying the true and fair override in accordance with FRS 2 the total goodwill arising on the transaction was
£4.8 million, which has been fully amortised during the year subsequent to an impairment review.
ibidlive NV was treated as a joint venture in the Group financial statements up to the date on which it became a
subsidiary undertaking after which it has been consolidated using the acquisition method.
Idefi SA
On 14 April 2000 QXL ricardo plc acquired all the issued share capital of Idefi SA, a company incorporated in
Luxembourg for a total consideration of £2,524,939 satisfied by the following issue of shares: on 14 April 2000
392,340 ordinary shares at £2.88 each, on 26 July 2000 871,875 ordinary shares at £0.80 each and on 24 January
2001 3,321,429 ordinary shares at £0.21 each.
The fair value of the share of the net assets acquired at 14 April 2000 was £nil.
Total goodwill arising on the transaction amounted to £2.5 million. In recognition of the material change in the
Company's share price since acquisition, an exceptional impairment provision has been made against the total
value of this goodwill.
Idefi SA has been consolidated using the acquisition method.
Bidlet AB
On 29 June 2000, QXL ricardo plc acquired 48.4% of the issued share capital of Bidlet AB, a company
incorporated in Sweden, for a consideration of £35,280,174 satisfied by the issue of 35,280,174 ordinary shares
at £1.00 each. The fair value of the share of the net liabilities acquired at 29 June 2000 was £3,001,062.
On 7 September 2000, QXL ricardo plc acquired a further 50.2% of the issued share capital of Bidlet AB for a
further consideration of £22,018,561 satisfied by the issue of 34,137,304 ordinary shares at £0.645 each,
bringing its total holding to 98.6%. The fair value of the share of the net liabilities acquired at 7 September
2000 was £4,948,486.
32
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
A further 0.98% of the share capital was acquired on 8 November 2000, as a result of an extension of the public
tender offer, for a consideration of £190,973 satisfied by the issue of 670,079 ordinary shares at £0.285 each.
The fair value of the share of the net liabilities acquired at 8 November 2000 was £107,845.
QXL ricardo plc's current total holding in Bidlet AB is 99.6%.
Total goodwill arising on the transaction so far amounts to £70 million. An exceptional impairment provision of
£50 million has been made against this and the balance is being amortised over 39 months from the date of
acquisition, being the anticipated useful economic life.
Bidlet AB has been consolidated using the acquisition method.
From the date of acquisition to 31 March 2001 Bidlet AB contributed £7.2 million to Group turnover, £5.8
million to Group loss before interest and £5.8 million to Group loss after interest. Bidlet AB contributed £5.2
million to the Group's net operating cash outflows, received £43,000 in respect of interest and utilised £125,000
for capital expenditure. No taxation was paid.
In the financial year ended 31 December 1999 Bidlet AB made a loss after tax and minority interests of £3.4
million. From the period since that date to the date of acquisition, Bidlet AB’s unaudited management accounts
show:
£'000
Turnover................................................................................................................................... 7,113
Operating loss .......................................................................................................................... (12,108)
(Loss) before taxation .............................................................................................................. (12,487)
Taxation and minority interests................................................................................................ —
(Loss) attributable to shareholders ........................................................................................... (12,487)
Total recognised losses for the period......................................................................................
(12,487)
ricardo.de AG
On 24 November 2000, QXL ricardo plc issued 126,280,216 ordinary shares at £0.25 each in exchange for an
effective holding of 44.8% of ricardo.de AG. The preliminary fair value of the Group’s share of the net assets
acquired in total after minority interests was £3.9 million.
On 4 January 2001 a further 34,143,374 shares were issued under certain exchange rights granted at the time of
the acquisition, increasing the Group interest in ricardo.de AG to 56.8%.
On 30 March 2001 a further 26,613,017 shares where issued under the exchange rights bringing the total Group
interest in ricardo.de AG to 66.2%.
Total goodwill arising on the transaction so far amounts to £38.7 million. An exceptional impairment provision
of £21.4 million was made against the value of this goodwill, the balance of which is being amortised over 34
months from the date of acquisition, being the anticipated useful economic life.
ricardo.de AG has been consolidated using the acquisition method.
From the date of acquisition to 31 March 2001 ricardo.de AG contributed £1.4 million to Group turnover, £4.9
million to Group loss before interest and £4.7 million to Group loss after interest. ricardo.de AG contributed £3.3
million to the Group’s net operating cash outflows, paid £5,000 in respect of interest and utilised £300,000 for
capital expenditure. No taxation was paid.
33
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
In its last financial year to 30 June 2000 ricardo.de AG made a loss after tax and minority interests of £20.7
million. From the period since that date to the date of acquisition, ricardo.de AG unaudited management
accounts show:
£'000
Turnover................................................................................................................................ 4,856
Operating loss ....................................................................................................................... (13,266)
(Loss) before taxation ........................................................................................................... (13,220)
Taxation and minority interests............................................................................................. —
(Loss) attributable to shareholders ........................................................................................ (13,220)
Total recognised losses for the period...................................................................................
(13,220)
34
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Fair value table and calculation of Book value Revaluation Fair value Consideration Goodwill
goodwill £’000 £’000 £’000 £’000 £’000
ibidlive NV
Tangible fixed assets ................... 933 — 933
Intangible assets .......................... 850 — 850
Investments ................................. 307 — 307
Debtors........................................ 165 — 165
Cash at bank ................................ 542 — 542
Creditors: amounts falling
due within one year ..................... (3,620) — (3,620)
Net assets/(liabilities)
at 30 October 2000 .................... (823) — (823)
Consideration satisfied by:
Cash (all acquisition costs ............................................................................... 302
Shares issued (506,431at 948p) on 3 April 2000 ............................................ 4,801
Shares issued (5,158,539 at 32.5p) on 24 October 2000................................. 1,677
Total consideration ....................................................................................... 6,780
Total goodwill arising on acquisition................................................................................. 4,808
The provisional fair value of net assets at 3 April 2000 was £4,140,990
Fair value table and calculation of Book value Revaluation Fair value Consideration Goodwill
goodwill £’000 £’000 £’000 £’000 £’000
Idefi SA
Intangible assets ...................... 284 (284) —
Net assets acquired................ 284 (284) —
Consideration satisfied by:
Shares issued (392,340 at 288p) on 14 April 2000 ......................................... 1,130
Shares issued (871,875 at 80p) on 24 July 2000 ............................................. 698
Shares issued (3,321,429 at 21p) on 24 January 2001 .................................... 697
Total consideration ....................................................................................... 2,525
Total goodwill arising on acquisition................................................................................. 2,525
A revaluation was made to reflect the considered carrying value of Idefi SA’s intangible assets.
35
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Fair value table and calculation of Book value Revaluation Fairvalue Consideration Goodwill
goodwill £’000 £’000 £’000 £’000 £’000
Bidlet AB
Net assets:
Tangible fixed assets .................. 449 458 907
Intangible assets ......................... 166 101 267
Debtors....................................... 743 1,433 2,176
Stock .......................................... 2,548 (436) 2,112
Cash at bank ............................... 1,857 — 1,857
Creditors: amounts falling
due within one year ................... (4,900) — (4,900)
Creditors: amounts falling
due in more than one year .......... (8,620) — (8,620)
Net liabilities at 30 June 2000 (7,757) 1,556 (6,201)
Consideration satisfied by
Cash (all acquisition costs ............................................................................... 3,742
Shares issued (35,280,174 at 100p) on 29 June 2000 ..................................... 35,280
Shares issued (34,137,305 at 64.5p) on 7 September 2000............................. 22,019
Shares issued (670,080 at 28.5p) on 8 November 2000.................................. 190
Cost of exercising warrants ............................................................................. 921
Total consideration ....................................................................................... 62,152
Total goodwill arising on acquisition................................................................................. 70,220
Revaluations of Bidlet AB’s balance sheet were made in order to align its accounting policies with those of the
Group and revaluation adjustments were made in respect of advertising prepayments.
The provisional fair value of net liabilities at 7 September 2000 was £9,858,000 and the provisional fair value of
net liabilities at 8 November 2000 was £11,005,000.
36
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Fair value table and calculation of Book value Revaluation Fair value Consideration Goodwill
goodwill £’000 £’000 £’000 £’000 £’000
ricardo.de AG
Net assets
Tangible fixed assets ................... 854 — 854
Intangible assets .......................... 353 — 353
Investments ................................. 1,309 — 1,309
Debtors........................................ 1,279 — 1,279
Stock ........................................... 147 — 147
Cash at bank ................................ 8,815 — 8,815
Creditors: amounts falling
due within one year ..................... (4,026) — (4,026)
Creditors: amounts falling
due in more than one year ........... (87) — (87)
Net assets at 24 November 2000 8,644 — 8,644
Consideration satisfied by:
Cash (all acquisition costs ........... ....................................................................... 8,617
Shares issued (126,280,216 at 25p) on 24 November 2000................................ 31,570
Shares issued (34,143,374 at 8.5p) on 3 January 2001 ....................................... 2,902
Shares issued (26,613,017 at 6.5p) on 30 March 2001 ....................................... 1,730
Total consideration ................... ....................................................................... 44,819
Total goodwill arising on acquisition.......................................................................................... 38,742
The provisional fair value of net assets at 3 January 2000 was £5,764,000. The provisional fair value of net
assets at 31 March 2001 was £6,290,000.
Goodwill
£'000
Total goodwill additions for the year ended 31 March 2001 (note 12)......................................... 116,295
37
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
All of the acquisitions made during the year ended 31 March 2000 were of businesses in their startup phase. The
details of these acquisitions are given below. In the opinion of the directors the pre-acquisition results were not
material and are not presented in these financial statements.
Humpty Dumpty/eSwap
On 6 July 1999, QXL Limited entered into asset purchase agreements with Humpty Dumpty Limited. Under the
terms of the agreements, QXL Limited acquired the membership databases of www.HumptyDumpty.co.uk and
www.eSwap.co.uk.
The consideration comprised two parts: £1 million, of which £200,000 was deferred and is payable in equal
instalments on 1 July 2000 and 1 July 2001, and 1,269,230 Ordinary Shares. At the date the transaction became
unconditional the share price was 166.00p. The total consideration has therefore been valued at £3,107,000. In
addition, £72,000 of stamp duty was paid on the transaction.
QXL Auksjon Norge AS
On 8 December 1999, QXL Auksjon Norge AS, a subsidiary of QXL completed an asset purchase agreement
with Dinside AS. Under the terms of the agreement, QXL Auksjon Norge AS acquired the online auction
business of Dinside AS, a membership database and a functioning local language web site.
The consideration comprised 1,296,154 Ordinary Shares issued by QXL. At the date the agreement became
unconditional, the share price was 1,020.00p. The consideration has therefore been valued at £13,221,000. The
amount of the consideration is represented as a long term loan from QXL.com plc to QXL Auksjon Norge AS.
QXL Denmark ApS
On 11 January 2000, QXL entered into a share purchase agreement to acquire all of the issued and outstanding
shares of QXL Denmark ApS from Jubii A/S. Unconditional control was acquired on this date. QXL effectively
acquired the online auction business of Jubii A/S, a membership database and a functioning local language web
site.
Prior to the transaction, Jubii A/S, with QXL’s agreement, had incorporated the wholly owned subsidiary, QXL
Denmark ApS. Jubii A/S then transferred its online auction business into QXL Denmark ApS and sold the
company to QXL.com plc.
The consideration comprised 510,000 Ordinary Shares, which were issued on 14 March 2000. At the date the
transaction became unconditional, the share price was 1,297.50p. The consideration has therefore been valued at
£6,617,000. Advantage has been taken of the merger relief provisions set out in Section 131 of the Companies
Act 1985 and the Company has not recorded any share premium in respect of this transaction.
QXL sp.zoo
On 13 March 1999, QXL sp.zoo completed an asset purchase agreement with SurfStopShop sp.zoo. Under the
terms of the agreement, QXL sp.zoo acquired the online auction business of SurfStopShop sp.zoo. The assets
acquired comprised a membership database and a functioning local language web site.
The consideration under the agreement was US$75,000 (£47,000), which was satisfied in cash, US$15,000
(£9,000) of which was deferred and paid in April 2000.
38
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Fair value table and calculation of goodwill Book value Revaluation Fair value Goodwill
£’000 £’000 £’000 £’000
Humpty Dumpty/eSwap
Net assets acquired:............................................................................... . — — —
Consideration satisfied by:
Cash (including £111,000 of acquisition costs)....................................... . 911
Deferred cash consideration .................................................................... . 200
Shares issued (1,269,230 at 166.00p)...................................................... . 2,107
3,218
Goodwill arising on acquisition............................................................ . 3,218 3,218
QXL Auksjon Norge AS
Net assets acquired:
Fixed assets ............................................................................................. . — 68 68
Consideration satisfied by:
Cash (all acquisition costs) ...................................................................... . 63
Shares issued (1,296,154 at 1020.00p).................................................... . 13,221
13,284
Goodwill arising on acquisition............................................................ . 13,216 13,216
QXL Denmark ApS
Net assets acquired:
Fixed assets ............................................................................................. . 12 68 80
Debtors .................................................................................................... . 1 — 1
Creditors.................................................................................................. . (11) — (11)
2 68 70
Consideration satisfied by:
Cash (all acquisition costs) ...................................................................... . 15
Shares issued (510,000 at 1,297.50p)...................................................... . 6,617
6,632
Goodwill arising on acquisition............................................................ . 6,562 6,562
QXL sp zoo
Net assets acquired:
Fixed assets ............................................................................................. . — 38 38
Consideration satisfied by
Cash (no acquisition costs) ...................................................................... . 38
Deferred cash consideration .................................................................... . 9
47
Goodwill arising on acquisition............................................................ . 9 9
Total goodwill additions for the year ended 31 March 2000 (note 12). 23,005
All the fixed asset fair value adjustments for the year ended 31 March 2000 were made to reflect the values of
the web sites acquired.
On the 4 December 1998, a wholly owned subsidiary, QXL Sarl, was incorporated in France. On the 13 October
1998, the company acquired the whole of the share capital of a shelf company, QXL GmbH (formerly know as
“David” Vierundsiebzigste Beteiligungs und Verwaltungs GmbH).
Neither company had any capital or reserves other than share capital at the date of acquisition which was
represented by cash and debtors. The group has used acquisition accounting to account for the purchase of both
subsidiaries.
Neither company had commenced trading at 31 March 1999.
39
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
16. Stock
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Goods for resale ............................................................................ 295 401 357
The Directors do not consider that the replacement cost of stock differs substantially from the historical cost.
17. Debtors
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Amounts falling due within one year:
Trade debtors ................................................................................ 1,189 549 96
Other debtors ................................................................................ 5,817 4,301 128
Prepayments and accrued income ................................................. 574 1,524 213
7,580 6,374 437
Amounts falling due after more than one year:
Prepayments.................................................................................. 321 — —
321 — —
18. Cash at bank and in hand
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Cash at bank and in hand .............................................................. 11,243 8,495 6,557
Short term deposits ....................................................................... 13,042 69,167 —
24,285 77,662 6,557
19. Creditors: amounts falling due within one year
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
5,137 4,004
Trade creditors .............................................................................. 725
3,152 3,399
Other creditors .............................................................................. 4
1,018
Other taxation and social security ................................................. 126 37
3,836 1,935
Accruals ........................................................................................ 167
238
Finance lease obligations .............................................................. 267 —
13,381 9,731 933
During the year ended 31 March 1999 loans to the company from MR T Jackson and Ms E Marbach, being £24,853
and £80,000 respectively, were repaid, with interest, by the Company. The highest balances for these loans for the
year ended 31 March 1999 were £24,853 and £80,000.
20. Creditors: amounts falling due after one year
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Finance lease obligations .............................................................. 97 237 —
Other creditors .............................................................................. 316 100 —
413 337 —
40
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION – (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Maturity of financial liabilities
Future minimum payments under finance leases are as follows:
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Due within one year .................................................................. 238 267 —
Due in more than one year and less than five years. ................. 97 237 —
335 504 —
The weighted average fixed interest rate implicit on the finance leases was 11.35% as at 31 March 2001.
21. 2% Convertible Bonds & associated Warrants
Convertible Bonds
On 13 February 2001 the Company issued £5 million of 2% Convertible Series A ('A Bonds'). These can be
converted by the holder into ordinary shares at any time until 13 February 2004. The A Bonds will convert
automatically on this date if not converted or redeemed beforehand.
The conversion price for the A Bonds as at 31 March 2001 was 17.6669p. On 13 May 2001, the conversion
price was reset to 12.6192p. With effect from 13 August 2001, the A Bonds will remain convertible at this price
or, if lower, at a price that is the average of the three highest of the five lowest Volume Weighted Average Prices
('VWAPs') during the 15 trading days prior to the date of delivery of a conversion notice.
The maximum number of new ordinary shares that may be issued pursuant to the conversion of the A Bonds is
116,133,228 shares.
The ordinary shares into which the Convertible Bonds convert will rank pari passu with all the other ordinary
shares of the Company and as such will rank equally for any dividends.
None of the bonds were converted before 31 March 2001.
Warrants
On 13 February 2001, pursuant to the agreement to issue Convertible Bonds, the Company issued 19,811,081
Warrants over the same number of the Company's ordinary shares with an exercise price of 15.774p (the 'A
Warrants') to the bondholders. No value was assigned to the A Warrants because the exercise price was higher
than the market value of the Company's ordinary shares at the time of issue.
41
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
22. Provisions for liabilities and charges
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
National Insurance on share options *
At 1 April .................................................................................... 2,432 — —
Utilised on exercise of options.................................................... (54)
(Released)/charged during the year............................................. (2,378) 2,432 —
At 31 March .............................................................................. — 2,432 —
* Restated following prior year adjustment of £9,125,000 (note 3)
The charge for the year, which is based on the closing share price on 31 March 2000 of 1,032.00p, has been
treated as exceptional (note 3).
The maturity profile of this financial liability, assuming that all outstanding share options are exercised at the
earliest opportunity, is as follows:
31 March 2001 31 March 2000 31 March 1999
£’000 £’000 £’000
Falling due within one year ......................................................... — 2,432 —
42
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
23. Share capital
31 March 2001 31 March 2000 31 March 1999
£ £ £
Authorised
1,700,000,000 (2000: 200,000,000; 1999: 159,118,880)
Ordinary shares of £0.001 each................................................. 1,700,000 200,000 1,591
Six (2000: nil; 1999: nil)
Special Shares of £1.00 each..................................................... 6 — —
Nil (2000: Nil; 1999: 17,659,590)
Series A preference shares of £0.001 each............................... — — 177
Nil (2000: Nil; 1999: 1,732,710)
Series B preference shares of £0.001 each................................ — — 17
Nil (2000: Nil; 1999: 21,488,820)
Series C preference shares of £0.001 each................................ — — 215
Nil (2000: Nil; 1999: Nil)
Series D preference shares of £0.001 each................................ — — —
1,700,006 200,000 2,000
Allotted, called up and fully paid
635,227,217 (2000: 118,804,474; 1999: 30,232,820)
Ordinary shares of £0.001 each................................................. 635,221 118,804 302
Six (2000: nil; 1999: nil)
Special Shares of £1.00 each..................................................... 6 — —
Nil (2000: Nil; 1999: 17,659,590)
Series A preference shares of £0.001 each............................... — — 177
Nil (2000: Nil; 1999: 1,732,710)
Series B preference shares of £0.001 each................................ — — 17
Nil (2000: Nil; 1999: 21,488,820)
Series C preference shares of £0.001 each................................ — — 215
Nil (2000: Nil; 1999: Nil)
Series D preference shares of £0.001 each................................ — — —
635,227 118,804 711
Authorised share capital
On the 6 April 2000 the Company reorganised its share capital. A bonus issue of two shares for each share held
was made. In this note, numbers for the year ended 31 March 2000 are shown before the effect of the 2 for 1
bonus issue.
On the 6 April 2000 the Company approved a bonus issue of two ordinary shares, nominal value £0.001 each, in
QXL plc for every share held. This resulted in an increase in the issued share capital to 357,932,715 ordinary
shares, nominal value £0.001, as at 6 April 2000.
On 21 June 1999, the Company converted 1,275,436 shares of the authorised ordinary share capital into the
same number of Series D preference shares of £0.001 each. At the time of the initial public offering these shares,
along with the Series A, B and C preference shares, converted into ordinary shares.
On 9 September 1999, the Company re-organised its share capital. A bonus issue of 99 shares for each share
held, was made concurrent with a five-for-one reverse share split and a two-for-one reverse share split. The
effect of this was an increase in the par value of ordinary shares from £0.0001 to £0.001. This change has been
reflected in the comparative number of shares shown for 1999. Consequently a transfer was made between share
premium and share capital of £70,000.
43
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION – (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Share issues
The following shares were issued during the period from 1 April 1999 to 31 March 2001.
Share Share
Date Number capital Premium Reason for issue
£ £’000
June 1999 12,754,360 12,754 20,650 Series D Preference Shares, to provide funds
for the development of the business
July 1999 1,269,230 1,269 2,107 Consideration for the acquisition of the auction
business from Humpty Dumpty Ltd.
September 1999 17,910 18 6 Exercise of Warrants
September 1999 243,470 244 85 Exercise of Warrants
September 1999 375,000 375 16 Exercise of Options
October 1999 28,468,000 28,468 55,484 Initial Public Offering to provide funds for the
development of the business.
October 1999 256,410 256 500 Shares issued as part payment for the
acquisition of World of Antiques
December 1999 1,296,154 1,296 13,219 Consideration for the acquisition of the auction
business from DinSide AS
February 2000 2,500,000 2,500 40,247 Provision of additional funds for business
development
March 2000 510,000 510 — Consideration for the acquisition of the auction
business from Jubii A/S
April 2000 506,431 506 4,800,460 Shares issued as part payment for the
acquisition of ibidlive NV
April 2000 238,621,810 238,622 (238,622) 2 for 1 bonus issue of shares
April 2000 392,340 392 — Shares issued as part payment for the
acquisition of I-Deal SAS and Idefi SA
May 2000 2,307,693 2,308 9,291,282 Shares issued as part payment for the
acquisition of World of Antiques
June 2000 2,632,458 2,633 120,978 Exercise of options
June 2000 35,280,174 35,280 35,244,894 Shares issued as part payment for the
acquisition of Bidlet AB
July 2000 871,875 872 — Shares issued as part payment for the
acquisition of I-Deal SAS and Idefi SA
August 2000 100,000 100 53,165 Exercise of Options
September 2000 34,137,305 34,137 21,984,424 Shares issued as part payment for the
acquisition of Bidlet AB
September 2000 4,786,560 4,787 232,733 Exercise of options
October 2000 5,158,539 5,159 1,671,367 Shares issued as part payment for the
acquisition of ibidlive NV
November 2000 670,080 670 190,303 Shares issued as part payment for the
acquisition of Bidlet AB
November 2000 126,280,216 126,280 31,443,774 Shares issued as part payment for the
acquisition of ricardo.de AG
December 2000 354,517 355 18,280 Exercise of options
January 2001 34,143,374 34,143 2,868,044 Shares issued as part payment for the
acquisition of ricardo.de AG
January 2001 244,925 245 7,358 Exercise of options
January 2001 3,321,429 3,321 — Shares issued as part payment for the
acquisition of I-Deal SAS and Idefi SA
44
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION – (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Share Share
Date Number capital Premium Reason for issue
£ £’000
March 2001 26,613,017 26,613 1,703,233 Shares issued as part payment for the
acquisition of ricardo.de AG
564,113,277 564,113 Movement for the period 1 April 1999 to 31
March 2001
71,113,940 71,114 Shares outstanding at 1 April 1999
635,227,217 635,227 Shares outstanding at 31 March 2001
On 6 April 2000 the Company approved a bonus issue of two Ordinary Shares, nominal value £0.001 each, in
QXL ricardo plc for every Ordinary Share held. This resulted in an increase in the issued share capital to
357,932,715 ordinary shares, nominal value £0.001, as at 6 April 2000.
Ordinary Shares
Ordinary Shares are equal in value and have an equitable interest in the Company. The holders of Ordinary
Shares are entitled to any dividends declared in relation thereto by the Directors. Each holder of an Ordinary
Share is entitled to one vote at general meetings of the Company. The holders of Ordinary Shares, upon the
liquidation of the Company, are entitled to share in the surplus assets of the Company once all preference share
interests have been paid out.
Special Shares
Pending full exercise of their exchange rights granted at the time of the acquisition of ricardo.de AG, the former
majority shareholders of ricardo.de AG were issued in total six special shares in QXL ricardo plc. These special
shares give the holders substantially the same rights they would have had if they had fully exercised their
exchange rights over ordinary shares in QXL ricardo plc.
These special shares also bestow on the former majority shareholders of ricardo.de AG the right to nominate
jointly two directors of QXL ricardo plc whilst their aggregate voting rights in the company equal or exceed 12%
of the issued share capital. No director has been appointed pursuant to these rights.
Series A preference shares
Holders of Series A preference shares had the same rights as holders of Ordinary Shares in relation to dividends
declared. Series A preference shares conferred, upon the holder, the right to convert each Series A preference
share into one Ordinary Share. The holder could convert the Series A preference shares at any time and the
shares converted automatically on the sale or flotation of the Company. Holders of Series A preference shares, in
the event of a liquidation of the Company or a reduction in the capital of the Company, received their subscribed
amount in priority over holders of Ordinary Shares of the Company and were entitled to share in any surplus
assets of the company after all preference share interests had been paid. Holders of Series A preference shares
were entitled to vote at general meetings of the Company. All Series A preference shares were converted into
Ordinary Shares on 14 October 1999 on admission of the Company to the London Stock Exchange.
45
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION – (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Series B preference shares
Holders of Series B preference shares had the same rights as holders of Ordinary Shares in relation to dividends
declared, and conferred upon the holder the right to convert each such share into one Ordinary Share. The holder
could convert the Series B preference shares at any time and the shares converted automatically on the sale or
flotation of the Company. Holders of Series B preference shares, in the event of liquidation of the Company or a
reduction in the capital of the Company, received their subscribed amount in priority over Ordinary and Series A
preference shares and were entitled to share in any surplus assets of the Company after all preference share
interests had been paid. Holders of Series B preference shares were entitled to vote at general meetings of the
Company. All Series B preference shares converted to Ordinary Shares on 14 October 1999 on admission of the
Company to the London Stock Exchange.
Series C preference shares
Series C preference shares conferred upon the holder the right to convert each such share into one Ordinary
Share. The holder could convert the Series C preference shares at any time and the shares converted immediately
on sale or flotation of the Company. In converting Series C preference shares to Ordinary Shares, the value of
each Ordinary Share on conversion had to be greater than the subscription price of each Series C preference
share. If the value of the Ordinary Share on conversion had been lower than the subscription price of the Series
C preference share, the Company would pay to the holder, an amount equal to the total difference between the
subscription price for the Series C preference shares and the value of Ordinary Shares on conversion, and any
dividend arrears calculated to the redemption date. The Series C preference shares had a fixed cumulative
preferential dividend, at the gross rate of 8 per cent per annum, calculated on the subscription price paid, and
such dividend accrued daily. The preferential dividend was only payable upon liquidation, redemption
(conversion to Ordinary Shares), or upon a qualifying realization occurring on or after 5 August 2000. A
qualifying realisation was either a sale in which the controlling interest of the Company changed or the listing of
the Company on an internationally recognised stock exchange (as listed in the Company’s Articles of
Association). Series C preference shares ranked above Ordinary, Series A preference, and Series B preference
shares in the event of liquidation of the Company or a reduction in the capital of the Company. In such
circumstances, holders were entitled to receive an amount equal to the amount they subscribed for their shares,
and were also entitled to share in any surplus assets of the Company after all preference share interests had been
paid. Holders of Series C preference shares were entitled to vote at general meetings of the Company. All Series
C preference shares were converted to Ordinary Shares on 14 October 1999 on admission of the Company to the
London Stock Exchange.
Series D preference shares
Series D preference shares conferred upon the holder the right to convert each such share into one Ordinary
Share. The holder could convert the Series D preference shares at any time and the shares converted immediately
on sale or flotation of the Company. In converting Series D preference shares to Ordinary Shares, the value of
each Ordinary Share on conversion had to be greater than the subscription price of each Series D preference
share. If the value of the Ordinary Share on conversion had been lower than the subscription price of the Series
D preference share, the Company would pay to the holder, an amount equal to the total difference between the
subscription price for the Series D preference shares and the value of Ordinary Shares on conversion, and any
dividend arrears calculated to the redemption date. The Series D preference shares had a fixed cumulative
preferential dividend, at the gross rate of 8 per cent. Per annum, calculated on the subscription price paid, and
such dividend accrued daily. The preferential dividend was payable only upon liquidation, redemption
(conversion to Ordinary Shares), or upon a qualifying realisation occurring on or after 5 August 2000. A
qualifying realisation was either a sale in which the controlling interest of the Company changed or the listing of
the Company on an internationally recognised stock exchange (as listed in the Company’s Articles of
Association). Series D preference shares ranked above Ordinary, Series A
46
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION – (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
preference, Series B preference, and Series C preference shares in the event of liquidation of the Company, or a
reduction in capital of the Company. In such circumstances, holders were entitled to receive an amount equal to
the amount they subscribed for their shares, and were also entitled to share in any surplus assets of the Company
after all preference share interests had been paid. Holders of Series D preference shares were entitled to vote at
general meetings of the Company. All Series D preference shares were converted to Ordinary Shares on 14
October 1999 on admission of the Company to the London Stock Exchange.
All the preference shares converted to Ordinary Shares on 14 October 1999.
24. Options and Warrants in shares
Options Warrants
Directors in Staff in total A Warrants Ordinary Shares Series A Series C Ordinary Shares
total (advisers) Preference Shares Preference Shares (Mr Hugh Scully)
(advisers) (advisers)
At 1 April 1998 2,250,000 45,000 - - - - -
Granted during year 11,771,70 13,396,680 - 5,373 244,565 24,347 -
Number exercised during
year. - - - - (244,565) - -
Surrendered during year - - - - - - -
At 31 March 1999
14,021,760 13,441,680 - 5,373 - 24,347 -
Granted during year 12,882,870 14,861,463 - 130,200 - - 3,076,923
Number exercised during
year (1,125,000) - - (5,373) - (24,347) (769,230)
Surrendered during year - (2,463,000) - - - - -
At 31 March 2000
25,779,630 25,840,143 - 130,200 - - 2,307,693
Granted during year 19,299,560 41,309,490 19,811,081 - - - -
Number exercised during
year (2,500,000) (5,618,460) - - - - (2,307,693)
Lapsed during year - (11,987,423) - - - - -
Surrendered during year (10,707,770) (17,835,420) -- - - - -
At 31 March 2001 31,871,420 31,708,330 19,811,081 130,200 - - -
Exercise price £0.01-£0.12 £0.01 -£4.13 £0.16 £3.50 £0.92 £3.66 £1.95
Exercise period.. 1999 -2011 1999- 2011 2001- 2004 1999 -2002 - 1999- 2001 1999- 2000
Options issued to directors and staff are in respect of ordinary shares. Employee options vest over a four year
period based on the date the option is granted.
All share numbers have been quoted post the two for one bonus issue on 6 April 2000.
47
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
25. Share premium and reserves
Share Profit
premium Merger Warrant and loss
Note account reserve reserve account
£’000 £’000 £’000 £’000
Balance at 1 April 1998............................................................................. — — — (141)
Retained loss for the period ........................................................................ — — — (2,395)
Premium on shares issued ........................................................................... 9,039 — — —
Reversal of preference dividend appropriation ........................................... — — — 88
Warrants issued in the period...................................................................... (14) — 21 —
Warrants exercised ...................................................................................... 14 — (14) —
Transfer in respect of non-equity issue costs .............................................. (255) — — 255
Balance at 31 March 1999 ........................................................................ 8,784 — 7 (2,193)
Transferred on exercise ............................................................................... 7 — (7) —
Retained loss for the financial year ............................................................. — — — (77,904)
Premium issued on shares to former owners of QXL Denmark ApS. ...... — 6,617 — —
Premium on issue of other shares................................................................ 124,482 — — —
Transfer in respect of non-equity issue costs .............................................. (1,283) — — 1,283
Net premium on issue of other shares ......................................................... 23 123,199 — — —
Reversal of preference dividend appropriation ........................................... — — — 829
Transfer from share premium to capital on bonus issue.............................. 23 (71) — — —
Accrued compensation expense .................................................................. — — — 175
Exchange adjustment .................................................................................. — — — 341
Transfer to distributable reserves in respect of the capital
Reduction exercise ...................................................................................... (20,000) — — 20,000
Balance at 31 March 2000 ........................................................................ 111,919 6,617 — (57,469)
Prior period adjustment - National Insurance on Options........................... — — — 9,125
Balance at 31 March 2000 restated ......................................................... 111,919 6,617 — (48,344)
Retained Loss for the financial year............................................................ — — — (139,040)
Cost of Issuing Convertible bonds .............................................................. (241) — — 241
Premium on shares issued to former owners of Idefi SA and I-Deal SAS .. — 2,520 — —
Premium on shares issued to former owners of ibidlive NV....................... 6,482 — — —
Premium on shares issued to former owners of Bidlet AB.......................... 57,420 — — —
Premium on shares issued to former owners of ricardo.de AG ................... 36,015 — — —
Premium arising on acquisition of World of Antiques................................ 9,291 — — —
Cost of Issue of Shares................................................................................ (2,231) — — —
Bonus Issue ................................................................................................. (239) — — —
Accrued Compensation Expense................................................................. — — — (80)
Premium on options exercised .................................................................... 440 — — —
Exchange Adjustment ................................................................................. — — — 170
Balance at 31 March 2001 ........................................................................ 218,856 9,137 — (187,053)
In order to re-register as a public limited company in September 1999, the Company was required to have
positive distributable reserves. To achieve this, in September 1999 the Company made a successful application
to the Courts and obtained consent to transfer £20.0 million from share premium to distributable reserves.
48
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
26. Reconciliation of movement in shareholders’ funds
31 March 2001 31 March 2000* 31 March 1999
£’000 £’000 £’000
Loss for the year ............................................................................ (139,040) (66,667) (2,052)
Dividends and appropriations ........................................................ — (2,112) (343)
(139,040) (68,779) (2,395)
Issue of capital to former owners of QXLDenmark ApS ............... — 6,617 —
Issue of capital to former owners of Idefi SA and I-Deal SAS ...... 2,525 — —
Issue of capital to former owners of Bidlet AB ............................. 57,490 — —
Issue of capital to former owners of ibidlive NV........................... 6,489 — —
Issue of capital to former owners of ricardo.de AG ....................... 36,202 — —
Issue of capital in respect of development of World of Antiques .. 9,293 — —
Issue of capital including share premium....................................... (9,294) 124,529 9,040
Capital to be issued ........................................................................ — 9,294 —
Translation adjustment................................................................... 170 341 —
Accrued compensation expense ..................................................... (80) 175 —
Options exercised........................................................................... 446 — —
Cost of issue of shares.................................................................... (2,231) — —
Warrants......................................................................................... — — 7
Reversal of non-equity dividends................................................... — 829 88
Movement for the year................................................................... (38,030) 73,006 6,740
Opening shareholders’ funds * ...................................................... 79,605 6,599 (141)
Closing shareholders’ funds........................................................... 41,575 79,605 6,599
* Restated for a prior year adjustment, following the introduction of UITF 25, of £9,125,000 (Note 3)
27. Financial commitments
31 March, 31 March, 31 March,
2001 2000 1999
£'000 £'000 £'000
Annual commitments under non-cancelable operating leases expiring:
Within one year ............................................................................................ 367 — —
Within two to five years ............................................................................... 256 321 —
After five years............................................................................................. — — —
623 321 —
49
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
28. Financial instruments
Financial instruments and risk management
The Group invests surplus funds in triple A rated money market deposits. Throughout the years under review it
has been the Group’s policy that no trading in financial instruments shall be undertaken. Similarly the Group did
not undertake any financial hedging arrangements during these years. The year end positions reflect these
policies.
The main risks arising from the Group’s financial instruments are interest risk and foreign currency risk. Interest
rates are monitored to ensure best available returns are achieved. The Group’s principal exposure to exchange
rate fluctuations arises on the translation of overseas net assets and losses into sterling for reporting purposes and
on the translation of inter company balances which fund overseas subsidiaries. On an operating basis funds are
exchanged monthly into Euros or other European currencies at spot rates to meet the cash needs of the non-UK
subsidiaries.
Short-term debtors and creditors
Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency
risk disclosures.
Interest rate profile of financial assets
The interest rate profile of the QXL Group’s financial assets as at 31 March 2001, 2000 and 1999 was:
Short term
Cash at bank deposits Total Total Total
and in hand 31 March 31 March 31 March 31 March
31 March 2001 2001 2001 2000 1999
Currency £’000 £’000 £’000 £’000 £’000
Sterling............................................................. 3,238 13,042 16,280 76,398 6,557
Euro/Euro denominated .................................... 7,161 — 7,161 1,061 —
US Dollar. ........................................................ 226 — 226 (4) —
Swedish Kroner................................................. 306 — 306 7 —
Other. ............................................................... 312 — 312 200 —
11,243 13,042 24,285 77,662 6,557
Floating rate ...................................................... 11,243 — 11,243 8,495 6,557
Fixed rate ......................................................... — 13,042 13,042 69,167 —
11,243 13,042 24,285 77,662 6,557
Interest rates on floating rate financial assets are linked to base rates. For the year ended 31 March 2001 and
2000, the fixed rate investments have a weighted average interest rate of 5.1% fixed for the duration of the
deposits.
Funds are held in Euros and other foreign currency accounts to enable the Group to trade and settle its debts in
the local currency in which they occur in order to mitigate the Group's exposure to foreign exchange fluctuations.
50
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Interest rate profile of financial liabilities and maturity of financial liabilities
At 31 March 2001, the Group’s financial liabilities other than short-term payables comprised a finance lease
creditor (note 20), 2% Convertible Bonds (note 21), and other loans attracting interest at 4%. The prior year
included a provision for National Insurance on share options (note 22), a finance lease creditor (note 20) and a
deferred payment on acquisition of a subsidiary (note 15).
Borrowing facilities
The Group does not have any borrowing facilities.
Currency exposures
At 31 March 2001, the Group’s currency exposures relate to cash and cash equivalents and payables translated at
the rate of exchange at that date, analysed as follows:
Net foreign currency monetary assets/ (liabilities) Swedish Kroner US Dollar Euro Other Total
£'000 £'000 £'000 £'000 £'000
Functional currency of operation:
Euro/Euro denominated ............................ — — — 384 384
Sterling...................................................... 2,323 217 4,072 2,030 8,642
Swedish Kroner......................................... — — — 6,672 6,672
Other ......................................................... — — — (36) (36)
2,323 217 4,072 9,050 15,662
There is no material difference between the fair value of the Group’s financial instruments and their carrying
value. In the prior years the net foreign currency monetary assets and liabilities were not material other than
foreign cash balances held by the UK detailed above.
51
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
29. Notes to the cashflow statement
Reconciliation of operating loss to net cash outflow from operating activities
31 March 31 March 31 March
2001 2000 1999
£’000 £’000 £’000
Continuing operating activities
Operating loss ........................................................................................................... (142,269) (68,431) (2,104)
Depreciation of fixed assets ...................................................................................... 6,012 1,539 14
Loss on disposal of fixed assets ................................................................................ — 17 —
Goodwill impairment provision ................................................................................ 77,941 22,418 —
Amortisation of intangible fixed assets ..................................................................... 16,304 152 —
Non cash development costs ..................................................................................... — 9,794 —
Non cash marketing costs.......................................................................................... 967 —
Share based compensation ........................................................................................ (23) 175 —
Decrease/(increase) in stocks .................................................................................... 2,365 (44) (357)
Decrease/(increase) in debtors .................................................................................. 3,183 (6,109) (406)
(Decrease)/increase in creditors ................................................................................ (18,052) (22) 720
(Decrease)/increase in provisions ............................................................................. (2,432) 11,557 —
Net cash outflow from operating activities ........................................................... (56,004) (28,954) (2,133)
The cash flow impact of exceptional items in the profit and loss account was £924,000 (2000: Nil; 1999: Nil).
52
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Reconciliation of net cash flow to movement in net funds
31 March 31 March 31 March
2001 2000 1999
£’000 £’000 £’000
Increase in net cash ................................................................................................ 2,748 1,938 6,524
Movement in deposits ............................................................................................ (56,125) 69,167 —
Movement in finance leases ................................................................................... 169 (504) —
Movement in funds for the year ............................................................................. (53,208) 70,601 6,524
Funds at 1 April ................................................................................................... 77,158 6,557 33
Funds at 31 March............................................................................................... 23,950 77,158 6,557
Reconciliation of movement in net debt
Non Non
1 April Cash 31 March Cash cash 31 March Cash cash 31 March
1998 flows 1999 flows changes 2000 flows changes 2001
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Cash at bank and in hand . 33 6,524 6,557 1,938 — 8,495 2,748 — 11,243
Short term deposits .......... — — — 69,167 — 69,167 (56,125) — 13,042
33 6,524 6,557 71,105 — 77,662 (53,377) — 24,285
Finance leases due after 1
year .................................. — — — 199 (466) (267) 267 (97) (97)
Finance leases due within
1 year ............................... — — — — (237) (237) 63 (64) (238)
33 6,524 6,557 71,304 703 77,158 (53,047) (161) 23,950
30. Post balance sheet events
Convertible Bond
On 31 May 2001 the Company issued £5 million of 2% Convertible Series B Bonds (‘B Bonds’). These can be
converted by the holder into ordinary shares at any time until 31 May 2004. The B Bonds will convert
automatically on this date if not converted or redeemed beforehand.
The initial market price for the B Bonds is 6.9846p, resulting in a conversion price for the three months to 31
August 2001 of 9.7784p. The conversion price of the B Bonds will reset on 31 August 2001 to 125% of the daily
VWAPs of the Company’s ordinary shares for the 10 trading days prior to 31 August. This new conversion price
can not be more than 9.7784p nor less than 6.9846p. On 30 November, the conversion price of the B Bonds will
also reset under the same conditions as the A Bonds.
53
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Warrants
On 31 May 2001, pursuant to the agreement to issue convertible bonds, the Company issued 35,793,030
Warrants over the Company’s ordinary shares with an exercise price of 8.7308p (the ‘B Warrants’) to the
bondholders.
Equity commitment
On 25 June 2001, the Company received notice from the subscribers to the Equity Commitment that they would
subscribe to 33.8 million shares at a price of 7.3966p, thereby raising £2.5 million for the Company. These
shares were issued to the subscribers on 29 June 2001.
Shares to be issued pursuant to the business combination with ricardo.de AG.
A further 11.1 million shares were issued under conversion rights on 29 June 2001.
31. Related party transactions
Transactions with ibidlive NV
The Company carried out the following transactions prior to acquisition as part of its normal course of business
and on an arms length basis.
31 March, 2001
The details of the transaction and its total value is shown £'000
QXL ricardo plc charged ibidlive NV, which later became a subsidiary of
QXL ricardo plc, for advertising services, which comprised the provision of
a button on QXL ricardo plc's home page............................................................. 317
At the date of acquisition ibidlive NV owed QXL ricardo plc £317,000, the balance owing at the year end was
£365,000 in respect of these transactions.
After the subscription and sale agreement was signed on 22 December 1999, the following transactions occurred
between the two groups prior to 31 March 2000:
QXL paid £175,000 to Articulate (UK) Limited, a wholly owned subsidiary of ibidlive NV, for the rights to
exploit TV auction technology. This amount is included in fixed assets at the year end. No depreciation has yet
been provided since the asset is not yet in productive use.
QXL charged ibidlive £115,000 for advertising services that comprised the provision of a button on QXL’s
homepage.
54
QXL GROUP
NOTES TO THE FINANCIAL INFORMATION - (continued)
FOR THE YEARS ENDED 31 MARCH 2001, 31 MARCH 2000 AND 31 MARCH 1999
Transactions with directors
During the year ended March 2001, directors have purchased products from the site but these are immaterial to
them.
Loans to the Company from Mr T D A Jackson and Ms E Marbach, outstanding from the year ended March
1999 of £20,000 and £80,000 respectively, were repaid with interest. The interest calculated on these loans,
before repayment, was at the rate of two per cent above base rate.
In 1998, the Company entered into a marketing agreement with AOL UK, to the value of £85,000. At the time
the contract was signed, Mr J B Bulkeley was managing director of AOL UK.
Loan to Bidlet AB
On 17 April 2000 QXL ricardo plc entered into a loan facility agreement with Bidlet AB for the purpose of
providing working capital. The loan was advanced as follows: £3 million on 17 April 2000, £1 million on 15
May 2000, £2 million on 30 May 2000 and £2 million on 20 June 2000.
55
B. Financial information relating to the QXL Group for the nine month period ended 31 December
2001.
General
Set out below is the full text of the announcement of the QXL Group’s unaudited interim results for the nine
months ended 31 December 2001:
“QXL ricardo plc - Third Quarter Results 5 February 2002
Fifth successive quarter of gross profit growth and
operating expense reduction
Launch of Co-Branding Programme
QXL ricardo plc (“QXL” or the “Group”; LSE: QXL.L; Nasdaq: QXLC; Frankfurt: QXL.F), the pan-European
online auction company, today announces results for the third quarter ended 31 December 2001.
Commenting on the results Mark Zaleski, Chief Executive Officer, said:
“These results reflect another solid quarter for QXL and represent the fifth consecutive quarter in which we have
increased gross profit and reduced operating expenses. Our focus on the customer proposition and product
enhancements is increasing the underlying transaction volumes. The co-branding programme, which we are
announcing today, follows the success of co-branded auctions with many leading brands and portals, and will
drive further traffic to our sites. We anticipate that the significant progress we have made in this quarter in cost
control, marketing partnerships and enhancing the customer offering, will provide a solid platform for future
growth. Finally, I would like to welcome Thomas Power to the board as a non-executive director and look
forward to working with him.”
Third Quarter ended 31 December 2001 – Operating and Financial Highlights
• Gross profit increased 92% over the quarter ended 31 December 2000 to £1.4 million.
• Trading loss decreased 56% over the quarter ended 31 December 2000 to £5.4 million.
• Operating expenses reduced 47% over the quarter ended 31 December 2000 to £6.8 million
• Increase in monetisation rate to 5.8% from 2.9% for the quarter ended 31 December 2000.
• Agency Gross Auction Value increased 17% to £24.5 million over the quarter ended 31 December 2000.
• 3.7 million members at quarter end, a 41% increase over the number at 31 December 2000.
Recent Developments
• Launch of the Co-Branding Programme, providing an integrated auction solution to QXL’s existing and
future partners.
• Fee introduction in Norway and the Netherlands.
• Pan-European marketing partnership signed with MSN, Europe's number one web destination, for an
exclusive content and e-commerce agreement.
• Pan-European implementation of DoubleClick's DARTmail email platform, and DART for Publishers
(DFP) ad-serving technology.
• Co-branded auction agreements signed with the Telewest site BlueYonder.co.uk and with SceneOne.co.uk
and Bravo.co.uk of Flextech Interactive.
• Exclusive auction partnership signed with SFDRS, the leading Swiss television station, to provide auctions
during the 2002 Winter Olympics.
• Distribution deal with Scandinavian Online, Norway’s largest portal and internet site, whereby QXL.no will
be the exclusive auction partner.
56
Financial and Operating Data Highlights
(All financial data in thousands, UK GAAP)
Quarter Ended Quarter Ended 9 Months Ended 9 Months Ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
Turnover ..................................... £1,459 £4,084 £4,171 £11,934
Gross Profit ................................. £1,410 £733 £3,624 £1,661
Trading loss ................................ £5,357 £12,111 £20,025 £40,219
Loss on ordinary activities......... £7,120 £41,356 £25,705 £124,549
Gross auction value(1) ...................
Agency.......................................... £24,491 £20,889 £75,509 £45,880
Principal ....................................... neg £3,983 £615 £11,723
Total ............................................. £24,491 £24,872 £76,124 £57,603
Number of members at end of 3,665 2,583 3,665 2,583
period(2) ........................................
No. of items listed for auction(3) . 7,354 8,783 20,508 23,530
(1) Gross auction value represents the aggregate sales price, inclusive of applicable value-added tax, of all
merchandise and services for which an auction was successfully concluded (i.e. there was at least one bid
at or above the specified minimum or reserve price, whichever is higher). The Principal Gross Auction
Value figure for the 9 months ended 31 December 2001 represents the six months ended 30 September
2001. Principal GAV for the quarter ended 31 December 2001 is negligible.
(2) We define a member as a person who has completed our registration process.
(3) Number of items listed for auction represents the number of items available for sale on our web sites.
There may not be a bid at or above the specified minimum or reserve price for each item listed for auction.
Reconciliation of Trading loss to Loss on ordinary activities
Quarter Ended Quarter Ended 9 Months Ended 9 Months Ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
£’000 £’000 £’000 £’000
Trading loss................................. 5,357 12,111 20,025 40,219
Goodwill amortisation .................. 1,848 3,387 6,121 11,586
Exceptional goodwill impairment. - 26,208 - 73,233
National Insurance on options ...... - (274) - (2,378)
Restructuring costs ....................... - 231 - 707
Total operating loss .................... 7,205 41,663 26,146 123,367
Share of joint venture ................... - 194 - 3,417
Net interest receivable .................. (85) (501) (441) (2,235)
Loss on ordinary activities
before taxation ............................ 7,120 41,356 25,705 124,549
Operational Review
Underlying growth
As a result of the continued rollout of fee programmes, we now have active fee-paying memberships in eight
countries and over 90% of our Gross Auction Value is generating revenue. As expected, the impact on Gross
Auction Value in those countries where fees have recently been introduced has been largely compensated for by
good growth in a number of countries that have not been subject to the one-time impact from the introduction of
fees. We have also seen a 19% overall increase in the number of items listed for auction in the quarter compared
to the previous quarter, a 9% overall increase in transaction volumes over the same period and an average
transaction value of approximately £43 in the quarter.
57
Reduced losses
We have continued to achieve significant reductions in trading loss over the last five quarters, with a 13%
decrease over the quarter ended 30 September 2001. This reduction reflects the increase in our gross profit
together with reductions in our operating expenses. Looking forward, we believe that a number of countries will
start to trade profitably in the next two quarters and that the steps taken during the third quarter to streamline the
business will lead to further reductions in our operating expenses in the coming months.
Marketing strategy
We remain fully focussed on continuing to improve our product and thereby enhancing our customer proposition
to enable all seller types, whether an individual or large business, to trade effectively. Key recent initiatives
include:
- Continued focus on customer relationship management (CRM) programmes: Through our use of
DARTmail, an email platform that enables us cost-effectively to deliver highly targeted and measurable
email campaigns, and other marketing analysis tools, we can more effectively reduce our customer
acquisition costs and monitor and continue to improve the lifetime value of our customers.
- The QXL Co-Branding Programme: Today we are announcing the launch of a full-service 'Co-Branding
Programme' that provides QXL’s partners, such as the Times Newspaper Group, with a simple solution
rapidly to create an auction channel within their sites, which is operated by QXL, but which maintains their
branding throughout the auction experience. Benefits to current and potential partners include the ability to
create a new distribution channel for a supplier, to easily provide their members with an e-commerce
facility, and to create revenue opportunities. This programme also presents increased revenue opportunities
for QXL as well as providing us with a cost-effective customer and content acquisition tool.
Recent deals and new partnership agreements
We signed a number of key partnership agreements this quarter, including a pan-European marketing agreement
with MSN, covering Denmark, Finland, France, Germany, Norway, Spain, Sweden, and the UK. This agreement
gives QXL strong presence across several properties, including where available, the MSN Auction Channel and
the Shopping homepage. QXL will also offer its auction services to MSN and Microsoft to provide special
auctions of Microsoft products or unique items. As a result of endorsement by QXL of the .Net alert service,
QXL will have a presence on MSN Messenger in Germany, France and the UK, and in Denmark, Finland,
Norway and Sweden once the MSN Messenger programme is localised in those countries, providing access to
MSN’s millions of users in Europe.
In the UK, QXL.com has signed an exclusive content and e-commerce agreement with The Times Newspapers
Limited, providing both The Times and The Sunday Times readers access to exclusive QXL auctions, the
opportunity for QXL and TNL partners to run unique promotions through the co-branded environment and a
number of exclusive and exciting auction events to be marketed to audiences of The Times, The Sunday Times
and QXL.
In addition, QXL.com has signed agreements with the Telewest site BlueYonder.co.uk and with SceneOne.co.uk
and Bravo.co.uk of Flextech Interactive. Users of BlueYonder.co.uk, SceneOne.co.uk, and Bravo.co.uk can
bid for thousands of items offered by QXL.com’s auction community via specially created pages, accessible
from the respective sites. The co-branded pages will run featured auctions and promotions, tailored to each site’s
specific audience.
ricardo.ch has recently signed an exclusive auction partnership with SFDRS, the leading Swiss television station,
to provide auctions during the 2002 Winter Olympics.
QXL.es has announced a contract to become the auction channel of IDG (International Data Group), the
worldwide leader in IT publications, with magazines such as: PC World, MacWorld, Computer World and
Dealer World.
QXL.no has established a distribution deal with Scandinavian Online (SOL.no) Norway’s largest portal and
internet site. QXL.no is the exclusive auction partner on SOL and has a presence on all pages and full
implementation in the shopping category. In addition, QXL.no is the exclusive auction partner for the TV show
58
Big Brother and will be the online auction partner for Norway’s largest charity event, The TV Aksjonen, which
will be broadcast on the largest television station.
Board Changes
Thomas Power, Chief Knowledge Officer and Founder of The Ecademy, has been appointed a non-executive
director of the board, with effect from 5 February 2002. Thomas founded the Ecademy, the E-business
Education Network with over 10,000 global members. An author of the Financial Times report, ‘From Supply
Chain to Value Chain’ and former Managing Director of the TDS Group, Thomas founded The Ecademy in
1998. In addition to his Ecademy responsibilities, he provides strategic consulting to many FTSE 100 chief
executives, carries out numerous public speaking engagements and is contracted to write 4 more books for the
Financial Times, having written two already.
Adam Singer and Peter Sederowsky, both non-executive directors, have tendered their resignations from the
board, effective 5 February 2002, due to other time commitments. The Board wishes to thank them for their time
and dedication to the company.
Financial Review
The Group’s third quarter results show continued reductions in trading loss and loss on ordinary activities before
taxation compared to the previous quarter.
For the quarter ended 31 December 2001, the Group completed agency-based auctions of merchandise and
services with an aggregate gross auction value of £24.5 million. This represented almost the entire gross auction
value in that period, a 17% increase in the value of agency-based auctions over the quarter ended 31 December
2000 and a 2% reduction over the quarter ended 30 September 2001.
Turnover for the quarter ended 31 December 2001 increased 26% to £1.5 million from £1.2 million for the
quarter ended 30 September 2001. As a result of the successful migration to an agency-based business, the figure
represented a 76% decrease over the quarter ended 31 December 2000. This decrease arises because in the
agency-based model the Group records only the value of its commission as turnover instead of the full value of
the transaction.
Cost of sales remained negligible at £49,000 for the quarter ended 31 December 2001, compared to £10,000 for
the quarter ended 30 September 2001, and decreased from £3.4 million in the quarter ended 31 December 2000.
The large year-on-year decrease in cost of sales was driven by the Group’s withdrawal from the business of
conducting auctions on a principal basis.
Gross profit for the quarter increased 23% to £1.4 million from £1.1 million in the quarter ended 30 September
2001 and increased 92% from £733,000 in the quarter ended 31 December 2000. This increase was primarily
due to the continued development of commission charges on the agency-based business and increasing
advertising revenues. Gross profit, as a percentage of gross auction value, increased from 4.5% for the quarter
ended 30 September 2001 to 5.8%. During the quarter, the group introduced success fees in Norway and the
Netherlands. As a result of this introduction of success fees, there may be some continued impact on average
transaction values.
As a consequence of the slight increase in cost of sales, gross margin declined slightly to 97% in the quarter
ended 31 December 2001 from 99% in the quarter ended 30 September 2001 and increased from 18% in the
quarter ended 31 December 2000.
Sales and marketing expenses (excluding goodwill) decreased 12% to £3.8 million for the quarter ended 31
December 2001, from £4.3 million for the quarter ended 30 September 2001 as the result of a continued focus on
the cost effectiveness of marketing activity and decreased 41% from £6.3 million in the quarter ended 31
December 2000.
Technology and development costs (excluding exceptional items and goodwill) decreased 15% to £1.5 million in
the quarter ending 31 December 2001 from £1.8 million in the quarter ended 30 September 2001 and decreased
62% from £4.0 million in the quarter ended 31 December 2000. This decrease resulted primarily from the final
stages of integrating acquired auction platforms.
59
General and administrative costs (excluding exceptional items) increased 10% to £1.5 million in the quarter
ended 31 December 2001, from £1.4 million in the quarter ended 30 September 2001 and decreased 40%
compared to the quarter ended 31 December 2000. The year-on-year decline was due to a continued
rationalisation of overhead costs in countries where dual operations existed as the result of acquisitions. In
addition, due to the move away from online auctions in which the Group acts as principal, warehouse and
logistics costs have also decreased.
Goodwill charges in the quarter ended 31 December 2001 amounted to £1.8 million compared to £1.9 million in
the previous quarter.
Trading loss (Operating loss before goodwill and exceptionals) in the quarter ended 31 December 2001
decreased 13% to £5.4 million from £6.1 million in the quarter ended 30 September 2001 and decreased 56%
from £12.1 million in the quarter ended 31 December 2000.
Losses on ordinary activities before taxation in the quarter ended 31 December 2001 were £7.1 million
compared to losses of £7.9 million in the quarter ended 30 September 2001 and £41.4 million in the quarter
ended 31 December 2000.
On 9 November 2001, the Group received the third £5 million of funding pursuant to its issue of £15 million of
convertible bonds. During the quarter the Group did not issue any shares pursuant to its £15 million Equity
Commitment. £11.6 million of the Equity Commitment remains outstanding and can be drawn, subject to certain
conditions, at the Group’s discretion. As at 31 December 2001, the Group had cash of £17.5 million and funding
facilities as outlined above of £11.6 million, providing, if fully drawn, a total of £29.1 million of financing.
Current Trading and Outlook
Gross profit and operating expenses have each improved on a quarterly basis for the last five quarters, resulting
in reduced trading losses. Gross profit margins also continue to remain high at 97%. Although the Group
experienced a slight decline in overall Gross Auction Value, the underlying increase in transaction volumes
demonstrates increasing liquidity and we believe that we have a solid base for further improvements as the
impact of the recent fee introductions and platform migrations diminishes.
Going forward, we are confident that further strategic marketing partnerships and initiatives, such as our Co-
Branding Programme, as well as substantial product enhancements will provide us with a solid platform for
future growth. We believe that the Group will continue to achieve high gross profit margins as it remains focused
on its agency-based business. In addition, we expect that a number of countries will start to trade profitably in
the next two quarters and that our operating cashflow will be positively impacted by our ongoing cost control
programme.
60
QXL RICARDO PLC
THIRD QUARTER AND NINE MONTH RESULTS – UK GAAP
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
Unaudited Unaudited Unaudited Unaudited
£'000 £'000 £'000 £'000
Turnover – continuing operations................. 1,459 4,084 4,171 11,934
Cost of sales.................................................. (49) (3,351) (547) (10,273)
Gross profit ................................................. 1,410 733 3,624 1,661
Distribution costs.......................................... (6,057) (9,724) (20,408) (80,327)
Administrative expenses............................... (2,558) (32,672) (9,362) (44,701)
Operating loss ............................................. (7,205) (41,663) (26,146) (123,367)
Share of joint venture ................................... - (194) - (3,417)
Interest receivable ........................................ 85 501 441 2,235
Loss on ordinary activities before taxation (7,120) (41,356) (25,705) (124,549)
Tax on loss on ordinary activities ................ - - - -
Minority interest ........................................... 123 305 1,313 1,640
Dividends and appropriations – non equity .. - - - -
Retained loss ............................................... (6,997) (41,051) (24,392) (122,909)
Operating expenses above analysed as:
Sales and marketing....................................... 3,772 6,347 13,408 23,864
Goodwill amortisation – sales and marketing - 434 - 45,211
Exceptional goodwill impairment.................. 2,285 2,943 7,000 11,252
Distribution costs .......................................... 6,057 9,724 20,408 80,327
General and administrative ............................ 1,494 2,473 4,478 7,608
Technology and development........................ 1,501 3,990 5,847 9,841
Exceptional goodwill impairment.................. - 25,774 - 28,022
Goodwill amortisation – technology and
development .................................................. (437) 444 (878) 806
National Insurance on options ....................... - (274) - (2,378)
Restructuring costs ........................................ - 231 - 707
Share based compensation............................. - 34 (85) 95
Administrative expenses ................................ 2,558 32,672 9,362 44,701
61
Loss per equity share (basic and diluted)
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31December 31December 31December
2001 2000 2001 2000
Unaudited Unaudited Unaudited Unaudited
£'000 £'000 £'000 £'000
Retained loss ...................................................... (6,997) (41,051) (24,392) (122,909)
Weighted average number of ordinary shares
outstanding ('000)............................................... 725,284 493,708 714,017 349,645
Net loss per share (basic and diluted) (pence).... (0.9) (8.3) (3.3) (35.2)
Statement of total recognised gains and losses
Retained loss........................................... (6,997) (41,051) (24,392) (122,909)
Exchange adjustments ............................ 35 524 (545) 231
Total recognised loss for the period .... (6,962) (40,527) (24,937) (122,678)
62
QXL RICARDO PLC
CONSOLIDATED BALANCE SHEET-UK GAAP
31 December 31 December 31 March
2001 2000 2001
Unaudited Unaudited Audited
£'000 £'000 £'000
Fixed assets .............................................................
Intangible assets ...................................................... 15,630 20,471 23,955
Tangible assets ........................................................ 4,204 7,911 6,337
Investments ............................................................. 30 3,441 232
19,864 31,823 30,525
Current assets ..........................................................
Stock ....................................................................... 56 623 295
Debtors and prepayments ........................................ 4,972 11,008 7,901
Cash at hand and at bank......................................... 17,547 37,499 24,285
22,575 49,130 32,481
Creditors: amounts falling due within 1 year........... (5,767) (27,537) (13,381)
Net current assets .................................................... 16,808 21,593 19,100
Total assets less current liabilities........................... 36,672 53,416 49,624
Convertible Bonds................................................... (15,161) - (5,011)
Creditors: amounts falling due after 1 year ............. (73) (258) (413)
Net assets................................................................ 21,438 53,158 44,200
Called up share capital ............................................ 770 579 635
Share premium account........................................... 224,487 208,926 218,856
Merger reserve ........................................................ 9,137 6,617 9,137
Profit & loss account............................................... (211,903) (168,721) (187,053)
Total equity shareholders’ funds ......................... 22,491 47,401 41,575
Equity minority interest........................................... (1,053) 5,757 2,625
Capital employed................................................... 21,438 53,158 44,200
63
QXL RICARDO PLC
CONSOLIDATED CASHFLOW STATEMENT – UK GAAP
Nine months Nine months Year
31 December 31 December 31 March
2001 2000 2001
Unaudited Unaudited Audited
£'000 £'000 £'000
Net cash outflow from operating activities........................................ (20,037) (46,022) (56,004)
Returns on investment and servicing of finance ................................ 762 2,220 2,449
Capital expenditure and financial investment.................................... (281) (2,028) (2,417)
Acquisitions ...................................................................................... (243) 6,126 (1,047)
Cash outflow before management of liquid resources and financing (19,800) (39,704) (57,019)
Management of liquid resources ....................................................... 13,042 - 56,125
Financing........................................................................................... 13,062 68,995 3,642
Increase in cash ............................................................................... 6,304 29,291 2,748
Mr Power is currently a director of The Ecademy Limited and Routecause Limited and there is no information in
6F.2(b) to (g) of the Listing Rules of the UK Listing Authority that is required to be disclosed in relation to Mr
Power.
Background on QXL ricardo
QXL ricardo plc ("QXL") is a pan-European online auction community, conducting online auctions in eleven
languages and twelve currencies. The QXL online auction community facilitates trading 24 hours a day, seven
days a week in an efficient, convenient and entertaining environment, enabling buyers to bid on merchandise and
services from across Western Europe which are sold by QXL members and merchants. QXL also enables sellers
to locate and trade with buyers in new geographic markets. A wide selection of merchandise and services is
available on its online auction community, ranging from computer software and hardware, consumer electronics,
household appliances and collectibles to travel-related items and sports equipment. QXL is a publicly traded
company with its shares listed on the Official List of the United Kingdom Listing Authority, the Nasdaq National
Market and the Frankfurt Stock Exchange.
QXL provides access to the QXL trading community in:
UK - www.qxl.com and www.qxl.co.uk; Germany - www.ricardo.de; France - www.qxl.fr; Italy - www.qxl.it;
Netherlands - www.ricardo.nl; Norway - www.qxl.no; Denmark - www.qxl.dk; Spain - www.qxl.es; Poland -
www.allegro.pl; Sweden - www.qxl.se; Finland - www.qxl.fi; Switzerland - www.ricardo.ch
This press release may contain forward-looking statements that relate to the Company’s plans, objectives,
estimates and goals. The Company’s business is subject to numerous risks and uncertainties, including risks
associated with: funding requirements; acquisitions; only having a limited operating history; regulation of
auctions and the Internet; probable variability in the Company’s quarterly operating results; the Company’s
results of operations not being indicative of future performance; significant losses being incurred as a result of
expansion of the Company’s business; dependence on growth of online commerce market; risks associated with
development and growth of the Company’s foreign language web sites; intense competition; failure to develop
the Company’s brand; failure to expand the Company’s systems; risks associated with managing internal growth
and retaining and recruiting personnel; international expansion; online commerce security; risks associated with
not developing new services, features and functions; risks associated with intellectual property rights; fraudulent
activity of our members and suppliers; and seasonality. These and other risks and uncertainties, which are
described in more detail in the Company’s Registration Statement dated 7 October 1999, on Form F-1 and
Annual Report dated 28 September 2001 on Form 20-F filed with the US Securities and Exchange Commission,
in the Company’s prospectuses and listing particulars filed with the UK Listing Authority and the Registrar of
Companies in England and Wales (the most recent being dated 22 May 2001), in the German Sales and Listing
Prospectus dated 23 October 2000 filed with the Frankfurt Stock Exchange (as supplemented on 10 November
2000), could cause the Company’s actual results and developments to be materially different from those
expressed or implied by any of these forward-looking statements.”
64
PART III
THE REGULATORY ENVIRONMENT
This Part III should be read in conjunction with the Risk Factors in Part IV of this document.
An increasing number of laws, regulations and directives pertain to the Internet and consequently to QXL’s
online auction business. Laws, regulations or directives have been, and may be, adopted, with respect to the
Internet that relate to liability for information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and quality of products and services. In addition, the applicability to the
Internet of existing laws governing issues such as intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, consumer protection, employment, contract and personal privacy is
uncertain and developing. Depending upon their timing or nature, developments in any one of these areas could
have a material adverse impact on the business, financial condition and results of operations of QXL.
Online Auctions
Some countries within Western Europe have in place legislation which governs the manner in which “auctions”
may be conducted and the liability of “auctioneers” in conducting such auctions. In those countries where
legislation is in force, it is currently unclear on how such legislation would apply to online auctions and,
depending on how such legislation is to be interpreted, QXL could be prohibited from conducting further online
auctions and subject to criminal and civil penalties for having conducted such online auctions. In addition,
certain jurisdictions specify that auctions must be conducted by licensed auctioneers. QXL is not licensed to act
as an auctioneer in any jurisdiction, nor are any of their auctions supervised by an auctioneer, public notary,
process server or other person specified by legislation in various jurisdictions.
Belgium
Under the Belgian Unfair Competition Act (Law of 14 July 1991 on Commercial Practices and the Protection of
the Consumer) (“UCA”), auctions may only be conducted in respect of manufactured and used products at
certain authorised premises. The UCA also imposes certain other restrictions on dealings with consumers, for
instance, restrictions relating to publicity and the terms and conditions of sale. QXL does not comply with the
requirements of the UCA. However, QXL believes that it does not conduct its auctions on-line in Belgium, as the
computer servers hosting its auctions are located outside of Belgium. However, if QXL is deemed to be
conducting its on-line auctions in Belgium, or if the legislation is considered to apply to QXL’s auctions
regardless of the location of the auction, the Company could be subject to civil liabilities.
Denmark
Under the Danish Act of Public Auctioneers, voluntary public auctions are to be carried out by auctioneers
authorised by the Danish Ministry of Justice. It is uncertain how the requirements of this legislation should be
interpreted for online auctions. QXL is not authorised by the Danish Ministry of Justice. If the online auctions
conducted by QXL in Denmark are deemed to be governed by the Danish Act of Public Auctioneers, then it
could be subject to criminal and civil liabilities.
Finland
There is no current legislation in Finland restricting the ability of QXL to conduct online auctions. Since 1
March 2001 the Finnish Consumer Protection Act has been governing sales via the Internet. This Act is applied
only in connection with business-to-consumer sales. Otherwise the general laws and principles of contract law
apply to online auctions. Finland is currently in the process of implementing the Electronic Commerce Directive
(see “Other e-commerce regulation” below), and the proposed new Act on the Provision of Information Society
Services, which would apply to sales via the internet, is expected to come into force in 2002.
France
QXL's activities are subject to French auction law, both as regards auctions on its French website, and
potentially also as regards auctions on its other websites that may be accessed from France where such auctions
involve French residents.
65
In July 2000, new legislation was enacted in France under which, in order to hold auctions, auctioneers (1)
require approval from the appropriate authorities, (2) can only act as agents for the vendors and purchasers and
not on their own account, (3) may only auction second hand goods or in the case of new goods, only if they are
sourced directly from the manufactures or production unit of the seller, and (4) must guarantee both the price and
the delivery of the auctioned goods. The new law also sets out certain other conditions relating to the conduct of
auctions, and provides for example that (1) auctions must be supervised by a qualified person and (2) non-
French auction companies may conduct occasional auctions in France provided that they make certain pre and
post auction notifications to the relevant authority and comply with the requirements of the new legislation.
QXL does not meet the above requirements of the new legislation. The new legislation contains an exemption
for certain online services: the “brokerage exemption”. Companies that fall within this exemption are not subject
to the provisions referred to above. QXL has been advised that it may take advantage of the brokerage
exemption in respect of some of its activities where it satisfies two major criteria in respect of those activities:
(1) QXL does not act as the agent of the seller, but merely brings the parties together, and (2) items are not
“adjudicated”, ie. the transfer of property from the seller to the highest bidder is not automatically executed at
closing of the bids in those situations where under QXL’s terms & conditions, the bids are not binding.
QXL’s activity comes within the brokerage exemption As it currently stands, (1) QXL acts as a broker as defined
in Articles L.131-1 to L131-11 of the French Commercial Code and merely brings the parties together, (2)
transfer of property is not automatically executed at closing of the bids as the seller may choose not to accept the
best offer. However, sales of artistic and cultural items are de facto subject to the new law and cannot come
within the brokerage exemption. Although QXL strictly forbids the sale of cultural items on its website, the lack
of efficient monitoring technologies in this regard exposes QXL to possible liability.
If QXL is found to be a broker of cultural goods and therefore in breach of the new law, it could be subject to
criminal liabilities and civil liabilities amounting to up to FF25,000 per breach. It is possible that there are up to
100 such breaches per week since the legislation came into force. The Directors are not aware of any
prosecutions in France in respect of breaches of this legislation and therefore do not know how a court or other
authority would apply the legislation and what factors would be taken into account in awarding damages or
imposing a fine for such breaches.
Germany
Under Article 34b of the German Code on Commercial Activities (Gewerbeordnung), any person offering
tangible goods for sale by auction must have a licence to do so, and may not offer for sale by auction any goods
sold for the auctioneer’s own account. Furthermore, this Article generally prohibits the offer of new or unused
goods via auction. Violation of the German Code can result in civil action and criminal penalties. QXL does
not hold a licence to carry on auction services according to Article 34b Gewerbeordnung in Germany.
QXL believes that it does not conduct its online auctions in Germany as the computer servers hosting its auctions
are located outside of Germany. However, if QXL was to be deemed to be conducting auctions in Germany, and
the German Code is held to apply to online auctions, then QXL could be subject to criminal and civil liabilities.
QXL does not believe that internet auctions fall under the scope of Article 34b Gewerbeordnung
In 1999, the Association of Hamburg Auctioneers sought injunctive relief against ricardo in an attempt to
prevent it from conducting auctions, on the basis that ricardo did not have a permit to conduct auctions. Prior to
this action, ricardo had sought the views of the authorities in Hamburg as to whether it required a permit to
conduct internet auctions and was advised that it did not. On the basis of the advice from the authorities in
Hamburg, Ricardo had not acted with the intention required for a violation of competition law. The Court did,
however, conclude that the authorities of Hamburg were wrong in their advice and that ricardo should have
obtained a permit to conduct an auction (which to date ricardo still does not have) ricardo has since entered into
an agreement with the Association of Hamburg Auctioneers, under which the Association of Hamburg
Auctioneers has waived all claims against ricardo.
The German Bund-Länder-Ausschuss "Gewerberecht" (Joint Committee of federal authorities and authorities of
the Bundesländer), however, stated in May 1999 that internet auctions constitute a new and unique form of
distribution for which Article 34b Gewerbeordnung is not applicable. However, this joint committee has no
legislative power, although its statements do serve as non-mandatory rules for authorities on how to act.
66
Internet auctions have been considered in other court decisions. The Kammergericht of Berlin decided on May
11, 2001 that an "internet auction" - in this case a long term auction with individual starting and completion
dates - is not subject to Article 34b Gewerbeordnung. ricardo was not a party to this lawsuit. The German
federal court (BGH) mentioned in a civil case decision dated November 7, 2001 that internet auctions like those
organised by ricardo lead to legally binding contracts between the seller and the purchaser without expressly
saying whether or not internet auctions fell under Article 34b Gewerbeordnung.
Italy
Article 18 of Statute 114 of 1998 prohibits Italian retailers to sell goods by way of online auction and could be
interpreted as a prohibition on any kind of online auction. Some of the auction services provided by QXL could
be deemed to fall within the scope of Article 18. Article 115 of Royal Decree 773 of 1931 requires auctioneers
to have a licence. QXL does not hold a licence to carry on auction services in Italy. QXL believes that it does
not conduct its online auctions in Italy as the computer servers hosting its auctions are located outside of Italy. If
QXL is deemed to be conducting its online auctions in Italy, it could be subject to criminal and civil liabilities.
The Netherlands
Under the Dutch Public Auction Act ("Wet (Ambtelijk Toezicht bij Openbare Verkpingen")), public auctions
must be supervised by a public notary or process-server. Although QXL does not fulfill these requirements, it is
uncertain how the requirements of this legislation should be interpreted for an online auction. If QXL is deemed
to be conducting public auctions, the Company could be subject to criminal and civil liabilities.
Norway
There are no specific regulations under Norwegian law restricting or prohibiting auction sales on the Internet.
Service providers offering services on the Internet in Norwegian aimed at Norwegian consumers are likely to be
considered governed by Norwegian law, even though the servers on which the transaction has taken place
physically are located outside of Norwegian territory.
There is a general requirement of approval from the local police to sell or auction used goods in the course of
business. The requirement also applies to procurement of such sales. According to the Ministry of Commerce the
law (presumably) is not applicable to Internet auction sales if the Internet business only establishes contact
between the buyers and the seller. The authorities are considering issuing regulations that include such
businesses.
According to the Personal Data Act, it is mandatory to inform the Norwegian Data Inspectorate before personal
data is processed by automatic means. These rules apply to registers of customers/ members of an Internet action
site. All data acquired from the customers should be handled in accordance to regulations put forth in the
Personal Data Act.
QXL is not allowed to promote sales, directly or indirectly, by conducting lotteries or by offering gifts.
Furthermore, guidelines from the consumer ombudsman require the seller/auctioneer to make available for the
users of the service certain information. Information such as the terms and conditions of the website should be
clearly stated. Websites who only act as an intermediary between the seller and the consumer are responsible for
informing the consumer as to who the contracting parties are. Further, the operator of the website should not use
information regarding the consumer to send advertisements without the consumer’s prior consent.
In May 2001 a new Consumer Purchases Cancellation Act was enacted in Norway. The act implements EC
Directive 97/7/EC and is protecting consumers in contractual matters. According to statutory law, consumers are
entitled to a 14 days free return period when buying goods from Internet businesses. The act will only apply to
auctions of new goods and where the seller is a business and the buyer is a consumer. If QXL sells new goods on
its own account then it will be mandatory to enclose a form issued by The Ministry of Children and Family
Affairs.
Poland
There is no current legislation in Poland restricting the ability of QXL to conduct online auctions. In Poland,
general laws and principles of contract law apply to online auctions.
67
Spain
Under Spanish Law 7/1996 of 15 January 1996, distance selling and public auctions without the simultaneous
physical presence of both buyer and seller are subject to regional governmental authorisations. Merchants
established in Spain carrying on these activities are required to apply for a licence and register with the
appropriate authorities. QXL does not fulfill these requirements. However, QXL believes that it does not
conduct its online auctions in Spain as the computer servers hosting its auctions are located outside of Spain. If
QXL is deemed to be conducting its online auctions in Spain, the Company could be subject to criminal and civil
liabilities.
Sweden
In Sweden, general laws and principles of contract law apply to online auctions. In addition, the Swedish Act
(2000:274) on Consumer Protection in respect of Distance and Door-to-door Selling Agreements is applicable to
business-to-consumer auctions. QXL must, when acting as a principal, comply with the information requirements
stipulated in the law and more importantly inform about and grant a 14 days right of withdrawal to consumers.
Under Swedish law there is also a general requirement to register with the local police in respect of auctions of
used goods in each city where the auction is to take place. It is however uncertain how the requirements should
be interpreted for an online auction, but a professional conduct of auction of used goods without being registered
could imply criminal liabilities.
Switzerland
In Switzerland, general laws and principles of contract law apply to online auctions. In addition, Article 236 of
the Swiss Code of Obligations provides that the Cantons may establish further provisions regulating public
auctions. Some of the Cantons (such as Zurich, Berne, Lucerne and Geneva) have issued such regulations
requiring a notary or another official to be present at such public auctions. At this point, however, it is uncertain
how these requirements should be interpreted for online auctions.
United Kingdom
There is no current legislation in the United Kingdom restricting the ability of QXL to conduct online auctions.
In the United Kingdom, general laws and principles of law apply to online auctions, such as contract, consumer
protection and tort.
Liability for sales of illegal items conducted over the Internet
The law relating to the liability of providers of online services for the activities of their users on their service is
unsettled in many countries. The Electronic Commerce Directive attempts to resolve the issue within the E.U.
(see “e-commerce” section below). However, it has not been implemented by many Member States and many
non EU states adopt different positions to that of the Directive. The QXL Group may therefore be subject to
civil or criminal liability for unlawful activities carried out by members through its service. To reduce the risk of
this, the QXL Group may need to implement protective measures that could require it to spend substantial
resources and/or to reduce revenues by discontinuing some service offerings.
QXL has received and it expects to continue to receive communications alleging that some items listed or sold
through its service by what will be QXL Group members infringe third-party copyrights, trademarks and trade
names or other intellectual property rights, and seeking to hold QXL responsible. The QXL Group does not
actively monitor the merchandise that is sold by its members but on receipt of a notice that an item infringes a
third-party copyright, trademark, trade name or other intellectual property right, the item may be removed from
the web site. An allegation of infringement of third-party intellectual property rights may result in costly
litigation against the QXL Group and/or require the QXL Group to change its business practices. QXL’s general
liability insurance may not cover all potential claims of this kind to which the QXL Group is exposed.
On 25 January 1999, the European Parliament adopted a "Multiannual Community Action Plan on promoting
Safer Use of the Internet by Combating Illegal and Harmful Content on Global Networks” (the “Action Plan”).
The Action Plan is part of a set of policies being developed at E.U. level to deal with illegal, racist or harmful
content on the Internet. It will serve, among other things, as the basis of legislative efforts on issues relating to
the protection of minors, rating and filtering systems, and content. Any legislation that may be adopted by
68
member countries pursuant to the Action Plan could impose additional obligations on the QXL Group and affect
its activities.
Privacy and Data Protection
The Company has adopted detailed privacy policies for its sites, and implemented data use procedures for data
collected during its operations, to comply with the provisions of the European Union’s “Directive on the
Protection of Individuals with Regards to the Processing of Personal Data and the Free Movement of Such Data”
(the “Data Protection Directive”). The Data Protection Directive imposes restrictions on the collection, use and
processing of “personal data” (i.e. data about a living individual who can be identified from that data) and
guarantees E.U. citizens certain rights, including the right for their data to be fairly and lawfully processed and
the right to withhold permission to use of their data for direct marketing. Even though the purpose of the Data
Protection Directive is to harmonise the national laws on data protection in the EU, the rights of data subjects
and the obligations imposed on companies collecting data can vary from counry to country. This potential
diversity of local regulation leads to difficulties in ensuring compliance in all relevant territories. The Data
Protection Directive also sets out stringent requirements in relation to the passing of data outside E.U. territories
(particularly to and from the US).
Cookies are information keyed to a specific server, file pathway or directory location that is stored on a user’s
hard drive, possibly without the user’s knowledge. There has been a long-running debate as to whether privacy
concerns should lead to the abolition of the use of cookies for tracing demographic information and targeting
advertising. The debate moved a step closer to resolution in early 2002, when the European Council of Ministers
overruled the European Parliament’s earlier attempt to impose an “opt-in” approach to the use of cookies. The
draft Directive will therefore face its second reading with a lesser requirement for web site owners to ensure that
the user receives clear and comprehensive information in advance about the use of cookies, as well as being
given a right to opt out of their use. This has reduced the likelihood of any severe limitations on the use of
cookies. However, the QXL Group will need to continue to monitor the situation (particularly as regards local
implementing legislation) to ensure that no changes to the regime complicate the operation of its sites or weaken
its ability to gauge the effectiveness of online advertisements.
The extent of relevant regulations may limit QXL’s ability to collect data effectively and share such data with
third parties, such as its suppliers and advertisers. Such requirements could also deter persons from using the
QXL Group’s web sites, and from providing data that are considered essential to it and its advertisers. Breach of
such regulations could expose QXL to regulatory and judicial proceedings, may constitute a criminal offence and
carries the risk of financial and other penalties for non-compliance.
Domain Names and Trade Mark Rights
Domain names are an Internet user’s addresses. The current system for registering, allocating and managing
domain names has been the subject of litigation, including trademark litigation, and of proposed regulatory
reform. Among others, the QXL Group has registrations of the domain names set out on page.3 of this document
but cannot be certain that the QXL Group domain names will not lose their value or that it will not have to obtain
entirely new domain names in addition to or in lieu of its current domain names if reform efforts result in a
restructuring in the current system. The ability to register additional domain names may also be limited by
requirements of local or national domain names registrars or administrators, including the requirement to have a
local subsidiary or to be a resident of the country for which an application for a domain name is made or by prior
registration of identical or similar domain names. QXL is aware that certain domain names comprising the words
QXL and ricardo have been registered by third parties (including ricardo.com).
QXL has registered the mark “QXL” as a Community Trademark. QXL cannot provide assurance that it will
succeed in registering or maintaining any of the QXL Group’s trademarks or service marks. Similarly, it cannot
provide assurance that constraints will not affect its use of the name QXL or other of its brands by reason of
third-party trademark rights or that it can prevent others using similar names as domain names, brand names or
otherwise in competition with it.
Jurisdictional Exposure
Due to the global nature of the Internet, it is possible that, although transmissions by QXL over the Internet
originate in the United Kingdom and Poland, the governments of other countries might attempt to regulate the
Company’s transmissions or prosecute it for violating their laws. As QXL’s service is available over the Internet
in most countries around the world, these jurisdictions may claim that it is required to qualify to do business as a
69
foreign corporation in that country or that it is required to notify certain authorities of its activities, including, for
example those activities relating to the collection and processing of user data and consumer protection.
Furthermore, pursuant to Council Regulation (EC) No.44/2001 of 22 December 2000 which governs jurisdiction
and the recognition and enforcement of judgments in civil and commercial matters in the European Union, QXL
may be regarded as an on-line seller. If this is the case, QXL will be liable to proceedings issued by consumers
who have participated in QXL's operation in the courts of the Member States in which the relevant consumers
are domiciled. Furthermore, QXL will also be limited to bringing proceedings against such consumers in the
courts of Member States in which the relevant consumers are domiciled.
Other e-commerce regulation
The QXL Group will offer, through its web sites, access to various e-commerce initiatives of third parties. The
laws relating to electronic commerce are being reviewed, and in many cases formulated, all around the world. On
8 June 2000, the European Parliament and Council adopted Directive 2000/31/EC on certain legal aspects of
information society services, in particular electronic commerce, in the Internet Market (the “Electronic
Commerce Directive”). The Electronic Commerce Directive aims to ensure the free movement of electronically
provided goods or services, including electronic commerce, within the Member States of the E.U. The Directive
was to be implemented by Member States before 17 January 2002 but a number of Member States have yet to do
so. The Electronic Commerce Directive provides, inter alia, that:
• E.U. Member States must ensure that their legislation allows contracts to be concluded electronically,
subject to a limited number of exceptions (e.g. sale of land);
• mere carriers of information over, or providers of access to, communications networks will not be liable for
the content of that information provided they: exercise no control over the contents; make no alterations;
and do not store information any longer than necessary to facilitate transmissions;
• a provider of hosting services is not liable for the information hosted except where it has actual notice that it
is illegal (e.g. defamatory) and does not disable access to that information.
The Electronic Commerce Directive also recognises the crucial country of origin principle, which means that one
marketer can sell through the European Union so long as it complies with the relevant law of the country of its
establishment.
Because individual countries within the E.U. must enact the Electronic Commerce Directive through their local
laws and may impose additional legislation (within certain parameters) if they so choose, there is likely to be
some uncertainty for companies such as QXL which operates and has establishments and subsidiaries in many
countries. In addition, the QXL Group has to comply with the laws of other European countries, such as
Switzerland and Poland.
The European Parliament adopted on 20 May 1997 the Distance Selling Directive, which, in principle, should
have been implemented through the Member States of the E.U. by 4 June 2000. The aim of the directive is to
ensure a high level of protection for consumers and to provide a clearly defined legal framework for distance
selling through the E.U. The Distance Selling Directive provides that it shall not apply to the conduct of
auctions. The QXL Group is of the view that its activities fall within the scope of this exception or otherwise do
not fall within the ambit of the Distance Selling Directive. If it was found that QXL and/or any of its
subsidiaries are subject to the Distance Selling Directive, this could raise doubts as to the enforceability of all of
the Group’s terms and conditions and the QXL Group could be subject to complaints by consumers and
proceedings by the Director General of Fair Trading.
70
PART IV
RISK FACTORS
This section should be read in conjunction with the Regulatory Environment discussion in Part III of this
document. You should carefully consider the risks described below before making a decision to accept shares
in the Company. If any of the adverse events described below actually occur, the business, financial condition
or results of future operations of the QXL Group could be materially adversely affected. This document contains
forward-looking statements that involve risks and uncertainties. The actual results of the QXL Group could
differ materially from those anticipated in the forward-looking statements as a result of known and unknown
risks, uncertainties and other important factors, including the risks faced by the QXL Group described below
and elsewhere in this document.
The QXL Group only has a limited operating history on which an evaluation of its business and prospects
can be based.
QXL was incorporated in September 1997 and commenced offering products for auction on the Internet in
November 1997. Bidlet was incorporated in July 1998 and commenced offering products for auction on the
Internet in April 1999. QXL acquired Bidlet on 29 June 2000. The online auctions of ricardo were launched in
July 1998 and QXL completed the business combination with ricardo on 24 November 2000. As a result, the
QXL Group has had a short operating history upon which an evaluation of its business and prospects can be
made. An investment in QXL should be considered in light of the risks and difficulties that the QXL Group may
encounter as an online auction provider in the early stage of development in a new and rapidly evolving market.
These risks and difficulties include the QXL Group’s ability to:
• increase the number of members, merchandise and services the QXL Group will offer and the number of
completed auctions;
• accurately forecast user demand;
• continue to develop and upgrade its technology and information processing systems;
• maintain a stable and uninterrupted operation of its systems; and
• respond to competitive developments.
The QXL Group may be unable to accomplish one or more of these goals, which could cause its business to
suffer. In addition, accomplishing one or more of these things might be very expensive, which could harm the
QXL Group’s financial results.
The QXL Group may be subject to fluctuations in levels of revenue growth and is likely to experience
losses.
Because the QXL Group has a limited operating history and because of the uncertain nature of the rapidly
changing markets which it will serve, the prediction of future results of operations with accuracy is difficult. In
addition, period-to-period comparisons of operating results are not likely to be meaningful. Potential investors
should not rely on the results for any period of any of the QXL Group companies as an indication of future
performance. In particular, QXL cannot guarantee that the level of revenue growth achieved in the past will be
sustained in future periods. As a result, the QXL Group may experience significant losses on a quarterly and
annual basis.
The QXL Group must manage its growth successfully in order to achieve desired results.
The QXL Group’s recent developments have placed a significant strain on its managerial, operational, and
financial resources. To manage growth, the QXL Group must continue to implement and improve its operational
and financial systems and to train, and manage its employee base and other resources. Any inability to manage
growth effectively could have a material adverse effect on the QXL Group’s operating results, and financial
condition.
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Expected benefits from acquisitions may not be realised
As part of the QXL Group’s business strategy, it has completed several acquisitions and the QXL Group may
enter into additional business combinations and acquisitions in the future. Acquisition transactions are
accompanied by a number of risks, including:
• the difficulty of assimilating the operations and personnel of the acquired companies;
• the potential disruption to ongoing business and distraction of management;
• the difficulty of incorporating acquired technology or content and rights into the existing products and
media properties;
• the failure to develop successfully an acquired in-process technology could result in the impairment of
acquired intangible assets;
• unanticipated expenses related to technology integration;
• the maintenance of uniform standards, controls, procedures and policies;
• the impairment of relationships with employees and customers as a result of any integration of new
management personnel;
• the potential unknown liabilities associated with acquired businesses; and
• the valuation of goodwill under UK GAAP and the quantum of future amortisation charges can depend on
the Company’s share price at the date of completion of an acquisition, and can be subject to the volatility of
the Company’s share price following the announcement of an acquisition.
The QXL Group may not be successful in addressing these risks or any other problems encountered in
connection with such acquisitions. Failure to do these things may materially adversely affect its business and
financial condition.
Existence of minority interests in ricardo’s share capital may reduce perceived benefits for the QXL
Group.
The existence of minority interests in ricardo’s share capital may have various adverse effects upon the QXL
Group, such as the QXL Group having difficulty in implementing the perceived synergies and operating
efficiencies, and in realising the perceived revenues and earnings, which it seeks to achieve by combining ricardo
and QXL.
Laws regulating auctions may prevent the QXL Group from conducting online auctions in some countries
and/or render the QXL Group liable to litigation in such countries.
A number of the countries in which the QXL Group operates have laws and regulations regarding how and by
whom “auctions” may be conducted, the liability of “auctioneers” in conducting such auctions and the types of
goods that may be auctioned. In some of these countries it is not clear how such laws and regulations apply to
on-line "auctions" such as those held by the QXL Group. In a number of countries in which the QXL Group
operates, the existing legislation can be interpreted as prohibiting the QXL Group from conducting "auctions"
without a license or under the supervision of licensed persons and from "auctioning" certain goods. QXL is not
licensed to act as an auctioneer in any jurisdiction, nor are any of the auctions held by the QXL Group
supervised by an auctioneer, public notary, process server or other person specified by the relevant legislation in
the various countries. If the legislation is found to be applicable to QXL, QXL may be: (i) prohibited from
conducting further online auctions in these countries; (ii) subject to civil and/or criminal proceedings for breach
of the relevant legislation in these countries in the past; and/or (ii) subject to criminal and civil penalties. These
circumstances would have a materially adverse effect on the QXL Group’s operating results, financial results and
financial condition. Further, criminal and civil litigation could be time-consuming, costly and/or result in
negative publicity.
This risk factor, and this document in general, should be read in conjunction with “Regulatory Environment” set
forth in Part III of this document.
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Investors should not rely on the QXL Group’s quarterly operating results or non-financial operating data
as an indication of the QXL Group’s future results, because they are subject to significant fluctuations
The QXL Group’s operating results have varied on a quarterly basis during its short operating history. Its
limited operating history makes it difficult to forecast accurately the QXL Group’s turnover, operating expenses,
operating results and non-financial operating data. As a result, the QXL Group may be unable to adjust its
spending or operations quickly enough to compensate for any unexpected net revenue shortfall, including any
created by the risks described in this document. The QXL Group may also be unable to increase its spending
and expand its operations quickly enough to meet customer demands if it exceeds its expectations.
The QXL Group’s operating results to date may not be indicative of future performance.
The QXL Group has a limited operating history and the immaturity of the markets in which it competes makes it
difficult for the QXL Group to forecast its revenues, earnings or non-financial operating data accurately. Period-
to-period comparisons of the operating results may not be meaningful, and investors should not rely upon them
as an indication of future performance. The operating results in one or more future quarters may fall below the
expectations of securities analysts and investors. In that event, the trading price of the Ordinary Shares would
almost certainly decline.
The QXL Group has invested heavily in marketing and promotion, development of its web sites, technology and
operating infrastructure development. It has ongoing commitments in some of these areas. As a result, the QXL
Group may be unable to adjust its spending rapidly enough to compensate for any unexpected revenue shortfall,
which may affect its future results. In addition, the QXL Group is spending in advance of anticipated growth,
which will also affect its future results. In view of the rapidly evolving nature of the QXL Group’s business and
its limited operating history, the Company believes that period-to-period comparisons of the QXL Group’s
operating results are not necessarily meaningful. Investors should not rely upon the historical results of the QXL
Group as indications of the QXL Group’s future performance.
Supplemental operating data may not be an accurate indicator of the results of the QXL Group’s
operations, so investors should not rely on them.
QXL does not assume responsibility for concluding auctions between members. In addition, if there is at least
one bid at or above the specified minimum or reserve price, whichever is higher, the QXL Group records the
winning value of the auction as gross auction value. QXL cannot be sure whether an auction has been concluded
by the relevant members at the stated value or at all. Therefore, QXL’s supplemental operating data in respect of
auctions represents only a measure of these auctions. This information may not be accurate or representative of
the number of items listed and the gross auction value of such auctions conducted. The QXL Group cannot be
certain how many of its members or e-mail subscribers have registered more than once or how many visits each
member has made to its web sites. Therefore, its supplemental operating data in respect of its members
represents only a measure of its membership and may not be accurate or representative of the number of people
visiting its web sites. The same is true for e-mail subscribers. While each of the companies within the QXL
Group makes certain adjustments to their supplemental operating data to eliminate activity on their web sites that
they believe to be invalid, and their criteria for making such adjustments vary from time to time based on their
best estimates, there can be no assurance that they successfully eliminate all invalid activities.
As a result of the expansion of its business, the QXL Group has incurred significant losses and is likely to
continue to incur losses in the future, decreasing the value of an investment.
The QXL Group had an operating loss of £2.1 million in the year ended 31 March 1999, an operating loss of
£68.4 million for the year ended 31 March 2000 as restated for the prior year adjustment, and an operating loss
of £142.3 million for the year ended 31 March 2001. QXL anticipates that the QXL Group’s operating losses
will continue to be adversely affected as a result of the amortization of goodwill arising on the acquisition of
Bidlet and ricardo. The extent of these losses will also depend, in part, on growth in its revenues from
commissions earned in its consumer-to-consumer auctions. As of 31 December 2001 the QXL Group had an
accumulated deficit of £212 million. The QXL Group will need to increase revenues to achieve profitability. To
the extent that any increases in its operating expenses precede or are not subsequently followed by
commensurate increases in revenues, its business, financial condition and results of operations would be
adversely affected.
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The same will be true if the QXL Group is unable to adjust operating expense levels accordingly. QXL cannot
assure investors or Shareholders that the QXL Group will ever achieve or sustain profitability or that its
operating losses will not increase in the future.
The QXL Group may need to sell additional equity securities as a result of unanticipated events.
Unanticipated events and opportunities may require the QXL Group to sell additional equity securities. If the
QXL Group raises additional funds through the issuance of equity securities, shareholders may experience
significant dilution. Furthermore, additional financing may not be available when needed or, if available,
financing may not be on terms favourable to the QXL Group or shareholders. If financing is not available when
required or is not available on acceptable terms, the QXL Group may be unable to develop or enhance its
services. In addition, the QXL Group may be unable to take advantage of business opportunities or respond to
competitive pressures. Any of these events could have a material adverse effect on QXL Group’s business,
financial condition and results of operations.
The Internet may not be accepted as a medium.
The market for the sale of merchandise and services over the Internet, particularly through consumer-to-
consumer trading, is new and emerging. The QXL Group’s future revenues and profits will depend heavily upon
the widespread acceptance of the Internet and online services in Western Europe as a medium for commerce by
consumers. Rapid growth in the use of and interest in the Internet and online services is a recent phenomenon.
This acceptance, growth and use may not continue. If they do not continue, the QXL Group’s operating results
will be negatively affected. Even if the Internet is accepted as a medium for commerce, concerns about fraud,
privacy and other problems may mean that a sufficiently broad base of consumers will not adopt the Internet as a
medium of commerce. In particular, some of the QXL Group’s web sites require users to make publicly available
their e-mail addresses and other personal information that some potential users may be unwilling to provide.
These concerns may increase as additional publicity over privacy issues in relation to the QXL Group’s web sites
or generally over the Internet increase. Market acceptance for recently introduced services and products over the
Internet is highly uncertain, and there are few proven services and products. In order to expand its member base,
the QXL Group’s web sites must appeal to and attract consumers who historically have used traditional means of
commerce to purchase merchandise.
The e-commerce market is intensely competitive, which could cause the QXL Group’s results to suffer.
The e-commerce market is rapidly evolving and intensely competitive. Barriers to entry are relatively low, and
current and new competitors can launch new web sites at a relatively low cost using commercially available
software.
Some current and many potential competitors have longer company operating histories, larger customer bases
and greater brand recognition in other business and Internet markets than the QXL Group will have. Some of
these competitors also have significantly greater financial, marketing, technical and other resources. Other online
trading services may be acquired by, receive investments from or enter into other commercial relationships with
larger, well-established and well-financed companies. As a result, some of the QXL Group’s competitors with
other revenue sources may be able to devote more resources to marketing and promotional campaigns, adopt
more aggressive pricing policies and devote substantially more resources to web sites and systems development
than the QXL Group. In addition, the QXL Group competes with a number of U.S. and regional European online
auction houses in the United Kingdom and in other countries in Western Europe. Increased competition may
negatively affect the QXL Group’s results of operations and may result in reduced operating margins, loss of
market share and diminished value of its brand. Some of its competitors have offered services for free and others
may do this as well. The QXL Group may be unable to compete successfully against current and future
competitors.
Failures of the QXL Group’s communications and computer software and hardware systems would harm
its business.
The QXL Group’s future success and its ability to facilitate trades successfully and provide high-quality member
service, will depend on the efficient and uninterrupted operation of its communications and computer software
and hardware systems. The QXL Group’s computer hardware systems and operations are vulnerable to damage
or interruption from floods, fires, power loss, telecommunication failures and similar events. They will also be
subject to break-ins, sabotage, vandalism and similar misconduct. The same is true of third-party service
providers on which the QXL Group depend. The QXL Group does not have formal disaster recovery plans or
74
alternative providers of hosting services. They do not carry sufficient business interruption insurance to
compensate for losses that may occur as a result of such events. Any damage to or failure of their systems could
result in interruptions in their service. Such interruptions will reduce the QXL Group’s revenues and profits, and
its future revenues and profits will be harmed if the users of QXL Group’s web sites believe that its system is
unreliable.
In addition to placing increased burdens on the engineering staff of the QXL Group, outages and slow
performance of the QXL Group’s web sites will most likely result in a significant increase in the number of user
questions and complaints that must be responded to by the QXL Group’s member support personnel. Further,
these outages and slow performance levels have prevented the QXL Group members from transacting business
on its web sites. If the QXL Group experiences frequent or persistent system failures, or its web sites do not have
adequate response times, its reputation and brand will be harmed, its operating results will be negatively
affected, and its members may be discouraged from using its service.
The inability to expand the QXL Group’s systems may limit its growth.
The QXL Group will seek to generate a high transaction volume on its service. The satisfactory performance,
reliability and availability of the QXL Group’s web sites, processing systems and network infrastructure are
critical to its reputation and its ability to attract and retain large numbers of members. The QXL Group’s
revenues will depend on the volume of auctions that are successfully completed and the final prices paid for the
merchandise and services listed. If the volume of traffic on QXL Group’s web sites or the number of auctions
being conducted is to continue to increase, it may need to expand and upgrade its technology, transaction
processing systems and network infrastructure. The QXL Group may be unable to project accurately the rate or
timing of increases, if any, in the use of its service or to expand and upgrade its systems and infrastructure
quickly enough to accommodate any increases.
If the QXL Group is unable to continually improve its computer systems, it may not be able to
accommodate the increasing level of use of its web sites and it may be unable to expand its business.
The QXL Group uses software that it has customised for its own purposes to operate services and provide
transaction processing, including billing and collections processing. In addition, the QXL Group may add new
features and functionality to its services that would result in the need to develop or license additional
technologies. The QXL Group’s inability to integrate its existing technologies, add additional software and
hardware or to upgrade its technology, transaction processing systems or network infrastructure to accommodate
increased traffic or transaction volume could have adverse consequences. These consequences include
unanticipated system disruptions, slower response times, degradation in levels of member support, impaired
quality of the members’ experience on the QXL Group service and delays in reporting accurate financial
information. The QXL Group’s failure to provide new features or functionality could also have these
consequences. The QXL Group may be unable to integrate smoothly any newly developed or purchased
technologies with its existing systems. These difficulties could harm or limit the QXL Group’s ability to expand
its business.
The QXL Group’s business will be materially and adversely affected if it does not succeed in establishing
brand awareness for QXL and ricardo.
The Company believes that its growth has been largely attributable to word-of-mouth. It has also benefited from
a degree of media exposure. It believes, however, that continuing to strengthen the QXL and ricardo brands in
particular will be critical to achieving widespread acceptance of its service. Raising the profile of these brands
will depend largely on the success of the QXL Group’s marketing efforts and its ability to provide high quality
services. In order to promote its brands, the QXL Group will need to increase the effectiveness of its sales and
marketing expenditure. When the QXL Group does attract new members to its service, these new members may
not conduct transactions on a regular basis. If the QXL Group fails to promote and maintain its brands or incurs
substantial expenses in an unsuccessful attempt to promote and maintain its brands, its business would be
harmed.
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The QXL Group’s terms and conditions of operation with its members may not be binding in certain
jurisdictions.
The QXL Group requires its members to enter into an agreement with it regulating all aspects of the relationship
between those members and the QXL Group (the “QXL User Agreement”), and some aspects of members’
relationships with third parties they encounter on the QXL Group service (such as other members and QXL
Merchant Partners). The QXL User Agreement is entered into by means of an on-line acknowledgement—a
“click-through”—which signifies the member’s agreement to the content during his or her registration for the
QXL Group service. In the various jurisdictions in which the QXL Group service is available, there remains
uncertainty as to the extent to which an agreement may be effectively entered into by users in this manner.
Accordingly, it is possible that in any jurisdictions in which the QXL Group service is accessible, the QXL User
Agreement may be found not to regulate the relationship between the QXL Group and the members, or else
specific provisions of the QXL User Agreement may be found to be unenforceable.
The Company has only a few executive officers, and the loss of the services of its Chief Executive Officer ,
Chief Financial Officer or other members of its senior management team could harm its business.
The Company’s future performance will depend heavily on the continued services of its Chief Executive Officer,
and Chief Financial Officer and its ability to retain and motivate these and other of its officers and key
employees. The Company has employment agreements with these and its other executive officers and other key
personnel. Non-competition clauses in these agreements may not be enforceable against these personnel.
Where the QXL Group relies on third parties to offer services, the QXL Group may be unable to control
the quality of the services they provide.
Each of the companies within the QXL Group pursues strategic relationships with third parties to provide
complementary services, for example, with Oracle in respect of its database systems. In the event of a significant
database problem with its database systems, would be reliant on Oracle support to correct the problem. If the
QXL Group continues to rely on third parties for services, the QXL Group may be unable to control the quality
of these services and its business, financial condition and results of operations could be materially adversely
affected.
The QXL Group cannot predict which new laws and regulations of the Internet will come into being, and
its failure to prepare for them could harm its business.
Due to the increasing popularity and use of the Internet and online services, new laws and regulations will
continue to be adopted with respect to the Internet or online services. These laws and regulations may address
issues such as online contracts, user privacy, freedom of expression, pricing, fraud, content and quality of
products and services, taxation, advertising, intellectual property rights and information security. Applicability to
the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is often uncertain. The vast majority of these laws
and regulations were adopted prior to the advent of the Internet and related technologies and, as a result, such
laws and regulations do not contemplate or address the unique issues of the Internet and related technologies.
The QXL Group cannot predict which new laws or regulations will be passed, so it may be unprepared for them.
Changes to existing laws or the passage of new laws intended to address the use of personal user information
gathered online could directly affect the way the QXL Group does business or could create uncertainty in the
marketplace. This could reduce demand for its services, increase the cost of doing business as a result of
litigation costs or increased service delivery costs, or otherwise harm its business. In addition, because the QXL
Group’s services are accessible worldwide, and because it facilitates sales of merchandise to users worldwide,
foreign jurisdictions may claim that it is required to comply with their laws. The QXL Group’s failure to comply
with foreign laws could subject it to penalties ranging from fines to bans on its ability to offer its services.
The QXL Group will be subject to risks of doing business internationally, including the following:
• Regulatory issues may affect the QXL Group’s operations in some jurisdictions. There may be
regulatory requirements that limit or prevent offering the QXL Group’s services in particular jurisdictions.
These regulatory requirements may prevent the QXL Group from providing all of its services or even
expanding its services into a new jurisdiction. For further details see “Regulatory Environment” in Part III
of this document.
• The QXL Group may need to accept different payment practices. Payment practices differ from
country to country. As the QXL Group commences operations in additional countries, it may be subject to
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longer payment cycles from its merchants and members. For example, the consumer protection laws in
some jurisdictions require that the consumer be afforded 14 days from the date of purchase to return the
goods purchased. In addition, the QXL Group may have difficulties in collecting accounts receivable from
its merchants and members in these additional international markets. In these cases, the QXL Group’s
business, financial condition and results of operations could be materially adversely affected.
• Online auctions may not be accepted in some markets. Some markets that the QXL Group may seek to
enter may not accept online auctions as a method of purchasing merchandise or services. If the online
auction service of the QXL Group is not acceptable in a jurisdiction in which it seeks to operate, its
business, financial condition and results of operations could be materially adversely affected.
• Tax regimes vary significantly from country to country. Although there is some harmonisation of tax
legislation among the member countries of the E.U., the QXL Group may be exposed to adverse tax
consequences in new countries that it enters. The complexity of complying with the applicable tax
regulations in numerous different tax regimes may also place an increased administrative burden on the
QXL Group’s management, and the QXL Group may be unable to manage its compliance with such
regimes. This could materially harm its business.
If the QXL Group’s online commerce security measures fail to protect member information, the QXL
Group’s reputation and brands could be damaged and it could lose members.
To gain and keep members, the QXL Group will need to provide secure transmission of confidential information
over public networks. Its security measures may be inadequate. Its failure to prevent security breaches could
harm its business. Currently, a significant number of QXL members authorise it to bill their credit card accounts
directly for all payments. The Company relies on encryption and authentication technology licensed from third
parties to effect secure transmission of confidential information, including member credit card numbers.
Advances in computer capabilities, new discoveries in the field of cryptography, or other developments may
result in a compromise or breach of the technology used by the QXL Group to protect member transaction data.
Any such compromise of the Company’s security could harm its reputation and, therefore its business. In
addition, a party who is able to circumvent the QXL Group’s security measures could misappropriate proprietary
information or cause interruptions in its operations. The QXL Group may need to expend significant resources to
protect against security breaches or to address problems caused by breaches. Security breaches could damage its
reputation and expose it to a risk of loss or litigation and possible liability.
If the QXL Group does not develop new services, features and functions, it may be unable to expand its
operations.
The QXL Group plans to expand its operations by developing new or complementary services, products or
transaction formats. The QXL Group may be unable to expand its operations quickly and cost-effectively. Even
if it does expand, it may not maintain or increase its overall market acceptance. If the QXL Group launches a
new business or service that is not favourably received by consumers, it could damage its reputation and
diminish the value of its brand. Rejection by the market of any new services the QXL Group launches could
harm the QXL Group’s business.
The QXL Group may be subject to intellectual property litigation which could cause its results to suffer.
Others have claimed in the past, and may claim in the future, that the Company has infringed their past, current
or future intellectual property rights. The Company expects that participants in its markets increasingly will be
subject to infringement claims as the number of services and competitors in its industry segment grows. Any
such claim, whether meritorious or not, could be time-consuming, result in costly litigation and negative
publicity, cause service upgrade delays or require it to enter into royalty or licensing agreements. These royalty
or licensing agreements might not be available on, or provided at, acceptable terms. As a result, any such third
party claim could harm the QXL Group’s business.
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The QXL Group may be unable to protect adequately or to enforce its intellectual property rights.
Each of the companies within the QXL Group rely on a combination of copyright, trademark, service mark and
trade secret laws and contractual restrictions to protect its proprietary rights. For example, QXL has the
following intellectual property rights:
• copyright in the content of its web sites and in its internally customised software components;
• unregistered trademarks and service marks of its brand name, logos and the names of the services offered
on its web sites; and
• trade secrets regarding the operation of its business and its proprietary information.
The protection of the QXL Group’s copyrights, service marks, trademarks and trade secrets will be critical to its
success. QXL, for example, has confidentiality and invention assignment provisions in its agreements with most
of its employees and contractors. It also has non-disclosure agreements with most parties with which it conducts
business. Through these arrangements, the QXL Group seeks to limit access to and disclosure of its proprietary
information. Contractual arrangements and other steps the members of the QXL Group take to protect their
intellectual property may not prevent misappropriation of their technology or deter independent third-party
development of similar technologies. Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which the QXL Group’s services are made available online. For
example, the QXL Group may be unable to prevent others from copying the design of its web sites or from using
a name that is confusingly similar to its own. The unauthorised reproduction or other misappropriation of the
QXL Group’s proprietary technology could enable third parties to benefit from its technology and brand name
without paying it. Any infringement or misappropriation could have a material adverse effect upon its business.
The QXL Group also relies on some technologies that it licenses from third parties, for example the operating
systems and specific hardware components for its service. These third-party technology licenses may not
continue to be available to the QXL Group on commercially reasonable terms. The loss of this technology could
require the QXL Group to obtain substitute technology of lower quality or performance standards or at greater
cost.
If the QXL Group is unable to protect its domain names, its reputation and brand could be impaired and
it could lose members.
The QXL Group currently holds the Internet domain names “QXL.com” and “ricardo.de”. Domain names
generally are regulated by governmental agencies and Internet regulatory bodies, such as the Internet Assigned
Numbers Authority and the Internet Corporation for Assigned Names and Numbers. Regulatory bodies could
establish additional top-level domains, appoint additional domain name registrars or modify the requirements for
holding domain names. As a result, the QXL Group may not acquire or maintain the use of the “QXL”, “ricardo”
or “QXL ricardo” domain names in all of the countries in which it seeks to conduct business. Furthermore, the
relationship between regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, the QXL Group could be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value of its trademarks and other
proprietary rights. If others were to use the QXL Group’s domain names, they could cause confusion among the
QXL Group’s members or divert business from it.
Fraudulent activities of the QXL Group’s members and suppliers could materially harm its business.
The success of the QXL Group’s web sites will depend largely upon sellers accurately representing and reliably
delivering their listed merchandise and buyers paying the agreed purchase price. For example, although the
Company seeks to disclaim responsibility for payment or delivery of merchandise to members who buy from
other members or from its merchants, it may bear some responsibility for payment or delivery in some
jurisdictions. The Company has received in the past, and anticipates that it will receive in the future,
communications from members who did not receive the purchase price or the merchandise that were to have
been exchanged. While the Company can suspend the accounts of members who fail to fulfill their obligations to
other members, it does not have the ability to require members to deliver merchandise or make payments. The
Company periodically receives complaints from buyers as to the quality of the merchandise purchased. Any
negative publicity generated as a result of fraudulent or deceptive conduct by members of its sites could damage
its reputation and diminish the value of its brand name. The Company may receive additional requests from
members requesting reimbursement or threatening legal action against it if no reimbursement is made. Any
resulting litigation could divert management attention, result in increased costs of doing business, lead to adverse
judgments or could otherwise harm the QXL Group’s business.
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The QXL Group’s businesses have been subject to seasonal patterns which may negatively affect the
businesses.
The QXL Group’s results of operations have been somewhat seasonal, because many of their users reduce their
activities on their web sites during the holiday seasons and with the onset of good weather. During these periods,
the QXL Group’s target membership might not use their computers and might not access the respective groups’
services. For example, during the summertime and when there is good weather, QXL expects that its users may
be involved in outdoor activities. The QXL Group’s limited operating history makes it difficult to assess the
impact of these seasonal factors or whether or not its business is susceptible to cyclical fluctuations in the
economies of the countries within Western Europe. In addition, rapid growth may have overshadowed whatever
seasonal or cyclical factors might have influenced the business to date. Seasonal or cyclical variations in the
QXL Group’s business may become more pronounced over time and may harm its cash flow and operating
results in the future.
The Company expects the price of its Ordinary Shares and ADSs to continue to be highly volatile.
The price of the Ordinary Shares and ADSs has been and is likely to continue to be highly volatile and may
continue to fluctuate substantially. The market price for the Ordinary Shares and ADSs may also be significantly
affected by factors such as the announcement of new products or services by the Company or its competitors,
quarterly variations in its operating results or the operating results of its competitors, changes in earnings
estimates by analysts or reported results that vary materially from such estimates. In addition the QXL Group’s
operating results and prospects from time to time may be below the expectations of public market analysts and
investors. Furthermore, the stock market has experienced significant price fluctuations that particularly affected
the market prices of equity securities of many companies in the Internet sector. These fluctuations have often
been unrelated to the operating performance of these companies. In addition, there are very few companies in the
Internet sector that are traded on the Official List of the London Stock Exchange. This will mean that the price of
the Ordinary Shares and ADSs will continue to be scrutinised by the press. Broad market fluctuations may also
materially adversely affect the market price of its Ordinary Shares and ADSs.
The issue of Ordinary Shares in the future (including those arising on the exercise of options and/or Warrants)
may also have a materially adverse effect on the price of the Ordinary Shares and ADSs.
The Company may need to seek further funding before attaining profitability
Although the Directors believe that the Company will have sufficient capital resources to meet its currently
anticipated working capital and capital expenditure requirements for 12 months from the date of this document,
these resources could, potentially, be insufficient to see the Company through to profitability. In particular there
is no guarantee that the Company will be able to draw down any further amounts under the Equity Commitment
and, if the Company’s ability to draw down under the Equity Commitment is limited, it may need to seek
additional funding within the next 24 months. If the Company were to raise additional funds through the
issuance of equity securities, existing Shareholders may experience substantial dilution in their percentage
holding in the Company. Furthermore, additional financing may not be available when needed or, if it is
available, may not be available on terms acceptable to Shareholders or the Directors. If financing is not
available when required or is not available on acceptable terms, the Directors may be unable to develop further
the business and achieve profitability. In addition the Company may be unable to take advantage of business
opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect
on the Company's business, financial condition and results of operations.
In the event of a default on the Convertible Bonds they immediately become repayable
Default events include: disposal of a material subsidiary of QXL Group, insolvency of QXL Group, the issuance
of a winding up or dissolution order of QXL or any material subsidiary and litigation resulting in a final
judgement for the payment of money exceeding in aggregate £1 million which is outstanding against QXL or any
material subsidiary for more than sixty days and which has not otherwise been discharged in full or stayed by
appeal, bond or otherwise. Further details of these and other potential events of default are set out in the
Subscription Agreement which is on display as set out on page 96 of this document.
Shareholders of the Company may incur dilution in relation to their shareholdings
The aggregate issue of Ordinary Shares under the Subscription Agreement may result in Shareholders
experiencing substantial dilution in their percentage holding in the Company. The percentage holding in the
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Company is calculated by dividing the number of Ordinary Shares held by a Shareholder (or the number of
Ordinary Shares represented by ADSs held) by the share capital of the Company then in issue. Depending on
how the market perceives the issue of these Ordinary Shares, this may have a materially adverse effect on the
price of the Ordinary Shares and ADSs.
Shareholders will experience additional dilution upon the issue of Ordinary Shares in the future (including the
Ordinary Shares arising on the exercise of options and/or Warrants), unless such issue is made on a pre-emptive
basis to Shareholders.
Prospective investors should read this document in its entirety and you should not rely on any
information other than that contained in this document.
Prospective investors should not rely on any information other than that contained in this document. In
particular, any and all press releases in relation to companies within the QXL Group should be viewed as being
superseded and retracted by the information elsewhere in this document, particularly under the heading “Current
Trading and Prospects” in Part I of this document. Prospective investors should not rely on any other
information not contained in this document in making any investment decision in QXL. Revenue and
profitability forecasts of any company, particularly in the rapidly evolving Internet market, are forward-looking
statements that involve numerous risks and uncertainty. The QXL Group’s actual results could differ from those
stated in any forward-looking statements as a result of numerous factors, including those set forth in these “Risk
Factors” and elsewhere in this document.
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PART V
TAXATION
The comments set out below are based on existing United Kingdom law and Inland Revenue published practice.
They are intended as a general guide only and apply only to the shareholders of QXL resident for tax purposes in
the United Kingdom (except insofar as express reference is made to the treatment of non-UK residents), who
hold those shares as an investment and who are the absolute beneficial owners thereof. Certain categories of
shareholder may be subject to special rules and this summary does not apply to such shareholders. Shareholders
who are in any doubt about their tax position, or who are resident or otherwise subject to taxation in a
jurisdiction outside the United Kingdom, should consult their own professional advisers immediately.
Dividends
No tax will be withheld from dividend payments made by QXL but dividends will carry a tax credit at a rate of
one-ninth of the net cash dividend (or 10 per cent. of the aggregate of the net cash dividend and the tax credit).
United Kingdom resident individual shareholders who are not liable to income tax in respect of the dividend will
not generally be entitled to a repayment of the tax credit. In the case of United Kingdom resident individual
shareholders liable to income tax at the starting, lower or the basic rate, the tax credit will satisfy in full such
shareholders’ liability to income tax on the dividend. United Kingdom resident individual shareholders liable to
income tax at the higher rate will be subject to income tax on the gross dividend (i.e. the net cash dividend plus
the tax credit) at 32.5 per cent., but will be able to set the tax credit off against part of this liability so that a
higher rate taxpayer will generally have an additional liability to income tax of 25 per cent. on the net cash
dividend.
United Kingdom resident corporate shareholders will not generally be subject to corporation tax in respect of
dividends paid by QXL.
United Kingdom resident shareholders who are not liable to United Kingdom tax on dividends, including
pension funds and charities, will not generally be entitled to reclaim the tax credits in respect of dividends
although charities will be entitled to limited compensation for the loss of repayable tax credits until 5 April 2004.
Tax credits in respect of dividends on Ordinary Shares held through Personal Equity Plans or in Individual
Savings Accounts where the dividends are paid before 6 April 2004 can still be reclaimed.
Shareholders resident outside the United Kingdom will not, in almost all cases, be able to obtain payment of any
tax credit. A shareholder resident outside the United Kingdom may also be subject to foreign taxation or
dividend income under local law.
Capital Gains
A disposal of Ordinary Shares by a United Kingdom resident or ordinarily resident shareholder or by a person
who holds his Ordinary Shares through a permanent establishment or branch in the United Kingdom may give
rise to a chargeable gain or allowable loss for the purposes of United Kingdom taxation of chargeable gains.
An individual shareholder who is neither resident nor ordinarily resident for tax purposes in the United Kingdom
will not normally be liable for United Kingdom capital gains tax on gains realised on the disposal of his Ordinary
Shares unless, at the time of the disposal, such shareholder carries on a trade (which for this purpose includes a
profession or vocation) in the United Kingdom through a branch or agency and such Ordinary Shares are or have
been used, held or acquired for the purposes of such trade or branch or agency. A non-resident individual
shareholder who has, on or after 17 March 1998, ceased to be resident and ordinarily resident for tax purposes in
the United Kingdom and then becomes resident or ordinarily resident for tax purposes in the United Kingdom
before 5 full years of assessment have elapsed, may be liable to United Kingdom capital gains tax on disposals
of Ordinary Shares while he was not resident or ordinarily resident (subject to any available exemption or relief).
Any such tax liability will arise only in respect of shares acquired whilst resident in the United Kingdom, and
will be treated as arising in the year of return to the United Kingdom.
Stamp Duty and Stamp Duty Reserve Tax (“SDRT”)
Stamp duty will generally arise on the execution of an instrument of transfer of Ordinary Shares and SDRT will
arise on the entry into an unconditional agreement to transfer Ordinary Shares. Both taxes are normally a liability
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of the purchaser. The amount of stamp duty payable is generally calculated at the rate of 0.5 per cent. of the
amount of the consideration payable for the transfer of the Ordinary Shares, rounded up to the nearest multiple
of £5. The amount of SDRT payable is calculated at the rate of 0.5 per cent. of the amount or value of the
consideration. Any SDRT paid on an agreement to transfer is refundable or, if not yet paid, the liability is
cancelled if a duly stamped transfer is executed within six years of the date of the entry into the agreement.
Paperless transfers of Ordinary Shares within CREST are generally liable to SDRT, rather than stamp duty, at
the rate of 0.5 per cent. of the amount or value of the consideration payable. CREST is obliged to collect SDRT
on relevant transactions settled within the system. Deposits of Ordinary Shares in CREST generally will not be
subject to SDRT, unless the transfer into CREST is itself for consideration.
Special rules apply to market intermediaries and on transfers or issues of shares to certain categories of persons
such as providers of clearance services and issuers of depositary receipts.
Inheritance Tax
Ordinary Shares are assets situated in the United Kingdom for the purposes of United Kingdom inheritance tax.
A gift of Ordinary Shares by, or on the death of, an individual shareholder may (subject to certain exemptions
and reliefs) give rise to a liability to United Kingdom inheritance tax, even if the holder is neither domiciled in
the United Kingdom nor deemed to be domiciled in the United Kingdom under special rules relating to long
residence or previous domicile. For inheritance tax purposes, a transfer of assets at less than full market value
may be treated as a gift and particular rules apply to gifts where the donor reserves or retains some benefit or
interest in the assets being transferred. Special rules also apply to close companies and trustees of certain
settlements holding Ordinary Shares bringing them within the charge to inheritance tax.
Individual Savings (“ISAs”)
The Ordinary Shares should be qualifying investments for a stocks and shares component of an ISA under
current applicable regulations.
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PART VI
ADDITIONAL INFORMATION
1. Incorporation
The Company was incorporated under the Companies Act 1985 and registered in England and Wales on 8
September 1997 as a private company limited by shares with the name Quixell Limited, with registered number
3430894. On 15 December 1998 the Company name was changed to QXL Limited. On 17 September 1999 the
Company re-registered as a public company with the name QXL.com plc. On 28 November 2000 the Company
name was changed to QXL ricardo plc.
2. Founder
The Company was founded in September 1997 by Timothy Jackson, who served as Chief Executive Officer until
May 1999, when he became a non-executive director. Mr Jackson remained a non-executive director until 26
March 2000. While a director of the Company, Mr Jackson’s business address was the registered office of the
Company.
3. Share Capital
3.1. The following table sets forth the share capital of QXL as at the close of business on 8 March 2002 (the
latest practicable date prior to the publication of this document):
Issued
Authorised And Fully Paid
Number Amount Number Amount
(£) (£)
Ordinary Shares of 0.1p each................................ 2,200,000,000 2,200,000 796,093,153 7,960,932
Special Shares of £1 each...................................... 6 6 6 6
3.2. The following alterations in the Company’s issued share capital have occurred between 9 March 1999
and 8 March 2002 (the latest practicable date prior to the publication of this document):
(a) On 21 June 1999, QXL reclassified 1,275,436 ordinary shares of 0.01p each into 1,275,436
Series D Preference Shares of 0.01p each and issued the following number of Series D Preference
Shares of 0.01p each to the following allottees at a price of US$25.7167:
(1) 1,189,888 to Forum Holding Amsterdam B.V.; and
(2) 85,548 to Credit Suisse First Boston Venture Fund I, L.P., an affiliate of Credit
Suisse First Boston.
(b) On 1 September 1999, QXL issued 126,923 ordinary shares of 0.01p each to Mad Hatter
Limited (formerly Humpty Dumpty Limited) upon exercise of subscription rights conferred by
Warrants held by it at a price of 0.01p each and also in consideration of the purchase of the businesses
of Humpty Dumpty Limited.
(c) On 2 September 1999, a Court approved reduction of capital was registered by the Registrar of
Companies. This Order authorised QXL to reduce by £20 million QXL’s share premium account.
(d) On 9 September 1999, pursuant to special resolutions passed at an extraordinary general
meeting of QXL and extraordinary resolutions passed at class meetings of QXL: (i) QXL increased its
authorised share capital from £2,000 to £200,000 by the creation of 1,449,008,748 ordinary shares of
0.01p each, 174,829,941 Series A Preference Shares of 0.01p each, 17,153,829 Series B Preference
Shares of 0.01p each, 212,739,318 Series C Preference Shares of 0.01p each, and 126,268,164 Series
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D Preference Shares of 0.01p each; (ii) QXL allotted shares of 0.01p each in the form of bonus shares
to its shareholders on the basis of 99 additional shares for each share held by a shareholder, such shares
being of the same class as those held by shareholders; and (iii) every issued and unissued five shares in
QXL were consolidated into one share of 0.05p each of the same class.
(e) On 9 September 1999, pursuant to a special resolution passed at an extraordinary general
meeting of QXL and extraordinary resolutions passed at class meetings of QXL, it was resolved,
subject to and conditional upon flotation, to redesignate each of the then unissued preference shares as
one ordinary share of 0.05p.
(f) On 9 September 1999, at a further extraordinary general meeting of QXL it was resolved to
further consolidate every two issued and unissued shares in QXL into one share of 0.1p each of the
same class.
(g) On 17 September 1999, QXL issued 375,000 ordinary shares of 0.1p each to Jonathan
Bulkeley upon exercise of options granted to him by QXL, at an exercise price of US$0.0736 per
ordinary share.
(h) On 17 September 1999, QXL issued 17,910 ordinary shares of 0.1p each to Brobeck Hale and
Dorr at a price of US$0.55843 per ordinary share upon exercise of the subscription rights conferred by
Warrants held by them.
(i) On 14 October 1999, QXL floated on the London Stock Exchange with an initial public
offering that resulted in the issue of 28,000,000 Ordinary Shares of 0.1p each.
(j) On 18 October 1999, QXL issued 256,410 Ordinary Shares of 0.1p each to Fine Art
Production.
(k) On 12 November 1999, QXL issued a further 468,000 Ordinary Shares of 0.1p each upon
exercise of the over-allotment option granted to Credit Suisse First Boston in relation to the initial
public offering.
(l) On 8 December 1999, QXL issued 1,296,154 Ordinary Shares of 0.1p each to DinSide AS as
consideration under an agreement to purchase assets from that company.
(m) On 17 February 2000, QXL entered into a Placing Agreement with Credit Suisse First Boston,
under which placees were found for 2,500,000 Ordinary Shares of 0.1p each.
(n) On 14 March 2000, QXL issued 510,000 Ordinary Shares of 0.1p each to a consortium of
sellers comprising Dico A/S, Casper Larson, Henrik Sorensen and Martin Thorburg as consideration
under the Jubii Agreement.
(o) On 3 April 2000, pursuant to resolutions passed at an extraordinary general meeting of QXL:
(1) QXL increased its authorised share capital from £200,000 to £600,000 by the creation
of 400,000,000 Ordinary Shares of 0.1p each;
(2) the Directors were authorised to appropriate a sum not exceeding £400,000 credited
to the share premium account of QXL to the holders of Ordinary Shares and to apply such sum
on their behalf in paying up in full at par up to a maximum of 400,000,000 of Ordinary Shares
and to allot such Ordinary Shares to such holders on the basis of two bonus Ordinary Shares
for every one existing Ordinary Share then held; and
(3) the Directors were authorised pursuant to Section 80 of the Act to exercise all the
powers of QXL to allot relevant securities up to an aggregate nominal amount of £17,744.18,
such authority to expire on the earlier of 15 months after the passing of the resolution or on the
conclusion of the Annual General Meeting of QXL to be held in 2001.
(p) On 3 April 2000, QXL issued 506,431 Ordinary Shares of 0.1p each as consideration for
certain shares which it acquired or subscribed for in ibidlive N.V.
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(q) On 14 April 2000, QXL issued 392,340 Ordinary Shares of 0.1p each as consideration for the
acquisition of a number of shares in Idefi SAS and as consideration for a minority interest in I-DEAL
S.A.
(r) On 26 April 2000, QXL issued 2,307,693 Ordinary Shares of 0.1p each to Fine Art
Productions Limited.
(s) On 1 June 2000, QXL issued 817,375 Ordinary Shares of 0.1p each upon exercise of share
options granted to its employees, at exercise prices between £0.0143 and £0.113 per ordinary share.
(t) On 8 June 2000, QXL issued 955,050 Ordinary Shares of 0.1p each upon exercise of share
options granted to its employees at exercise prices between £0.0015 and £0.352 per ordinary share.
(u) On 15 June 2000, QXL issued 479,973 Ordinary Shares of 0.1p each upon exercise of share
options granted to staff at exercise prices between £0.016 and £0.113 per ordinary share.
(v) On 22 June 2000, QXL issued 330,000 Ordinary Shares of 0.1p each upon exercise of share
options at exercise prices between £0.0272 and £0.113.
(w) On 29 June 2000, QXL issued 50,060 Ordinary Shares of 0.1p each upon exercise of share
options at exercise prices between £0.0272 and £0.68.
(x) On 29 June 2000, pursuant to resolutions passed at an extraordinary general meeting of QXL:
(1) the Directors were authorised to allot relevant securities up to an aggregate nominal
amount of £142,000, such authority to expire on the earlier of 15 months after the passing of
the resolution or on the conclusion of the Annual General Meeting of QXL to be held in 2001
(of which authority approximately £71,000 related to the allotment of Ordinary Shares for the
acquisition of Bidlet and approximately £71,000 related to the allotment of relevant securities
generally); and
(2) the Directors were authorised to allot equity securities for cash as if Section 89(1) of
the Act did not apply to such allotment, such power being limited to the allotment of equity
securities up to an aggregate nominal amount of £21,500 and expiring on the earlier of 15
months after the passing of that resolution or on the conclusion of the Annual General Meeting
of QXL in 2001.
(y) On 30 June 2000, QXL issued 35,280,174 Ordinary Shares of 0.1p each to Hierta Venture AB,
Emerging Technologies Limited, ACP April 1995 Limited, SBS Broadcasting S.A., Leif Rahmqvist
and Patrick von Schenck as consideration under the Bidlet Acquisition Agreement.
(z) On 25 July 2000, QXL issued 793,405 Ordinary Shares of 0.1p each as part consideration for
its acquisition of certain shares in Idefi SAS.
(aa) On 25 July 2000, QXL issued 78,470 Ordinary Shares of 0.1p each as part consideration for
its acquisition of certain shares in I-DEAL SA.
(bb) On 14 August 2000, QXL issued 100,000 Ordinary Shares of 0.1p each upon exercise of share
options at exercise prices between £0.015 and £0.068.
(cc) On 8 September 2000, QXL issued 34,137,305 Ordinary Shares of 0.1p each as consideration
for the acquisition of certain shares in Bidlet.
(dd) On 2 October 2000, pursuant to resolutions passed at an extraordinary general meeting of
QXL:
(1) the Directors were authorised to allot relevant securities up to an aggregate nominal
amount of £532,660, such authority to expire on the earlier of 15 months after the passing of
the resolution or on the conclusion of the Annual General Meeting of QXL to be held in 2001
(of which approximately £291,006 of such authority relates to the allotment of Ordinary
85
Shares and special shares in connection with the business combination with ricardo with the
remainder relating to the allotment of relevant securities generally);
(2) the Directors were authorised to allot equity securities for cash as if section 89(1) of
the Act did not apply to such allotment, such power being limited to the allotment of equity
securities up to an aggregate nominal amount of £36,248 and expiring on the earlier to occur
of 15 months after the passing of that resolution or the conclusion of the Annual General
Meeting of QXL in 2001; and
(3) the Articles of Association of QXL were amended for the purposes of the creation of
a class of special shares.
(ee) On 24 October 2000, QXL issued 5,158,539 Ordinary Shares of 0.1p each as consideration
under an agreement to increase its equity interest in ibidlive N.V.
(ff) On 8 November 2000, QXL issued 670,080 Ordinary Shares of 0.1p each as consideration for
the acquisition of certain shares in Bidlet.
(gg) On 24 November 2000, QXL issued 6 Special Shares of £1 each in consideration for its
acquisition of certain shares in ricardo.
(hh) On 24 November 2000, QXL issued 126,280,216 Ordinary Shares of 0.1p each as
consideration for its acquisition of certain shares in ricardo in accordance with the provisions of the
ricardo Combination Agreement.
(ii) On 8, 14 and 21 December 2000, QXL issued 354,517 Ordinary Shares of 0.1p each upon
exercise of share options at exercise prices between £0.0148 and £0.112.
(jj) On 3 January 2001, QXL issued 34,143,374 Ordinary Shares of 0.1p each to Dr. S.
Wiskemann for its acquisition of certain shares in ricardo in accordance with the provisions of the
ricardo Combination Agreement.
(kk) On 10 and 15 January 2001, QXL issues 240,237 Ordinary Shares of 0.1p each on exercise of
share options at exercise prices between £0.01486 and £0.0873.
(ll) On 24 January 2001, QXL issued 3,321,428 Ordinary Shares of 0.1p each as consideration for
its acquisition of certain shares in Idefi.
(mm) On 14 January 2001, QXL issued 4,688 Ordinary Shares of 0.1p each on exercise of share
options at the exercise price of £0.068.
(nn) On the 13 February 2001, pursuant to resolutions passed at an extraordinary general meeting
of QXL:
(1) the authorised share capital of the Company was increased from £1,200,006 to
£1,700,006 by the creation of a further 500,000,000 Ordinary Shares;
(2) the Directors were authorised to allot relevant securities up to an aggregate nominal
amount of £934,000, which, on the basis of a Conversion Price and/or an Exercise Price and/or
a subscription price payable in relation to the Equity Commitment of 7 pence, represents (i)
approximately 549,000,000 new Ordinary Shares to be issued on the conversion of the
Convertible Bonds, the exercise of the Warrants, the subscription for Ordinary Shares pursuant
to the Equity Commitment and, if applicable, the payments of interest on the Convertible
Bonds; and (ii) 385,000,000 new Ordinary Shares being approximately one-third of the total
Ordinary Share capital of the Company in issue following conversion of the Convertible
Bonds, the exercise of the Warrants and the subscription of the Ordinary Shares pursuant to
the Equity Commitment (based on the assumed price as set out above). This authority (unless
previously revoked, varied or renewed) will expire on the 31 December 2004; and
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(3) the Directors were authorised to allot equity securities as if Section 89(1) of the Act
did not apply to such allotments, such power being limited to the allotment of equity securities
up to £549,000 and expiring on 31 December 2004.
(oo) On 14 February 2001, QXL issued Series A Convertible Bonds to the value of £5 million
together with Warrants to purchase 19,811,081 Ordinary Shares of 0.1p each.
(pp) On 30 March 2001, QXL issued a total of 26,613,017 Ordinary Shares of 0.1p each to certain
of the vendors under the ricardo Combination Agreement in accordance with the exchange rights set
out in that agreement
(qq) On 27 April 2001, QXL issued 698,632 Ordinary Shares of 0.1p each on exercise of share
options at the exercise price of £0.0148.
(rr) On 22 May 2001, QXL issued 3,596 Ordinary Shares of 0.1p each to certain of the vendors
under the ricardo Combination Agreement in accordance with the exchange rights set out in that
agreement.
(ss) On 22 May 2001, QXL issued 7,132,093 Ordinary Shares of 0.1p each to CSFBE in
satisfaction of approximately £410,000 of fees and disbursements due from the Company to CSFBE.
(tt) On 29 June 2001, QXL issued 33,799,313 Ordinary Shares of 0.1p each to the Subscribers in
connection with a drawing under the Equity Commitment at a price of 7.3966 p per share.
(uu) On 3 July 2001, QXL issued 11,145,097 Ordinary Shares of 0.1p each to one of the vendors
under the ricardo Combination Agreement in accordance with the exchange rights set out in that
agreement;
(vv) On 26 July 2001, QXL issued 21,058,050 Ordinary Shares of 0.1p each to the Subscribers in
connection with a drawing under the Equity Commitment at a price of 4.2739 p per share.
(ww) On 6 September 2001, pursuant to resolutions passed at the annual general meeting of QXL:
(1) the authorised share capital of the Company was increased from £1,700,006 to
£2,200,006 by the creation of a further 500,000,000 Ordinary Shares;
(2) the Directors were generally authorised to allot relevant securities (in addition to the
existing authority granted to the Directors on 13 February 2001) up to an aggregate nominal
amount of £500,000, such authority to expire on the earlier of 15 months after the passing of
the resolution and the conclusion of the annual general meeting of QXL to be held in 2002;
(3) the Directors were authorised to allot relevant securities in connection with the
conversion of Convertible Bonds, exercise of Warrants or subscription of Ordinary Shares
pursuant to the Equity Commitment (in addition to the existing authority granted to the
Directors on 13 February 2001) up to an aggregate nominal value of £313,000, such authority
to expire on 31 December 2004;
(4) the Directors were authorised to allot relevant securities to the remaining
shareholders in Bidlet AB (publ) up to an aggregate nominal amount of £511, such authority to
expire on 30 June 2006;
(5) the Directors were authorised to allot relevant securities to the remaining
shareholders in ricardo.de AG up to an aggregate nominal amount of £92,815, such authority
to expire on 30 June 2006;
(6) the Directors were authorised pursuant to resolution (2) above to allot equity
securities for cash (in addition to the existing authority granted to the Directors on 13 February
2001) as if Section 89(1) of the Act or any pre-emption provisions contained in the Articles of
Association or otherwise did not apply to such allotment, such power being limited to the
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allotment of equity securities where such securities have been offered to holders of equity
securities in proportion to their then holdings of such securities;
(7) the Directors were authorised pursuant to resolution (2) above and other than
pursuant to resolution (6) above to allot equity securities for cash (in addition to the existing
authority granted to the Directors on 13 February 2001) as if Section 89(1) of the Act or any
pre-emption provisions contained in the Articles of Association or otherwise did not apply to
such allotment, such power being limited to the allotment of equity securities up to an
aggregate nominal amount of £75,806 and expiring on the earlier of 15 months after the
passing of the resolution and the conclusion of the annual general meeting of QXL in 2002;
and
(8) the Directors were authorised pursuant to resolution (3) above to allot equity
securities for cash (in addition to the existing authority granted to the Director on 13 February
2001) as if Section 89(1) of the Act did not apply to such allotment, such power being limited
to the allotment of equity securities up to an aggregate nominal amount of £313,000 and
expiring on 31 December 2004.
(xx) On 4 December 2001, QXL issued 56,044,814 Ordinary Shares of 0.1 p each to certain of the
vendors under the ricardo Combination Agreement in accordance with the exchange rights set out in
that agreement.
(yy) On 17 December 2001, QXL issued 4,797,156 Ordinary Shares of 0.1 p each to one of the
vendors under the ricardo Combination Agreement in accordance with the exchange rights set out in
that agreement.
(zz) On 11 February 2002, QXL issued 26,187,186 Ordinary Shares of 0.1p each to certain of the
Subscribers at a price of 2.3336 p per share in connection with the conversion of some of the
Convertible Bonds.
3.3. Save as disclosed in this document, from 9 March 1999 to 8 March 2002 (the latest practicable date
prior to the publication of this document), no share capital of QXL or any subsidiary undertaking which
is material (other than intra-group issues by wholly-owned subsidiaries) has been issued or been agreed
to be issued fully or partly paid, either for cash or for a consideration other than cash and no such issue
is proposed.
3.4. The provisions of section 89(1) of the Act (which to the extent not disapplied pursuant to section 95 of
the Act, confer on shareholders rights of pre-emption in respect of the allotment of “equity securities”
(as defined in section 94 of the Act) which are, or are to be, paid up in cash) apply to the authorised but
unissued share capital of QXL except to the extent already disapplied (see paragraphs 3.2(ff), 3.2(pp)
and 3.2(tt) above). The Listing Rules require that, unless the approval of Shareholders in general
meeting is obtained, the Company must offer Ordinary Shares to be issued for cash to existing
shareholders on a pro rata basis.
4. Memorandum and Articles of Association of QXL
4.1. Clause 4 of the Company’s Memorandum of Association provides that its principal objects are:
(a) to carry on business as a company conducting online auction services, including, without
limitation, offering merchandise and services for auction on the Internet, hosting auctions of
merchandise and services offered by registered members on the Internet, any and all related activities to
online auctions and other commercial and non-commercial activities which may be carried out on the
Internet and world wide web; and
(b) to carry on any business, trade or activity that the Directors deem to be related to its business
and capable of enhancing the value of profitability of its business.
4.2. The Company’s Articles of Association contain, amongst other things (and subject to relevant
provisions of general company law and of the Listing Rules), the provisions set out below:
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a) Dividends
Dividends are payable on the shares only out of profits available for distribution, as determined in
accordance with the Act, the CREST Regulations and every other statute for the time being in force
concerning companies and affecting the Company (“Statutes”). Holders of Shares are entitled to receive
such dividends as may be recommended by the Board of Directors and declared by the Shareholders in
general meeting.
The Directors may pay Shareholders such interim dividends as appears to it to be justified by the profits
of the Company. If authorised by an ordinary resolution of the Shareholders, the Company may also
offer Shareholders the right to elect to receive share dividends by way of scrip dividend instead of cash.
The Company may, with the sanction of an ordinary resolution of Shareholders, capitalise any sum
standing to the credit of any of its reserve accounts or its profit and loss account. Such capitalisation
shall be effected in accordance with the rights attached to any share, either by appropriating such sum to
pay up in full any of the Company’s share capital which has not been issued and distributing the same to
the Shareholders in proportion to the number of Ordinary Shares which they hold as fully paid up bonus
shares
Any dividend unclaimed after 12 years from the date the dividend was declared, or became due for
payment, will be forfeited and will revert to QXL.
(b) Rights in a winding-up
On a winding up of QXL, the liquidator may, upon the adoption of an extraordinary resolution of the
Shareholders, divide among the Shareholders the whole or any part of the assets of QXL in kind. The
liquidatormay for such purpose set such value as he deems fair upon the property and may determine
the division of property between the different classes of Shareholders.
(c) Alteration of share capital; Allotment of shares
The Company may by ordinary resolution:
(i) increase its capital by a sum to be divided into shares of such amounts as the
resolution prescribes;
(ii) consolidate and divide all or any of its share capital into shares of a larger nominal
amount than its existing shares;
(iii) cancel any shares that, at the date of the resolution, have not been taken, or agreed to
be taken, by any person and reduce its share capital by the amount of the shares so cancelled;
and
(iv) subdivide its shares into shares of a smaller nominal amount than is fixed by its
Memorandum of Association, subject to the Statutes. If it does so, the resolution whereby any
share is subdivided may determine that, as between the holders of the shares resulting from
such subdivision, one or more of the shares may, as compared with the others, have any such
preferred, deferred or other special rights or be subject to any such restrictions, as the
Company has power to attach to unissued or new shares.
Subject to the provisions of applicable the Statutes, the Company may purchase, or may enter into a
contract under which it will or may purchase, any of its own shares of any class. This includes any
redeemable shares. If there are in issue any shares convertible into equity share capital of the class
proposed to be purchased, then the Company will not purchase, or enter into a contract under which it
will or may purchase such equity shares, unless either:
(i) the terms of issue of such convertible shares or other securities include provisions
permitting it to purchase its own equity shares or providing for adjustment to the conversion
terms upon such a purchase, or
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(ii) the purchase or the contract first has been approved by an extraordinary resolution
passed at a separate meeting of the holders of such convertible shares or other securities.
Subject to the provisions of the Act, QXL may, by special resolution of its shareholders, reduce its
share capital or any capital redemption reserve, share premium account or other undistributable reserve
in any manner.
(d) Meetings of shareholders
The Articles of Association require that an annual general meeting be held once in every year, within
not more than 15 months after the holding of the last preceding annual general meeting, at a time and
place determined by the Board of Directors. All other general meetings are deemed extraordinary
general meetings. Extraordinary general meetings are held at the request of the Board of Directors or on
requisition in accordance with the Statutes.
(e) Voting rights
Voting at any general meeting of Shareholders is by a show of hands unless a poll, which is a written
vote, is duly demanded. On a show of hands, every Shareholder who is present in person at general
meetings of QXL has one vote regardless of the number of shares held. On a poll, every Ordinary
Shareholder who is present in person or by proxy has one vote per share held by that Shareholder. Your
attention is also drawn to the voting rights which are attached to the Special Shares, as set out fully
below. A poll may be demanded by any of the following:
(i) the chairman of the meeting;
(ii) at least three Shareholders entitled to vote at the meeting;
(iii) any Shareholder or Shareholders representing in the aggregate not less than one-tenth
of the total voting rights of all Shareholders entitled to vote at the meeting; or
(iv) any Shareholder or Shareholders holding shares conferring a right to vote at the
meeting on which there have been paid-up sums in the aggregate equal to not less than one-
tenth of the total sum paid up on all the shares conferring that right.
A proxy form will be treated as giving the proxy the authority to demand a poll, or to join others in
demanding one.
The necessary quorum for general meetings is two persons carrying a right to vote upon the business to
be transacted, whether present in person or by proxy.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting
is not entitled to cast the deciding vote in addition to any other vote he or she may have. Meetings are
generally convened upon advance notice of 21 days for the passing of a special resolution and 14 days
for any other resolution, depending on the nature of the business to be transacted. The days of delivery
or receipt of the notice are not included.
(f) Special Share rights
The Special Shares, inter alia, confer on the Special Shareholders special voting rights intended to
confer on the ricardo Vendors the same votes at the general meetings of QXL as they would have if at
the time of any such meeting they exercised their rights pursuant to the Ricardo Combination
Agreement to exchange the shares in QXL GmbH and shares in ricardo.de AG held following the
Business Combination for shares in QXL. The Special Shares also confer on the holders rights to
additional votes if a takeover offer for Ordinary Shares becomes unconditional or a scheme of
arrangement for the acquisition of Ordinary Shares becomes effective and the offeror or the person
proposing the scheme fails to extend a similar offer or proposal to the holders of the Special Shares.
The Special Shares will also confer on the Special Shareholders the right to nominate jointly two
directors of the Company where their aggregate voting rights in QXL equal or exceed 12 per cent. of
the issued share capital. The Special Shares of a holder may be redeemed for £1.00 each once that
holder has exchanged all of their shares for Ordinary Shares as set out above and the aggregate voting
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rights of all Special Shareholders has fallen below 12 per cent. of the issued share capital. In addition,
the Special Shares may be redeemed once their rights have lapsed following an offer or arrangement
where the Special Shareholders receive what they would have received had they exercised their rights to
exchange as set out above. Special Shareholders have no rights to participate in the profits of the
Company and on a winding up of the Company shall only be entitled to a return of the nominal amount
of the Special Shares and shall not otherwise be entitled to any other share in the profits or assets of the
Company.
(g) Variation of rights
If, at any time, the share capital is divided into different classes of shares, the rights attached to any
class may be varied, subject to the provisions of the Statutes, with the consent in writing of the holders
of three-quarters in nominal value of the issued shares of the class, or upon the adoption of an
extraordinary resolution passed at a separate meeting of the holders of the shares of that class. At every
such separate meeting, the quorum is to be the number of persons (which must be two or more) who
hold or represent by proxy not less than one-third in nominal value of the issued shares of the class.
(h) Transfer of shares
Shares in certified form can be transferred by a transfer in writing in the usual standard form or in any
other form approved by the Directors. The transfer document must then be delivered to the Registered
Office (or any other place decided upon by us) together with the share certificate for the shares to be
transferred and any other evidence which the Directors require from the transferor confirming its
entitlement to make the transfer. There is no fee payable for transferring shares. A share transfer form
must be signed by the transferor and, in the case of shares which are not fully paid-up, by the transferee.
The transferor will be treated as continuing to be the Shareholder until the name of the transferee is put
on the register for that share.
The Directors can refuse to register a transfer of any shares which are not fully paid-up without giving
any reason for so refusing. They may not refuse to register the transfer of any shares listed on the
Official List of the UK Listing Authority if this would stop dealings in the shares from taking place on
an open and proper basis.
(i) Board of Directors
Under the Articles of Association, the Board of Directors is made up of at least three directors. The
Directors can decide when to have meetings and how many of their number represent a quorum of the
Board of Directors. Unless the Directors decide otherwise, two Directors are required for a quorum.
There is no limit on the number of years any Director may serve,however,at every annual general
meeting, any Director who was elected or last re-elected at or before the annual general meeting held in
the third calendar year before is subject to retirement by rotation. A Director retiring by rotation may be
re-elected at any general meeting. Directors retiring in this way can be re-elected at that annual general
meeting. Furthermore, Statutes provide that a Director can be removed from office at any time by a
majority vote of the shareholders. The Articles of Association do not require the Directors to retire at a
specific age.
The Directors can appoint any person as an extra director of QXL or as a replacement for another
Director. Any Director appointed in this way must retire at the first annual general meeting after his
appointment and shall then be eligible for election.
The Directors are given the power to manage the business and to use all of the powers stated in the
Memorandum of Association. Without Shareholder approval by way of an ordinary resolution, the
Company cannot borrow more than £300 million.
A Director cannot vote on any contract, any arrangement or any other kind of proposal in which he or a
person connected with him has a material interest. This restriction does not apply in the following
circumstances:
(i) as a result of any interest he may have in QXL’s shares, debentures or other
securities;
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(ii) on a resolution about the giving of any security, guarantee or indemnity to the
Director or any other person, for any money which he or that other person has lent or for any
liability which he or that other person has incurred at the request, or for the benefit of, QXL or
any of its subsidiaries;
(iii) on a resolution relating to the giving of any security, guarantee or indemnity to any
other person for a debt or obligation owed by QXL, its subsidiaries, to that person, if the
Director has taken responsibility for some or all of that debt or those obligations;
(iv) on a resolution about any proposal relating to an offer of any shares or debentures or
other securitiesof or by QXL or any of its subsidiaries, if the Director takes part because he is
already a holder of shares, debentures or other securities, or if he takes part in the underwriting
or sub-underwriting of the offer;
(v) on a resolution about any proposal relating to another company in which he and
persons connected with him have a direct or indirect interest of any kind, including holding
any position in that company or being a shareholder of that company, unless the Director and
persons connected with him hold an interest in shares representing 1 per cent. or more of the
equity share capital or voting rights in that company;
(vi) in relation to any arrangement for the benefit of QXL’s employees, or of any of its
subsidiaries, which gives the Director only privileges or benefits which are also generally
given to the employees to whom the arrangement relates; and
(vii) on a resolution about any proposal relating to any insurance which QXL proposes to
maintain or purchase for the benefit of the Directors or for the benefit of a group of people
which includes the Directors.
The Articles restrict the aggregate ordinary remuneration paid to the Directors to £2 million a year or any other
sum approved by ordinary resolution of QXL at a General Meeting. Unless an ordinary resolution is passed
saying otherwise, the fees will be divided between some or all of the Directors in the way that they decide. The
Directors are also able to give special pay to any Directors who perform any special or extra services for QXL
which are outside the ordinary duties of a Director. QXL will also reimburse all reasonable expenses incurred by
its Directors in attending meetings or otherwise in connection with the business of the Company. The Directors
will decide on the pay of the Director who has been appointed chairman or a deputy chairman or to any
executive post. The Directors can also decide whether to give pensions, annual payments, gratuities or other
allowances or benefits to persons who are or were Directors of QXL.
5. QXL Share Schemes
5.1. QXL UK share schemes
Under the QXL share schemes, the main features of which are set out below, no consideration is payable on the
grant of any option or award and none of the benefits under them are pensionable. References in this Section 5 to
“shares” are to Ordinary Shares unless otherwise stated.
5.2. Main Features
Until February 2000, QXL entered into individual share option agreements to grant share options to its executive
officers and employees.
Under these individual share option agreements, the options granted are personal to the option holder and may
not be transferred. The options may only be exercised by the persons to whom they are granted, or their personal
representatives.
The sum of £1.00 was paid to the Company in consideration for the grant of each of these options. The Board of
Directors determined the exercise price for these options at the time of their grant. Options granted under these
individual share option agreements vest over a four year period from the date of their grant. An amount equal to
25 per cent. of the options granted to an option-holder vest after the end of the first year of employment. An
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additional 6.25 per cent. of the options granted vest every calendar quarter thereafter, provided that the option
holder continues to be employed full-time by the Company.
Under these individual share option agreements, options that have vested will be exercisable for up to a
maximum of ten years from the date of grant. An option which has vested will continue to be exercisable for
specified periods of time after the death of the option holder and after an option holder ceases to be employed by
QXL for reason of injury, disability, retirement or termination of employment without good cause. In the event
of termination of employment for any other reason, the vested part of any option can, in most cases, be exercised
only with the consent of the Board of Directors.
The individual share option agreements include special provisions which apply in the event that QXL is subject
to a takeover, the majority of shareholders of QXL intend to sell their shares or the Company is liquidated. There
are also special provisions which allow the Company to pay a cash equivalent to the option holder on the
exercise of an option as an alternative to issuing shares.
The Company may adjust the number of shares subject to an option and the price at which an option may be
exercised following certain variations in its share capital, including capitalisation, reduction, sub-division,
consolidation or a rights issue.
1999 Approved Share Option Scheme
In October 1999, QXL adopted the 1999 Approved Share Option Scheme (the “Approved Scheme”). The
Approved Scheme was approved by the U.K. Inland Revenue on 1 August 2000.
Under the Approved Scheme, the Compensation Committee may grant options to Company employees and full-
time Directors, including employees and full-time Directors of its subsidiaries to acquire shares at no cost.
Directors are eligible only if they devote substantially the whole of their working time to QXL, and in any event
not less than 25 hours per week. No options may be granted later than ten years from the date of adoption of the
Approved Scheme. Options granted under the Approved Scheme are personal to the option holder and may not
be transferred. They may be exercised only by the persons to whom they are granted or their personal
representatives.
The exercise price of options granted under the Approved Scheme will be the market value of an ordinary share
on the date of grant. “Market value” will mean the middle-market price on the last practicable dealing day
immediately preceding the date on which the option is granted.
Options granted under the Approved Scheme will vest over a four-year period from the date of grant, with the
first 25 per cent. of the options vesting after one year, and the remainder vesting in 12 equal quarterly
instalments of 6.25 per cent. over the following three years. Options granted under the Approved Scheme will be
exercisable up to a maximum of ten years from the date of grant. If an option holder exercises his or her options
within three years of the date of grant, the holder will lose the tax advantages of an Approved Scheme and will
accordingly be liable for U.K. Income Tax and National Insurance. An option granted under the Approved
Scheme that is vested will remain exercisable if an option holder dies or ceases to be employed by QXL by
reason of injury, disability, redundancy, retirement at normal retirement age or because the business in which he
is employed is sold or transferred to a third party. It will remain exercisable for one month after the relevant
event and will then lapse. If an option holder ceases to be employed by QXL for any other reason, he or she may
only exercise his or her options with the consent of the Compensation Committee; otherwise, the options will
lapse. Special provisions apply in the event that the Company is subject to a take-over or it is liquidated.
QXL may adjust the number of shares subject to an option and the price at which an option may be exercised
following certain variations in its share capital. These include capitalisation, reduction, consolidation, sub-
division or a rights issue.
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The Compensation Committee may amend or terminate the Approved Scheme at any time, but the approval of
the U.K. Inland Revenue is required if the Approved Scheme is to retain its approved status. However, the
Company may not amend the basic structure of the Approved Scheme, or the limits on the number of ordinary
shares which may be issued under it, if the amendments would be to the advantage of participants, unless it first
obtains shareholder approval in a general meeting. If the amendments or termination would be to the
disadvantage of any participant, the Company would require the consent of option holders holding options over
at least 75 per cent. of Ordinary Shares under the Approved Scheme.
The 1999 Unapproved Share Scheme
In October 1999, QXL adopted the 1999 Unapproved Share Scheme (the “Unapproved Scheme”). The
Unapproved Scheme has not been approved by the U.K. Inland Revenue. The Company does not intend to seek
the approval of the U.K. Inland Revenue of the Unapproved Scheme. The Unapproved Scheme is identical to the
Approved Scheme except that under the Unapproved Scheme, the Compensation Committee may grant options
to QXL employees, including its executive Directors and employees of its subsidiaries, to acquire shares at no
cost to the grantee.
The Compensation Committee may amend or terminate the Unapproved Scheme at any time, provided that no
amendment or termination may be to the disadvantage of participants without the consent of option holders
holding options over at least 75 per cent. of the Ordinary Shares of QXL under the Unapproved Scheme. The
Company may not make amendments to the basic structure of the Unapproved Scheme or to the limits on the
number of the ordinary shares that may be issued under it, if amendments would be to the advantage of
participants, unless it first obtains shareholder approval in a general meeting.
5.3. Outstanding Options
The table below shows details of the options that were outstanding under QXL share schemes on 8 March 2002
(the latest practicable date prior to the publication of this document). No consideration was paid for the grant of
the options:
Number of
Date Option Exercise Price Ordinary
Scheme Granted Exercise Period per Ordinary Share Shares
J Bulkeley ............................... 3 March 1998 March 1999-March 1.5p 1,125,000
11 February 2005 1.6p 4,000,000
2002 Feb 2003 – Feb 2012
J Rose...................................... 11 February Feb 2003 – Feb 2012 1.6p 3,000,000
2002
M Zaleski ................................ 15 February Feb 2002 – Feb 2011 9.8p 6,000,000
2001 Feb 2003 – Feb 2012 1.6p 10,000,000
11 February
2002
R Dighero................................ 20 April 1998 April 1999-April 2008 1.5p 5,052,546
15 February Feb 2002 – Feb 2011 9.8p 3,042,960
2001 Feb 2003 – Feb 2012 1.6p 7,000,000
11 February
2002
Other Staff Total ..................... April 1998 – April 1999- December 1.4 – 4.48p 49,806,763
February 2002 2012
Options are all in Ordinary Shares and employee options are vested over a four year period based on the option
grant date. On 22 April 1999, a change was made to the vesting profile of all employee share option agreements
such that 25 per cent. vests on the anniversary of the date granted and the remaining entitlement vests in 12
quarterly instalments.
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6. Principal Subsidiary and Associated Undertakings
QXL is the ultimate parent company of the QXL Group and has the following group undertakings. Unless
otherwise indicated, each subsidiary undertaking is wholly owned and included in the consolidated financial
information appearing in Part II of this document. They represent the main investments made by QXL since its
formation. Details of the amounts invested in these undertakings are set out in the consolidated accounts of QXL
that appear in Part II of this document. Each subsidiary undertaking operates in its country of incorporation.
Country of
Name of undertaking Registered Office Address Principal Activity Incorporation
QXL Sweden AB (publ)*.............. .Box 5507, Birger Jarlsgatan 6D, Internet auction related services Sweden
11485 Stockholm, Sweden
ibidlive NV**................................ .Rokin 117, 1012 KP, Amsterdam TV auction technology The Netherlands
Idefi SA......................................... .3 rue Jean Piret L-2350 Live auction technology Luxembourg
Luxembourg
QXL Sarl....................................... .1 Rue Ambroise Thomas, 75009 Internet auction related services France
Paris
QXL Srl ........................................ .Via Scarlatti No. 31 Milan Internet auction related services Italy
QXL SL......................................... .C/Goya 15, 2 IZQ, 28001 Madrid Internet auction related services Spain
QXL Auksjon Norge AS............... .Strandveien 50E, N-1366 Lysaker Internet auction related services Norway
QXL Denmark ApS ...................... .Kongens Bryghus Rahbeks Internet auction related services Denmark
Alle 11, 2. Sal,
1749 Copenhagen V
QXL sp. z.o.o................................ .Ostroroga 16, Poznan, 60349 Internet auction related services Poland
ricardo.de AG***........................... Van-der-Smissen-Strasse 2, 22767, Internet auction related services Germany
Hamburg
ricardo.nl BV ****......................... Admiraal de Ruijterweg 545, 1055 Internet auction related services The Netherlands
MK, Amsterdam
ricardo.ch AG ****........................ Bahnhofstrasse 13 CH-6340 Baar Internet auction related services Switzerland
* At the date of this document QXL owns approximately 99.6 per cent. of the issued share capital of QXL
Sweden AB which changed its name from Bidlet AB on 16 January 2001.
** ibidlive NV, in which the QXL Group has 62 per cent. of the issued share capital, has four wholly
owned subsidiaries based in The Netherlands, the United Kingdom and the United States.
*** The QXL Group currently controls approximately 92 per cent of the issued share capital of ricardo with
rights to control approximately 91 per cent of the fully diluted share capital of ricardo.de AG.
**** These companies are currently subsidiaries of ricardo.de AG.
7. Material Contracts Relating to the QXL Group
7.1. Except as disclosed in this paragraph 7
(a) no contracts other than contracts entered into in the ordinary course of business or contracts
that have been made available for inspection within the last two years have been entered into by any
member of the QXL Group within the two years immediately preceding the date of this document which
are, or may be, material; and
(b) no other contracts have been entered into by any member of the QXL Group not being
contracts entered into in the ordinary course of business, which contain any provision under which any
member of the QXL Group has any obligation or entitlements which is material to the QXL Group as at
the date of this document.
7.2. In addition to contracts that have been made available for inspection within the last two years the
following agreements have been entered into otherwise than in the ordinary course of business:
(a) In connection with the applications for admission of newly issued Ordinary Shares pursuant to
the First Issue Note, QXL and Altium Capital Limited entered into a Sponsor’s Agreement dated 7
March 2002 pursuant to which, inter alia:
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• QXL appointed Altium Capital Limited as sponsor for the purpose of the application for
admission of the newly issued Ordinary Shares to listing on the Official List;
• QXL gave certain covenants and indemnities to Altium Capital Limited typical to a transaction
of this nature;
• The Company agreed to pay all costs arising in connection with the Sponsor’s Agreement
including all costs and out of pocket expenses incurred by Altium Capital Limited on behalf of
the Company in relation to the application for listing and trading, including UK Listing
Authority and London Stock Exchange fees; and
• Altium Capital Limited’s obligations under the Sponsor’s Agreement may terminate in whole
or in part in the event that the Company commits a material breach of the Sponsor’s
Agreement.
7.3 The material contracts entered into by the Group in the last two years that have been made available for
inspection within the last two years are:
(a) On 20 March 2000, ricardo entered into an acquisition agreement with Auktion24 AG and the
shareholders of Auktion24 whereby ricardo purchased all of the shares in Auktion 24 using
shares in ricardo as consideration.
(b) On 25 March 2000, QXL entered into an acquisition agreement with Hierta Venture AB,
Emerging Technology Limited, ACP April 1995 Limited, SBS Broadcasting S.A., Leif
Rahmquist and Patrick Von Schenk (together the “Bidlet Vendors”) pursuant to which QXL
agreed to purchase Bidlet A.B. shares and Warrants from the Bidlet Vendors.
(c) On 29 March 2000, QXL entered into a sale and purchase agreement with Fabien Bourdier,
Marc Ruff, Christian Lamouroux, Jean-Marie Balicon, Olivier Reglade, Jacob Hazout, Sea
Bird Investments S.A., Sea Horse Investments S.A. and Thierry Guinebertier (together the
“Sellers”) and Idefi S.A. (“Idefi”) pursuant to which QXL agreed to acquire all of the
outstanding issued shares in Idefi and a minority interest in I-Deal S.A.S. not already owned by
Idefi.
(d) On 17 April 2000, QXL and Bidlet A.B. entered into a loan facility agreement under the terms
of which QXL agreed to advance to Bidlet the total aggregate amount of £11 million for the
purpose of working capital.
(e) On 17 April 2000, QXL entered into a deed of charge with Bidlet A.B. under which, as
security for the repayment to QXL of sums advanced under the terms of the loan facility
agreement (see above) Bidlet granted to QXL a floating charge/chattel mortgage with best
right over inter alia Bidlet’s intellectual property.
(f) On 16 May 2000, QXL entered into an agreement in respect of the Business Combination with
the ricardo Vendors which was amended on 18 August 2000 and pursuant to which QXL
agreed, subject to certain conditions, to acquire 4,672,671 shares in ricardo held by the ricardo
Vendors.
(g) On 13 June 2000, QXL entered into a sponsors agreement with Credit Suisse First Boston
(Europe) Limited and Credit Suisse First Boston de Zoete and Bevan Limited in connection
with applications for admission of shares issued in respect of the Bidlet A.B. transaction.
(h) On 13 June 2000, QXL entered into an indemnity agreement with Ezkhard Pfeiffer and
Christoph Linkwitz pursuant to which QXL agreed to indemnify each of the persons in the
even that they were made party to any proceeding in respect of publication by QXL of the
listing particulars for the Bidlet transaction or the associated circular to shareholders dated 13
June 2000.
(i) On 31 July 2000, QXL entered into an agreement with Ashpool Telecom plc whereby Ashpool
agreed to sell to QXL shares in Ibidlive N.V. in return for Ordinary Shares.
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(j) On 7 September 2000, QXL entered into a sponsors agreement with Credit Suisse First Boston
(Europe) Limited and Credit Suisse First Boston de Zoete and Bevan Limited in connection
with applications for admission of shares issued in respect of the Business Combination.
(k) On 18th January 2001, QXL entered into a Subscription Agreement relating to the issue to the
Subscribers or the Convertible Bonds, the Equity Line and the Warrants.
(l) On 22 May 2001, QXL entered into a sponsors agreement with Credit Suisse First Boston
(Europe) Limited and Credit Suisse First Boston de Zoete and Bevan Limited in connection
with applications for admission of shares issued in connection with listing particulars issued on
that date.
(m) On 23 October 2000, QXL entered into an agreement with Credit Suisse First Boston (Europe)
Limited and Credit First Boston de Zoete & Bevan Limited, the effect of which was to amend
the sponsors’ agreement dated 7 September 2000 between the same parties, such that the
agreement was extended to cover certain matters relating to admission of Ordinary Shares to
listing on the Frankfurt Stock Exchange.
(n) In November 2000, QXL entered into an agreement with Credit Suisse First Boston (Europe)
Limited and Clearstream pursuant to which a Global Bearer Certificate in respect of the
Ordinary Shares to be traded on the Frankfurt Stock Exchange was to be issued by
Clearstream.
8. Directors of QXL
The Directors of QXL are as follows:
Age Office
Jonathan Brereton Bulkeley(1)(2)(3)(4) ........................... 41 Non-executive Chairman of the Board
James Malcolm Rose(4).................................................... 40 Non-executive Deputy Chairman of the Board
Mark Xavier Zaleski ........................................................ 39 Chief Executive Officer
Robert Simon Dighero ...................................................... 35 Chief Financial Officer
Peter David Englander, Ph.D.(1)(2)(3)(4) ........................ 50 Non-executive Director
Thomas Peter Power(2)(3)(4) ........................................... 38 Non-executive Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nomination Committee
(4) Non-executive Director
The business address of each of the Directors is Landmark House, Hammersmith Bridge Road, London W6 9EJ.
Jonathan Brereton Bulkeley has served as the non-executive Chairman of the Board of QXL since February
1998. He is the Chairman and Chief Executive Officer of Lifeminders Inc. and was Chief Executive Officer of
barnesandnoble.com Inc. from January 1999 to January 2000. From July 1995 to December 1998, he was
Managing Director of America Online Inc.’s joint venture with Bertelsmann AG Online to provide interactive
on-line services in the United Kingdom. From March 1993 to June 1995, Mr. Bulkeley was Vice President of
Business Development at America Online in the United States. He was also General Manager of Media,
responsible for the development and production of all America Online media partnerships. Before joining
America Online, Mr. Bulkeley was Director of marketing and development for Money Magazine and held sales
and marketing positions at Time and Discover Magazines. Mr. Bulkeley received a B.A. from Yale University.
James Malcolm Rose was appointed non-executive Deputy Chairman of QXL ricardo plc in November 2001 and
served as Chief Executive Officer from May 1999 until November 2001. From August 1998 to May 1999, he
served as Chief Executive Officer of United Information Group, the marketing information subsidiary of United
News & Media. From November 1996 to August 1998, Mr. Rose was Chief Executive Officer of Blackwell
Information Services, a global provider of academic and professional information, and was responsible for all
Internet development including the launch of the Blackwell On-Line Bookshop. From December 1993 to
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November 1996, he was Managing Director in the United Kingdom, Ireland and South Africa for Dun &
Bradstreet/ACNielsen. He was previously with Deloitte & Touche as a management consultant. He received an
M.B.A. from the Kellogg School of Management at Northwestern University, Chicago.
Mark Zaleski was appointed Chief Executive Officer in November 2001 and joined QXL as Chief Operating
Officer in October 2000 from Webvan Group, Inc., where he was President of Webvan Operations Inc. and
Senior Vice President of Area Operations for Webvan Group. He was a key member of the senior management
team that launched the company’s operations and led the company’s initial public offering in 1999. Prior to
joining Webvan in December 1998, Mr Zaleski served as Senior Vice President/Group Managing Director
Central Europe, and earlier for Western Europe, for ACNielsen Corporation. From September 1985 to July
1994, he held a variety of senior management positions in the European operations of the Federal Express
Corporation.
Robert Simon Dighero has served as the Chief Financial Officer of QXL since June 1998 and as a Director since
August 1999. From October 1995 to June 1998, Mr. Dighero was the Chief Financial Officer of AOL UK. From
January 1995 to October 1995, Mr. Dighero worked for Bertelsmann, focusing on acquisition strategies in the
new media sector and previously had worked as a management consultant at Bain and Company. Mr. Dighero
received an M.A. (Hons.) and an M.Eng. (Hons.) from Cambridge University and received an M.B.A. with
Dean’s List honors from INSEAD in France.
Peter David Englander, Ph.D. has served as a non-executive Director of QXL since February 1999. He is also a
Director and shareholder of Apax Partners Ltd. Before joining Apax Partners on its formation in 1981, he
worked for Air Products and Boston Consulting Group. He received a B.Sc. in Chemical Engineering from the
University of Manchester Institute of Science and Technology, a M.Sc. from the Sloan School of Management at
the Massachusetts Institute of Technology and a Ph.D. from London University in the area of technological
innovation. He is a Director of Eyretel plc and of several privately held companies.
Thomas Peter Power was appointed a non-executive director in February 2002. He is the chief knowledge
officer and founder of The Ecademy, the E-business Education Network which has over 10,000 members
globally. An author of the Financial Times report, 'From Supply Chain to Value Chain' and former managing
director of the TDS Group, Thomas founded The Ecademy in 1998. In addition to his responsibilities with The
Ecademy, he provides strategic consulting to many FTSE 100 chief executives, carries out numerous public
speaking engagements and is contracted to write 4 more books for the Financial Times, for whom he has already
written two.
The aggregate amount payable by QXL during the 52 weeks ending on 31 March 2001 for remuneration and
benefits in kind (including pensions contributions) to all persons who served in the capacity of Director of QXL
during that period was £482,000.
The Company is party to employment agreements with each of Messrs. Zaleski and Dighero.
The employment agreement with Mr Zaleski is dated 5 September 2000. Mr Zaleski’s employment can be
terminated at any time either by the company or by Mr Zaleski on not less than six months’ notice to the other
party. Mr Zaleski’s salary is £250,000 per annum and he is entitled to receive life insurance cover (for a
premium of approximately £450 per annum), permanent health insurance (for a premium of approximately £300
per annum) and a pension contribution equal to 5 per cent of his salary per annum (£12,500 per annum). Mr
Zaleski’s employment agreement requires him to work full-time for the Company. The agreement includes post-
termination restrictions for a period of 12 months which restrict him from competing with QXL and whch
prohibit him from soliciting employees and customers during that period.
The employment agreement with Mr. Dighero is dated 20 April 1998. Mr. Dighero’s employment can be
terminated at any time either by the Company, on not less than 12 months’ notice to Mr. Dighero, or by Mr.
Dighero, on not less than six months’ notice to the Company. Mr. Dighero’s salary is £165,000 per annum and
he is entitled to receive life insurance cover (for a premium of approximately £305 per annum), permanent health
insurance (for a premium of approximately £243 per annum) and a pension contribution equal to 5 per cent. of
his salary per annum (£8,250 per annum). Mr. Dighero’s employment agreement requires him to work full-time
for the Company. The agreement includes post-termination restrictions for a period of 12 months which restrict
him from competing with QXL and which prohibit him from soliciting employees and customers during that
period.
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Under the terms of each of the above agreements, the Company shall in its absolute discretion have the right to
make payments in lieu of notice of termination of the agreements. Except for Messrs. Zaleski and Dighero, no
other Director has an employment agreement with QXL.
Messrs. Bulkeley and Englander have been engaged as non-executive Directors under letters of appointment
dated 17 September 1999 for an initial term of approximately 3 years, until the annual general meeting to be held
in 2002. The engagements are terminable at any time by either party giving not less than 6 months’ notice. A fee
of £15,000 per annum is payable under each letter. Mr Rose was appointed as a non-executive Director on 9
November 2001 and Mr Power was appointed on 5 February 2002 under similar arrangements. Non-executive
Directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending the meetings of the
Board of Directors and committees thereof.
There are no arrangements under which any of the Directors has waived or agreed to waive future emoluments or
under which the total emoluments of any Director will be raised.
Save as disclosed above, there are no existing or proposed service contracts between any Director and QXL or
any of its subsidiaries.
No Director has had any interest, direct or indirect, in any transactions, which are or were unusual in their nature
or conditions or significant to the business of the Group, and which were effected by QXL during the current or
immediately preceding financial year or during an earlier financial year and which remains in any respect
outstanding or unperformed.
9. Directors’ and Other Interests
9.1. The names of all other companies (other than subsidiaries of QXL) in which the Directors have been a
director at any time in the previous five years as set out below:
Continuing
Name Company Directorship
Jonathan Bulkeley...............................Rocket Networks, Inc. Yes
HealthCentral.com No
LifeMinders.com, Inc. Yes
Readers Digest Association Yes
Instant DX Yes
Global Commerce Zone Yes
Milliken & Company Yes
Cross Media Marketing Yes
James Rose..........................................United Information Group Limited No
N.O.P. Research Group Limited No
M.I.L. Research Group Limited No
Blackwell Limited No
N.C.H. Marketing Services Limited No
A. C. Neilsen Company Limited No
Dun & Bradstreet (UK) Limited No
Dun & Bradstreet (NMR) Limited No
Enniscale Holdings Limited No
Etnoka.com Limited No
Articulate Online Holdings Sdn. Bhd. Yes
Mark Zaleski .......................................None
Robert Dighero ...................................None
Peter Englander...................................Apax Partners Limited Yes
Apax Partners Holdings Limited Yes
Asquith Court (Holdings) Limited No
Virtuality Group plc Yes
Lettergain Limited Yes
Apax Scotland Ventures IV Co Limited Yes
Apax Partners & Co Strategic Investors Limited Yes
Apax Scotland V Co Limited Yes
Portland Place S.I. Limited Yes
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Continuing
Name Company Directorship
Apax Scotland VI Co Limited Yes
Apax Scotland CC Limited Yes
Realscape Limited Yes
Apax Partners & Co Asset Management Holdings Limited Yes
Eyretel plc Yes
Combined London Colleges (General Partner) Limited Yes
Apax-Leumi Inc. Yes
Apax-Leumi Partners Limited Yes
Demon Internet Limited No
Dr. Solomon’s Group Limited No
Apax Partners Europe Managers Ltd Yes
Apax Europe V Yes
Designbrick Limited Yes
Xerium (UK) I Ltd No
Xerium (UK) II Ltd No
Xerium S.A. No
Xerium II S.A. No
Xerium III S.A. No
Thomas Power……………………… The Ecademy Limited Yes
Routecause Limited Yes
In addition to the Directorships set out above, Robert Dighero acquired a partnership interest in Future Film Sale
& Leaseback Second Partnership on 25 March 2001 which he still retains and Peter Englander also has
partnership interests in the following partnerships:
Partnership Date of Appointment Date of Cessation
Apax Europe IV-GP, LP. .......................................................... 19 February 1999
Apax Scotland V Limited Partnership ...................................... 19 February 1994
Apax UK VI-A, L.P. ................................................................. 2 April 1997
Apax Scotland PIC LP (Re S & S International Holdings)....... 6 February 1996 Being dissolved
Apax Scotland PIC II LP (Re. Computinvest) .......................... 14 November 1997 Being dissolved
Apax-Nordsee PIC, L.P. ........................................................... 5 June 1997
Portland Place Israel L.P........................................................... 2 October 1994
Apax-Wendeln PIC, L.P. .......................................................... 26 November 1997
Future Publishing Holdings PIC ............................................... 14 April 1998
9.2. None of the Directors have any unspent convictions in relating to indictable offences, nor has any of
them ever been personally bankrupt in an individual voluntary arrangement with creditors or been
publicly criticised by any statutory or regulatory authority or professional body.
9.3. Save for Peter Englander, who is a director of Virtuality Group plc, which is subject to an
administration order made on 11 February 1997, none of the Directors has been an executive director of
a company or a partner in a partnership at the time or within the 12 months preceding the time at which
the company or partnership entered into administration, voluntary arrangement, composition or
arrangement with creditors generally or any class of creditors, receivership, compulsory liquidation or
creditors’ voluntary liquidation. In respect of Virtuality Group plc, the expected deficit to shareholders
at October 2001, the date of the most recent assessment by the administrator, was approximately
£590,000.
9.4. None of the Directors has been disqualified by a court from acting as a director of a company or from
acting in the management or conduct of the affairs of any company.
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9.5. There have been no receiverships of any assets of a Director or of any partnership of which any
Director was a partner at the time of, or within the twelve months preceeding, such events.
9.6. No loans or guarantees have been granted or provided to, or for the benefit of, the Directors by any
member of QXL.
10. Principal Shareholders of QXL
The following table sets forth information with respect to the ownership of Ordinary Shares as of 8 March 2002
(the latest practicable date prior to publication of this document) by:
• each Director of QXL or any connected person within the meaning of section 346 of the Act l; and
• in so far as is known by QXL, the name of any person, other than a director who, directly or indirectly is
interested in 3% or more of QXL’s capital.
Shares subject to options currently exercisable, or exercisable within 60 days of the date of this document, are
deemed outstanding for purposes of computing the percentage of shares owned by the person holding such
options, but are not deemed outstanding for purposes of computing the percentage of shares owned by any other
person. Unless otherwise indicated in the footnotes to the table, the following persons have sole vesting and sole
investment control with respect to the Ordinary Shares they beneficially own.
The percentage of ownership for each Shareholder is based on 796,093,153 Ordinary Shares outstanding as of 8
March 2002 (the latest practicable date prior to publication of this document).
Number of Number of Percentage of
Ordinary Options Ordinary Shares
Name of Owner Shares Exercisable Beneficially Owned
Directors:
Jonathan Bulkeley* .................................................... 11,860,930 1,125,000 1.63%
Mark Zaleski .............................................................. - 1,500,000 0.19%
Robert Dighero .......................................................... - 5,813,286 0.73%
Peter Englander** ...................................................... 60,997,440 - -
* 8,106,850 of the Ordinary shares in which Mr Bulkeley is interested are owned by The Fenwick Trust of
which Mr Bulkeley is one of the beneficiaries.
**All of these shares are owned by Apax UK VI LP. Dr Englander has a pecuniary interest in Apax UK VI LP.
The shares disclosed above relate to the total holding of Apax UK VI LP, of which Apax Partners Limited is the
manager. Dr Englander is a Director of Apax Partners Limited. Dr Englander disclaims beneficial ownership
of the shares held on record by Apax UK VI LP except to the extent of his pecuniary interest therein.
Over Three Per Cent. Shareholders:
Apax UK VI LP ............................................................. 60,997,440 - 7.66%
Jonathan Bell................................................................. 47,474,500 - 5.96%
Save as disclosed above (as relates to Dr Englander) there are no Directors’ interests in the above holdings.
Save as disclosed above, none of the Directors or their immediate families or any person connected with a
Director within the meaning of section 346 of the Act which would, if the connected person were a Director, be
required to be notified in compliance with the Act, and the existence of which is known to or could with
reasonable diligence be ascertained by the Director had, at 8 March 2002 (the latest practicable date prior to the
publication of this document) or will have, so far as the Directors are aware, immediately following the exercise
of the Exchange Rights, any interest (beneficial or non-beneficial) in the Ordinary Shares, which interest will
then be required to be notified to QXL pursuant to section 324 or section 328 of the Act or entered in the register
maintained by QXL under the provisions of section 325 of the Act.
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The Directors are not aware of any interests (falling within the meaning of Part VI of the Act) other than those
mentioned in this Part VII which represent three per cent. or more of the issued share capital of QXL.
Furthermore, the Directors are not aware of any persons who, directly or indirectly, jointly or severally, exercise
or could exercise control over QXL.
11. Significant Changes
Save as disclosed in the “Current Trading and Prospects” section in Part I of this document, there has been no
significant change in the financial or trading position of the QXL Group since 31 December 2001, being the date
to which the third quarter consolidated results were published.
12. Settlement, Listing and Dealings
Settlement
The Ordinary Shares are in registered form and are capable of being held either in certificated form, or in
uncertificated form through a CREST account.
Listing and Dealings
The Ordinary Shares are currently admitted to the Official List and are traded on the London Stock Exchange
and the official trading section (Amtlicher Handel) of the Frankfurt Stock Exchange. The American Depositary
Shares are quoted on the Nasdaq National Market.
13. General
The financial information contained in this document in relation to QXL does not constitute statutory accounts
within the meaning of section 240 of the Act, but constitutes non-statutory accounts within the meaning of such
section. The auditors of QXL are PricewaterhouseCoopers, Registered Auditors, of 1 Embankment Place,
London WC2N 6RH, who have audited QXL’s consolidated accounts for the years ended 31 March 1999,
31 March 2000 and 31 March 2001 in accordance with auditing standards and have made reports under section
235 of the Act in respect of statutory accounts and each such report was unqualified and did not contain a
statement under section 237(2) or (3) of the Act.
14. Lock-up Arrangements
There are no lock up arrangements with the directors, senior management or substantial shareholders.
15. Forward-Looking Statements
This document contains forward-looking statements. These forward-looking statements are not historical facts,
but rather are based on the Company’s current expectations, estimates and projections about its industry, its
beliefs and assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,”
“estimates” and similar expressions are intended to identify forward-looking statements. These statements are
not guarantees of future performance and are subject to known and unknown risks, uncertainties and other
factors, some of which are beyond the Company’s control, are difficult to predict and could cause actual results
to differ materially from those expressed or forecasted in the forward-looking statements. A number of principal
risks and uncertainties known at this time are described at Part IV of this document, entitled “Risk Factors”, and
elsewhere in this document. The Company cautions investors and Shareholders not to place undue reliance on
these forward-looking statements, which reflect the view of the Company only as of the date of this document.
The forward-looking statements made in this document relate only to events as of the date on which the
statements are made.
Dated: 11 March 2002
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PART VII
DEFINITIONS
The following definitions apply throughout this document, unless the context requires otherwise:
“Act” the Companies Act 1985, as amended
“American Depositary Shares” or American Depositary Shares, each representing two hundred and fifty
“ADSs” Ordinary Shares and evidenced by American Depositary Receipts
quoted on the Nasdaq National Market
“Articles” or “Articles of the articles of association of QXL
Association”
“Bidlet” Bidlet AB (publ)
“Board” or “Board of Directors” the board of directors of QXL
“Business Combination” the business combination of QXL with ricardo
“Business Day” a day on which banks are generally open for business in England and
Wales (excluding Saturdays, Sundays and public holidays)
“Company” or “QXL” QXL ricardo plc
“Convertible Bonds” the two per cent convertible bonds due 2004 of the Company
“Credit Suisse First Boston” Credit Suisse First Boston (Europe) Limited
“CREST” a system for paperless settlement of trades and the holding of
uncertificated shares administered by CRESTCo Limited
“Directors” the directors of QXL
“DM” or “Deutsche Mark” the lawful currency of Germany
“EU” European Union
“Equity Commitment” the commitment, subject to conditions, by the Subscribers, to
subscribe for Ordinary Shares under the Subscription Agreement,
further details of which are set out in Part I of this document.
“Exchange Rights” the rights granted by QXL to each of the other parties to the business
combination agreement dated 16 May 2000 whereby those other
parties are entitled, inter alia, to exchange their shares in a QXL
German subsidiary and their remaining shares in ricardo into shares in
QXL
“First Issue Note” The Issue Note published on or about the date of this document.
“Issue Note” Any issue note published by QXL which together with this document
form listing particulars for the purposes of the Listing Rules
“Listing Rules” the listing rules made by the UK Listing Authority under Part VI of
the Financial Services and Markets Act 2000
“Member State” a member state of the European Union
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“Ordinary Shares” the ordinary shares of 0.1p each in the capital of QXL, and “Ordinary
Share” shall mean any one of them
“Ordinary Shareholder” A person who holds an Ordinary Share
“Pounds Sterling”, “sterling”, the lawful currency of the UK
“£” and “p”
“QXL Group” QXL ricardo plc and its subsidiaries from time to time
“ricardo” ricardo.de AG
“ricardo Group” ricardo and its subsidiaries from time to time
“ricardo Vendors” Dr. Stefan Glänzer, Dr. Christoph Linkwitz, Dr. Stephan Wiskemann,
U.C.A. Unternehmer Consult Aktiengesellschaft, INCOM
Beteiligungsgesellschaft GmbH, and Innovationsfonds Schleswig-
Holstein & Hamburg GmbH
“SDRT” stamp duty reserve tax
“Shareholder” a person who holds an Ordinary Share
“Special Shares” the Special Shares of £1 each in the capital of QXL, and “Special
Share” shall mean any one of them
“Special Shareholder” a person who holds a Special Share
“Subscribers” Credit Suisse First Boston Equities Limited, Stark International and
Shepherd Investments International, Ltd
“Subscription Agreement” the amended and restated subscription agreement between QXL and
the Subscribers dated 18 January 2001
“uncertificated” or “in record on the relevant register of the share or security concerned as
uncertificated form” being in uncertificated form in CREST, and title to which by virtue of
the Uncertificated Securities Regulations 1995 may be transferred by
means of CREST
“United Kingdom” or “UK” the United Kingdom of Great Britain and Northern Ireland
“Warrants” the Warrants for Ordinary Shares that may be exercised in respect of
each series of Convertible Bond
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PART VIII
GLOSSARY
“domain name” a domain name locates an organisation or other entity on the Internet
“e-commerce” “electronic commerce”, that is commerce based on the electronic
conclusion of contracts
“gross auction value” the aggregate sales price, inclusive of applicable value-added tax
(save in relation to Bidlet and its subsidiaries), of all merchandise
and services for which an auction was successfully concluded
“Internet” an international network linking computers over telephone lines
“member” a person who has completed the registration process on one of the
QXL web sites
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