Filed with the Securities and Exchange Commission on March 25, 1999
Registration No. 333-74227
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MIH LIMITED
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
British Virgin Islands 4841 Inapplicable
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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Abbot Building
Mount Street
Tortola
Road Town
British Virgin Islands
(284) 494-5471
(Address, including zip code, and telephone number, including
area code, of registrant's registered offices)
---------------
CT Corporation System
1633 Broadway
New York, NY 10019
(212) 664-1666
(Name, address, including zip code, and telephone number, including
area code, of agent for service of process)
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Copies to:
<TABLE>
<S> <C> <C>
Kris F. Heinzelman, Esq. Allan Rosenzweig
Cravath, Swaine & Moore Myriad International Holdings B.V. Michael E. Michetti, Esq.
Worldwide Plaza Jupiterstraat 13-15 Cahill Gordon & Reindel
825 Eighth Avenue 2132 HC Hoofddorp 80 Pine Street, 17th Floor
New York, New York 10019 The Netherlands New York, New York 10005
(212) 474-1000 (31) 23 515 62870 (212) 701-3000
</TABLE>
Approximate date of commencement of proposed sale to the public. As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered
in connection on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of Each Class Proposed Maximum
of Securities to be Aggregate Amount of
Registered Offering Price(1) Registration Fee
- ------------------------------------------ ------------------- -----------------
<S> <C> <C>
Class A Ordinary Shares, no par value .... $162,265,000 $ 45,109.67
================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the United States Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering in the United States
and Canada of Class A Ordinary Shares (the "U.S. Prospectus"), and one to be
used in a concurrent underwritten public offering outside the United States and
Canada of Class A Ordinary Shares (the "International Prospectus"). The two
prospectuses are identical except for the front and back cover pages and the
sections entitled "Underwriting", "Additional Information" and "Certain
Netherlands Tax Consequences". Those sections or pages that will appear only in
the U.S. Prospectus are labeled "[US]", and those that will appear only in the
International Prospectus are labeled "[I]". Final forms of each Prospectus will
be filed with the Securities and Exchange Commission under Rule 424(b) under
the Securities Act of 1933.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 25, 1999
PROSPECTUS
8,300,000 Shares
MIH Limited
[MIH Logo] Class A Ordinary Shares
----------------
All of the Class A Ordinary Shares offered hereby are being sold by MIH
Limited (the "Issuer" and, together with its subsidiaries and joint ventures,
the "Company"). Of the Class A Ordinary Shares offered hereby, 4,150,000 shares
are being offered in the United States and Canada (the "U.S. Offering") and
4,150,000 shares are being offered outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the
"Offerings"). The initial public offering price per share and the underwriting
discount per share are identical for both Offerings. See "Underwriting".
Prior to the Offerings, there has been no public market for the Class A
Ordinary Shares. It is currently anticipated that the initial public offering
price per Class A Ordinary Share will be between $16.00 and $18.00. For a
discussion relating to factors to be considered in determining the initial
public offering price, see "Underwriting".
The Class A Ordinary Shares have been approved for listing on the Nasdaq
National Market (the "Nasdaq"), and application has been made to list the Class
A Ordinary Shares on the Amsterdam Stock Exchange, under the symbol "MIHL".
The Issuer's Ordinary Shares have been designated into two classes,
consisting of Class A Ordinary Shares and Class B Ordinary Shares. Under the
Issuer's Memorandum and Articles of Association (the "Memorandum" and
"Articles"), the holders of Class B Ordinary Shares generally have rights,
including as to dividends, identical to those of Class A Ordinary Shares,
except that holders of Class B Ordinary Shares are entitled to three votes per
share and holders of Class A Ordinary Shares are entitled to one vote per
share. Holders of Class B Ordinary Shares and Class A Ordinary Shares generally
vote together as a class, except as otherwise required under British Virgin
Islands law or the Memorandum and Articles. After giving effect to the
Offerings (without giving effect to any exercise by the Underwriters of options
to purchase additional shares) and the Thomson Conversion (as defined), it is
expected that holders of Class A Ordinary Shares will own 37.5% of the Issuer
and holders of Class B Ordinary Shares will own 62.5% of the Issuer. This means
that holders of Class B Ordinary Shares will control 83.3% of the aggregate
voting power of the Ordinary Shares while holders of Class A Ordinary Shares
will control the remaining 16.7%.
See "Risk Factors" beginning on page 5 for a discussion of certain factors
that should be considered by prospective purchasers of the Class A Ordinary
Shares offered hereby.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Class A Ordinary Share ......... $ $ $
Total(3) ........................... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Issuer has agreed to indemnify the several Underwriters (as defined
herein) against certain liabilities, including certain liabilities under
the Securities Act (as defined herein). See "Underwriting".
(2) Before deducting expenses payable by the Issuer estimated at $3,750,000.
(3) The Issuer has granted to the U.S. Underwriters (as defined herein) and the
International Managers (as defined herein) options, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
622,500 and 622,500 Class A Ordinary Shares, respectively, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Issuer will be
$ , $ and $ , respectively. Pursuant to the Intersyndicate
Agreement (as defined herein), the U.S. Underwriters and the International
Managers are also permitted to sell Class A Ordinary Shares to each other
for purposes of resale at the public offering price, less an amount not
greater than the selling concession. See "Underwriting".
----------------
The Class A Ordinary Shares are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Class A Ordinary Shares will be made in New York,
New York on or about , 1999.
----------------
Merrill Lynch & Co. Donaldson, Lufkin & Jenrette
----------------
The date of this Prospectus is , 1999
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Certain persons participating in the Offerings may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Ordinary
Shares. Such transactions may include stabilizing the purchase of Class A
Ordinary Shares to cover syndicate short positions and the imposition of
penalty bids. For a description of these activities, see "Underwriting".
EXCHANGE RATE DATA
The Company's businesses utilize many functional currencies, principally
South African rand, Greek drachmae, Thai baht and U.S. dollars. For the
convenience of the reader, certain amounts contained in this Prospectus and not
derived from the Financial Statements (as defined herein) have been translated
from various functional currencies into U.S. dollars. These translated amounts
should not be construed as a representation that the functional currency
amounts actually represent such U.S. dollar amounts or could be, or could have
been, converted into U.S. dollars at the rates indicated below or at any other
rate. Translations appearing in this document of: (i) rand to dollars have been
conducted at a rate of $1.00 = ZAR 6.19; (ii) drachmae to dollars have been
conducted at a rate of $1.00 = GRD 294.15; and (iii) baht to dollars have been
conducted at a rate of $1.00 = Baht 37.47. These rates of exchange reflect the
noon buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York as of
March 19, 1999, except as otherwise provided.
TRADEMARKS
"M-Net", "SuperSport", "DStv", "MultiChoice", "Irdeto", "Orbicom",
"Mindport", "OpenTV", "M-Web", "M-Cell", "Computicket", "FilmNet", "K-T.V.",
"IBS", "Irdeto Access", "Nova" and "MultiChoice Hellas" are registered
trademarks of the Company or its affiliates.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the unaudited
condensed consolidated financial statements of the Company (the "Condensed
Consolidated Statements"), the audited consolidated financial statements of the
Company (the "Consolidated Statements") and the audited combined financial
statements of the Acquired MIH Businesses (as defined herein) (the "Combined
Statements" and, together with the Condensed Consolidated Statements and the
Consolidated Statements, the "Financial Statements") along with the other more
detailed information included elsewhere in this Prospectus. Unless the context
otherwise requires, as used in this Prospectus, all references to the "Company"
refer to MIH Limited together with its subsidiaries and joint ventures. All
references to "U.S. dollars", "dollars" and "$" are to United States dollars,
"ZAR" and "rand" are to South African rand, "GRD" and "drachma(e)" are to Greek
drachma(e), and "baht" are to Thai baht. Market and industry related data,
although inherently uncertain, are derived from sources that the Company
believes are reliable.
The Company
The Company is a multinational provider of pay-television services and
pay-television technology. By leveraging its management and industry expertise,
the Company plans to expand beyond its current services to become a recognized
worldwide provider of a full array of pay-media content and services over a
variety of electronic platforms, including pay-television, Internet and
interactive television. From their significant experience in providing
pay-television services, the Company's management have developed a
comprehensive understanding of pay-media and other subscriber-based businesses,
particularly in the areas of subscriber, content and platform management.
Through its strategic application of these core competencies and its proven
business model, the Company has grown to become the leading provider of
pay-television services in each of its markets. By continuing to leverage these
abilities, the Company plans to expand its pay-television services into new
regions and provide new services and products, such as those relating to the
Internet and interactive television services.
From its origins as the leading provider of pay-television services in
South Africa, the Company has grown, through its subsidiaries and joint
ventures, to provide terrestrial analog, digital satellite and other
pay-television services to over 1.9 million households in Africa, the
Mediterranean and Asia. The Company's Mindport technology division provides
pay-media companies worldwide with proprietary software and hardware solutions
for subscriber management, conditional access and other pay-television related
solutions. The Mindport division is also a leading provider of interactive
television operating systems through OpenTV, Inc. ("OpenTV").
Pay-television
The Company operates its pay-television businesses in three major regions:
Africa, the Mediterranean and Asia. The Company currently provides analog
service in each of these regions and provides digital service in Africa and
Asia. The Company is prepared to provide digital service in the Mediterranean
upon receipt of a license pursuant to recently enacted legislation. In each
region, the Company has implemented a strategy that emphasizes being the
leading supplier of pay-television services, obtaining exclusive programming,
continually improving its customer care and offering new services and
technology.
The Company believes that two of the reasons it is the leading
pay-television operator in each of the markets it serves--South Africa, the
rest of sub-Saharan Africa, Greece, Cyprus and Thailand--are its exclusive,
high quality content and its early introduction of emerging technologies. In
most markets in which it operates, the Company has exclusive pay-television
rights to transmit premium movies, major sporting events and popular children's
programming. The Company believes that access to such programming gives it the
content necessary to attract and retain subscribers and grow successful
pay-media services.
Since beginning operations in 1986, the Company has experienced
significant growth in the number of its subscribers, revenue per subscriber and
total revenue. From March 31, 1996 to September 30, 1998, the Company's
consolidated operations (excluding Asia and the Middle East, which are not
consolidated) had subscriber growth of 35.1%, from 1.14 million subscribers to
1.54 million. Over the same time period, the monthly revenue per subscriber of
these operations grew 22.1%, from $18.63 to $22.74. In addition, subscription
revenue for these operations grew 73.4%, from $233.3 million for the year ended
March 31, 1996 to $404.5 million for the year ended March 31, 1998.
1
<PAGE>
Technology
The Company's technology division, Mindport, provides a comprehensive
package of technology products and support services to pay-media operators
worldwide. Mindport seeks to capitalize upon the pay-media industry's evolution
from analog to digital and then to interactive and Internet services.
Mindport's customers include some of the leading international pay-media
companies, such as EchoStar, BSkyB, Canal Plus S.A. ("Canal+"), Galaxy Latin
America, Television Par Satellite ("TPS") and DirecTV Japan, as well as the
Company's pay-television businesses. The Company also recently signed an
agreement to provide Mindport's pay-television technology on a trial basis to
the China Broadcasting Film and Television Satellite Co. Ltd ("CBSat"), a
subsidiary of China Central Television, which is preparing to distribute its
digital television signals to rural areas in the People's Republic of China.
The Mindport product line includes subscriber management systems (IBS),
conditional access systems (Irdeto Access), operating software for interactive
television (OpenTV), content management systems, set-top box design and
specification and consulting services.
Internet
The Company believes that the Internet business is complementary to its
existing businesses and a natural extension of its core competencies of
subscriber, content and platform management. By leveraging its subscriber-based
pay-media expertise, the Company plans to offer a range of Internet services,
including Internet access, content aggregation and subscriber management, both
within certain of its current pay-television markets and in new markets. The
Company's first investment in the Internet business occurred with its
successful acquisition, growth and spin-off of M-Web Holdings Limited
("M-Web"), the leading Internet service provider in South Africa and now a
publicly-listed affiliate of the Company.
2
<PAGE>
The Offerings
Of the Class A Ordinary Shares being offered hereby by the Issuer,
4,150,000 shares are being offered initially in the United States and Canada by
the U.S. Underwriters and 4,150,000 shares are being offered initially outside
the United States and Canada by the International Managers. See "Underwriting".
<TABLE>
<S> <C> <C>
Class A Ordinary Shares offered (1):
U.S. Offering ..................... 4,150,000 shares
International Offering ............ 4,150,000 shares
---------
Total ........................... 8,300,000 shares
=========
Ordinary Shares to be outstanding after
the Offerings and the Thomson
Conversion:
Class A Ordinary Shares ........... 18,481,542 shares(1)
Class B Ordinary Shares ........... 30,787,319 shares
----------
Total ........................... 49,268,861 shares(1)
==========
</TABLE>
Use of Proceeds.............. The Company intends to use the net proceeds of
the Offerings (i) to finance investments in and
acquisitions of pay-television, Internet
services and pay-media technology businesses,
(ii) to fund the growth of existing businesses
and (iii) to repay indebtedness. The Company
will also retain some cash balances for general
working capital purposes. See "Use of Proceeds".
Trading...................... Application has been made to list all of the
Class A Ordinary Shares sold in the Offerings on
each of the Nasdaq National Market (the
"Nasdaq") and the Amsterdam Stock Exchange under
the symbol "MIHL".
Payment and Delivery......... The Class A Ordinary Shares offered hereby
will be in registered form booked in a register
kept in New York City. Initial sales of all
Class A Ordinary Shares offered hereby will be
settled in U.S. dollars. Subsequent trading of
shares effected on the Nasdaq or the Amsterdam
Stock Exchange generally will be settled in U.S.
dollars in accordance with the normal settlement
practices of those markets.
Voting and Certain
Other Rights................. The holders of Class B Ordinary Shares generally
have rights, including as to dividends,
identical to those of holders of Class A
Ordinary Shares, except that holders of Class B
Ordinary Shares are entitled to three votes per
share and holders of Class A Ordinary Shares are
entitled to one vote per share. Holders of Class
B Ordinary Shares and Class A Ordinary Shares
generally vote together as a single class,
except as otherwise required by British Virgin
Islands law or the Memorandum and Articles.
Purchasers of Class A Ordinary Shares in the
Offerings will be able to exercise rights
attaching to those shares on the date their name
is entered as owner of record for such shares on
the books of the transfer agent. See
"Description of Capital Stock--Class A Ordinary
Shares and Class B Ordinary Shares".
3
<PAGE>
Purchase Agreements.......... All of the shares sold in the U.S. Offering
will be sold subject to a purchase agreement
between the Issuer and the U.S. Underwriters (as
defined), and all of the shares sold in the
International Offering will be sold subject to a
purchase agreement between the Issuer and the
International Managers (as defined).
Thomson Conversion........... Simultaneously with the sale of shares in the
Offerings, a $46.2 million note held by Thomson
Consumer Electronics, Inc. ("Thomson") will
convert (the "Thomson Conversion") into Class A
Ordinary Shares. The number of shares received
by Thomson will equal the value of the note plus
accrued interest at a rate of 7% per annum
beginning on March 18, 1999 divided by the price
of the Class A Ordinary Shares sold in the
Offerings. The conversion of the note into Class
A Ordinary Shares will not be registered under
the Securities Act of 1933. However, Thomson
will have the right to cause the Company to
register the resale of those shares at any time
beginning one year after the date of the
Offerings. Where amounts in this prospectus are
computed as if the Thomson Conversion has
occurred, it is assumed that the Thomson
Conversion occurred on April 18, 1999, leading
to an aggregate value of the note of
approximately $46.5 million.
- ----------------
(1) Does not include (i) up to 1,245,000 shares that may be issued upon
exercise of over-allotment options granted to the Underwriters and (ii)
950,140 shares issuable upon exercise of employee share options at an
exercise price of $10.57 per share.
Risk Factors
Prospective purchasers of the Class A Ordinary Shares should carefully
consider all of the information contained in this Prospectus before making an
investment in the Class A Ordinary Shares. In particular, prospective
purchasers should carefully consider the factors set forth herein under "Risk
Factors".
4
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, prospective
investors should consider carefully the following factors in evaluating the
Company and its business before making an investment in the securities offered
hereby.
Holding Company Structure; Significant Limitations on Access to Cash Flow of
Subsidiaries and Joint Ventures
MIH Limited is a holding company that has no significant business
operations or assets other than its interest in its subsidiaries, joint
ventures and other investments. Accordingly, the Issuer must rely entirely upon
distributions and repayment of advances from its subsidiaries, joint ventures
and other investments to generate the funds necessary to meet its obligations
and its other cash flow needs, including for working capital, capital
expenditures and acquisitions. The Issuer's subsidiaries and joint ventures are
separate and distinct legal entities that have no obligation, contingent or
otherwise, to make any funds available to it, whether by dividends, loans or
other payments. In addition, the ability of the Issuer's subsidiaries and joint
ventures to make distributions to the Issuer is subject, in certain
jurisdictions, to applicable foreign investment and exchange laws and the
availability of foreign exchange in sufficient quantities in those countries.
The amount of such distributions from these entities will be affected by the
current regulatory systems in these jurisdictions, primarily the provisions
relating to exchange controls. See "--South African Exchange Control".
Furthermore, because consent is required of the joint venture partners in some
of the Issuer's joint ventures for distributions from such joint ventures, the
Issuer's ability to receive distributions from such joint ventures is dependent
on the cooperation of its joint venture partners. See "--Dependence on Local
Parties; Absence of Control of Joint Ventures". Thus, there can be no assurance
that the Issuer will be able to realize benefits from its subsidiaries, joint
ventures and other investments through the receipt of distributions at such
times and in such amounts as it desires. Any failure by the Issuer to receive
distributions from its subsidiaries, joint ventures or other investments would
restrict its ability to pay dividends on the Class A Ordinary Shares and could
otherwise have a material adverse effect on the Company. In the event that the
Company were unable to meet its working capital needs and capital expenditure
requirements with cash generated from its subsidiaries, joint ventures or other
investments, the Company would have to consider various options, such as
incurring indebtedness, obtaining additional equity capital or selling its
assets. There can be no assurance that the Company will be able to raise new
equity capital, refinance its outstanding indebtedness or obtain new financing
in the future or that, if the Company is able to do so, the terms available
will be favorable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources".
History of Operating Losses
The Company or its predecessors had operating losses of $5.3 million,
$42.7 million and $24.1 million for the six months ended September 30, 1998 and
for the years ended March 31, 1998 and 1997, respectively, and an accumulated
loss of $314.3 million as of September 30, 1998. See "Selected Financial and
Operating Data". The Company expects to continue to generate operating losses
as it expands its businesses and attempts to increase its subscriber base.
There can be no assurance that the Company will ever be able to achieve or
maintain profitable operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Risks Associated with Growth Strategies
Acquisitions
Part of the Company's growth strategy includes, inter alia, the selective
acquisitions of and investments in pay-television, Internet services,
interactive television services and pay-media technology businesses in
different countries. A substantial portion of the proceeds of the Offerings
will be used to finance such acquisitions and investments. There can be no
assurance that the Company will be able to identify and acquire such businesses
on satisfactory terms, if at all, or that the funds necessary to finance such
acquisitions or investments will be available. The magnitude, timing and nature
of future acquisitions will depend upon various factors (some of which are
beyond the Company's control), including the availability of suitable
acquisition candidates, the negotiation of acceptable terms, the Company's
financial capabilities, the availability of skilled employees to manage the
acquired companies, the receipt of any required regulatory approvals and
general economic and business conditions. In addition, future acquisitions by
the Company will involve certain risks, including the risk that they will
require increased capital and operating expenditures associated with upgrading
acquired systems to the Company's standards and the risk
5
<PAGE>
that the costs of integrating such businesses may have a material adverse
effect on the Company's operating results. The integration of acquired
businesses may also lead to diversion of management attention from other
ongoing business concerns. The consummation of certain acquisitions may lead to
the Company recognizing goodwill, which would be subject to amortization that
reduces the Company's net profits in subsequent financial reporting periods.
See "Use of Proceeds" and "Business--Objectives and Strategy".
Rapid Growth
The Company has experienced rapid growth in a relatively short period of
time. If the Company is able to implement successfully its business strategy,
the Company will experience additional growth and expansion. The management of
such growth will require, among other things, the continued development of the
Company's financial and management controls, the stringent control of costs and
the increased employment and retention of qualified personnel. Failure to
manage its growth successfully could have a material adverse effect on the
Company.
Cost of Receivers
The Company's growth depends, in part, upon its ability to attract new
pay-television customers, many of whom are required to make an up-front
investment in purchasing the equipment necessary to receive the Company's
transmissions. The cost of such equipment may discourage potential subscribers.
The Company believes that the current price of such equipment is low enough to
attract a significant number of subscribers and expects that the price will
decrease over time; however, the Company's market penetration and growth may be
impeded if the cost of the equipment necessary to receive its broadcasts does
not decrease. There can be no assurance that the Company will be able to
establish a substantial customer base in new markets or grow or maintain a
substantial customer base in existing markets.
Greek Operations
The Company's growth strategy in Greece includes the planned launch of a
digital platform upon the receipt by the Company's Greek operations of a
license under a recently enacted broadcasting law. There can be no assurance,
however, that the Greek government will grant such a license. The Company is
currently incurring expenses with regard to its Greek digital operations, and
accordingly, any delay or inability to launch the digital platform could
materially adversely affect the Company's business in that market.
Dependence on Local Parties; Absence of Control of Joint Ventures
Many of the Company's operations have been developed in cooperation or
partnership with key local parties. With regard to such operations, the Company
is dependent on its local partners to provide knowledge of the local market
conditions and to facilitate the acquisition of necessary licenses and permits.
Any failure by the Company to form or maintain alliances with local partners,
or the preemption or disruption of such alliances by the Company's competitors
or otherwise, could adversely affect the Company's ability to penetrate and
compete successfully in many of the markets it operates or enters. Certain of
the Company's businesses may be vulnerable to local governmental or
quasi-governmental entities or other third parties who wish to renegotiate the
terms and conditions of, or terminate, their agreements or other understandings
with the Company.
Significant actions by most of the Company's ventures, such as approving
budgets and business plans, declaring and paying dividends and entering into
significant transactions, effectively require the approval of the Company's
local partners. Accordingly, the Company does not have unilateral control over
the operations of many of its joint ventures, which limits the Company's
flexibility and, under certain circumstances, could adversely affect the
Company's business strategy and operating results in the applicable region.
Availability of Programming
The success of the Company's pay-television business will be dependent on
its ability to continue to obtain attractive programming at commercially
reasonable costs. The Company is dependent on third party suppliers for
substantially all of its programming. A large portion of the Company's
programming is purchased from content providers in the United States and
Europe. The competition for the most attractive programming contracts,
including major sports and premium Hollywood movies, is intense, and in the
event that any of the Company's contracts are canceled or not renewed, the
Company would be required to seek alternative programming from other sources.
There can be no assurance that alternative programming would be available to
the Company on acceptable terms or at all or, if so available, that such
programming would appeal to the Company's subscribers. The Company's strategy
also depends on its ability to offer attractive programming on an exclusive
basis. There can be no assurance that the Company will continue to obtain
exclusive rights to such programming. See "Business--Pay-television".
6
<PAGE>
Competition
Pay-television
Although the Company is currently the only major provider of
pay-television services in each of its markets, the Company competes directly
with both state-owned and private national free-to-air broadcast networks and
regional and local broadcast stations for audience share, programming and
advertising revenue and indirectly with motion picture theaters, video rental
stores and other entertainment and leisure activities for general leisure
spending. The markets in which the Company operates are in a constant state of
change due to technological, economic and regulatory developments. The Company
is unable to predict what forms of competition will develop in the future, the
extent of such competition or its possible effects on the Company's businesses.
See "Business--Pay-television".
Technology
The market for the products and services offered by the Company's Mindport
division is highly competitive. The Company competes with numerous other
entities, including other pay-television providers, many of which have
substantially greater financial resources than the Company. Current and
potential competitors in one or more aspects of the Mindport product line
include television and other system software companies, interactive television
system providers and multimedia authoring tool providers. There are also
numerous businesses with the expertise and financial resources necessary to
enter the markets in which Mindport operates. Competition in these markets is
also greatly affected by technological developments, which may make the
Company's products and services obsolete or less competitive. See
"Business--Technology".
Internet
The market for Internet access and related services is extremely
competitive. The Company anticipates that competition will continue to
intensify as the use of the Internet grows. The tremendous growth and potential
market size of the Internet access market has attracted many start-up companies
as well as existing businesses from different industries. Competitors include,
in addition to national, regional and local Internet service providers, long
distance and local exchange telecommunications companies, cable television
companies, direct broadcast satellite and other wireless communications
providers and on-line service providers. Many such competitors have longer
operating histories and substantially greater financial, technical, marketing
and personnel resources as well as greater name recognition than does the
Company.
Dependence Upon Satellites
The Company's digital programming is or will be transmitted to customers
through different satellites around the world, and in certain regions its
terrestrial analog signal is also transmitted to regional broadcast points
through satellites. In addition, the Company receives a significant amount of
its programming through satellites. Satellites are subject to significant
risks, including defects, launch failure, incorrect orbital placement and
destruction and damage, that may prevent or impair proper commercial
operations. All satellites have limited useful lives, which vary as a result of
their construction, the durability of their components, the capability of their
solar arrays and batteries, the amount of station keeping fuel remaining once
in orbit, the launch vehicle used and the accuracy of the launch. In addition,
there can be no assurance that satellites will achieve their minimum design
life. Furthermore, the Company's transponder lease agreements do not guarantee
the minimum useful life of any satellites. Although the Company has not
experienced any significant disruption of its transmissions, the operation of
satellites is beyond the control of the Company. Future launch failures or
disruption of the transmissions of satellites that are already operational
could have a material adverse effect on the Company. In addition, the ability
of the Company to transmit its programming following the expected useful lives
of its current satellites and to broadcast additional channels will depend upon
the ability of the Company to obtain rights to utilize transponders on other
satellites. The Company does not currently have alternative satellite contracts
in place, and in the event of a satellite failure, transponder capacity on
other satellites must be procured. There can be no assurance that the Company
will be able to obtain any such rights or that the cost of such rights will be
commercially acceptable to the Company.
Dependence on Transmission and Production Facilities
The Company is dependent on its own transmission and production facilities
as well as those of its programming suppliers and affiliates to provide its
pay-television services. If a natural disaster or other event, such as a
lightning strike, results in the operations at any of these facilities being
disrupted for any significant period
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of time or inventory located there being damaged, a prolonged suspension of the
Company's pay-television services could occur and the results of operations and
financial condition of the Company could be materially adversely affected.
Although the Company maintains insurance coverage on its own transmission and
production facilities, there can be no assurance that such insurance proceeds
would be available on a timely basis or be sufficient to fully offset such
losses.
Change in Technology
The pay-television industry as a whole is, and is likely to continue to
be, subject to rapid and significant changes in technology. Although the
Company believes that, for the foreseeable future, existing and developing
alternative technologies will not materially adversely affect the viability or
competitiveness of its pay-television business, there can be no assurance as to
the effect of such technological changes on the Company. In addition, changes
in technology, including enhancements of the Company's existing technology, may
require the Company to expend substantial financial resources to remain
competitive.
New technologies or industry standards have the potential to replace or
provide lower cost alternatives to the products and services of Mindport. The
adoption of such new technologies or industry standards could render the
Company's planned products and services obsolete or less competitive.
Risk of Unauthorized Access
As with all providers of subscription television programming, the Company
faces the risk that its various programming signals will be obtained by
unauthorized users. For this reason, the delivery of subscription programming
requires the use of encryption technology to prevent unauthorized access to
programming or "piracy". The Company currently utilizes encryption technology
supplied to it by Mindport. The Company believes that this encryption
technology adequately prevents unauthorized access. There can be no assurance,
however, that such encryption technology is, or will remain, effective in
preventing such unauthorized access. In addition, encryption technology cannot
prevent the illegal retransmission or sharing of a television signal once it
has been decrypted. If the Company fails to control unauthorized access to its
transmission, its revenues and its ability to contract for programming services
could be adversely affected.
Internet Business Risks
A significant part of the Company's strategy is to develop Internet
businesses. As is typical in the case of a new and rapidly evolving industry
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions, demand and market acceptance
for recently introduced products and services on the Internet are subject to a
high level of uncertainty. In addition, critical issues concerning the
commercial use of the Internet remain unresolved and may impact the growth of
Internet use. These issues include a perceived lack of security of commercial
data (such as credit card numbers) and capacity constraints resulting in
delays, transmission errors and other difficulties. These and other issues
affecting the Internet industry may be particularly aggravated in the countries
in which the Company may enter the Internet business, which may have a less
developed Internet culture. If, in the areas in which the Company launches its
Internet business, the market for Internet access services fails to develop,
develops more slowly than expected or becomes saturated with competitors, or if
the Internet access and services to be offered by the Company are not broadly
accepted, the Company's growth strategy could be materially adversely affected.
Other Internet business risks include: (i) the inability to obtain attractive
content, (ii) unauthorized access, viruses and other disruptive problems, (iii)
dependence on telecommunications providers and (iv) changes in technology that
would require the Company to modify its Internet business.
South African Exchange Control
MIH Limited's South African subsidiaries are subject to significant
restrictions on their ability to remit funds outside of South Africa. South
African exchange control regulations provide for a common monetary area
consisting of South Africa, Lesotho, Namibia and Swaziland (the "CMA").
Transactions between South African residents and non-CMA residents are subject
to South African exchange control regulations. South African residents,
including companies, are generally not permitted to export capital from South
Africa or to hold foreign currency without the approval of The South African
Reserve Bank (the "Reserve Bank"), and restrictions are imposed on their
foreign investments. In addition, South African companies are generally
required to repatriate to South Africa those profits of foreign operations
which are not required to fund their ongoing business operations. These
exchange control regulations effectively prevent the Company from receiving
distributions from its South African subsidiaries. While
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such restrictions have been liberalized in recent years, a South African
company's ability to raise and deploy capital outside South Africa remains
subject to significant restrictions. Although approximately two-thirds of the
Company's revenue is generated by its businesses in the CMA and their
subsidiaries and joint ventures, the Company believes that the South African
exchange control restrictions will not affect its ability to fulfill its
various payment obligations.
Foreign Currency Risks
Although a substantial portion of the Company's revenue is denominated in
the currencies of the countries in which it operates, a significant portion of
its cash obligations, including the payment obligations under its satellite
transponder leases and its contracts for programming and channels for its
pay-television platforms, are denominated in U.S. dollars. In those areas where
the Company's revenue is denominated in local currency, a depreciation of that
currency against the U.S. dollar could adversely affect the Company's earnings
and its ability to meet its cash obligations. Similarly, where the Company
prices its products and services in U.S. dollars or U.S. dollar equivalents, a
depreciation of the local currency would make the Company's products more
expensive for its customers and could have an adverse impact on the Company's
sales. Many of the Company's operations are in countries or regions where there
has been substantial depreciation of the local currency against the U.S. dollar
in recent years. Although most of the Company's operating entities hedge a
substantial portion of their currency risks, there can be no assurance that any
such hedging will fully protect the Company or that the Company will continue
to hedge such risks in the future.
The Company's reporting currency is the U.S. dollar. The Company conducts
and will continue to conduct business transactions in currencies other than its
reporting currency; accordingly, appreciation or depreciation in the value of
other currencies as compared to the reporting currency will result in
translation gains or losses which, if the appreciation or depreciation is
significant, could be material.
Social and Political Factors
Many of the countries in which the Company operates are subject to social,
political or economic factors that may materially adversely affect the
Company's business. South Africa is a nascent democracy that is in the early
stages of addressing a large wealth differential among its citizens. In recent
years, South Africa has also experienced high levels of crime and unemployment,
which have, among other things, impeded foreign investment in South Africa and
prompted an emigration of skilled workers. In addition, Thailand has recently
experienced adverse economic developments, as have a number of other countries
in Southeast Asia. These developments include currency depreciations, increased
interest rates, economic slowdown or contraction, increases in corporate
bankruptcies, stock market declines and government imposed austerity measures.
These or other adverse developments or government reactions to them could
adversely affect the Company's business. In addition, the Company does and may
begin to do business in other countries that have political, social or economic
factors that could adversely affect the Company's business. Although
governments in each of the above countries have taken steps toward addressing
these factors, it is not possible to predict whether or to what extent these
steps will succeed in achieving their objectives or what effect these steps or
these problems will have on companies doing business in these countries.
Regulation
Pay-television, Internet and other pay-media operations and the provision
of programming services are generally subject to governmental regulation, which
may change from time to time. Such changes in applicable laws and regulations
could cause the Company to incur additional costs of compliance or otherwise
adversely affect the Company's business. There can be no assurance that
material and adverse changes in the regulation of the Company's existing
operations will not occur in the future. Regulation can take the form of price
controls, service requirements, programming content restrictions, foreign
ownership restrictions and licensing requirements, among others. Delays in
obtaining or renewing any required regulatory approvals could adversely affect
the Company's ability to offer some or all of its services; for instance, the
Company's license to broadcast analog television in Greece is scheduled to
expire in October 1999, and there can be no assurance that it will be renewed.
In most countries in which it does or may do business, the Company operates or
may operate pursuant to licenses obtained from governmental or
quasi-governmental agencies, which licenses are generally subject to periodic
renewal. The inability of the Company to obtain or retain any required licenses
could have a material adverse effect on its business. See "Regulation".
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Risks Associated with Intellectual Property
The Company's success depends in part on its ability to protect and
maintain the proprietary nature of its technology through a combination of
patents, trade secrets, trademarks, copyrights, licenses and other intellectual
property arrangements. The Company has issued and pending patents, trademark
registrations and computer program copyrights in the United States and other
countries. See "Business--Intellectual Property". The Company intends to
vigorously protect its intellectual property rights. It may be possible,
however, for a third party to copy or otherwise obtain and use the Company's
technology without authorization, or to develop similar technology
independently. Furthermore, the laws of certain countries in which the Company
sells its products do not protect the Company's intellectual property rights to
the same extent as do the laws of the United States. If unauthorized copying or
misuse of the Company's products were to occur to any substantial degree, the
Company's business could be materially adversely affected. There can be no
assurance that the Company's means of protecting its proprietary rights will be
adequate or that the Company's competitors will not independently develop
similar technology.
Although the Company has not received any notices from third parties
alleging infringement claims, there can be no assurance that third parties will
not claim that the Company's current or future products infringe the
proprietary rights of others. The Company expects that software developers will
increasingly be subject to such claims as the number of products and
competitors providing software and services to the pay-media industries
increases and overlaps occur. Any such claim, with or without merit, could
result in costly litigation or might require the Company to enter into royalty
or licensing agreements, any of which could have a material adverse effect on
the Company. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all.
Dependence on Personnel
The operating performance of the Company depends on the efforts and
abilities of its senior management. The loss of the services of any of those
individuals could have a material adverse effect on the Company's business. See
"Management". The Company believes that the success of its technology and
Internet businesses will depend in large part on its ability to attract and
retain highly skilled information technology professionals and software
programmers for whom there is intense competition. There can be no assurance
that the Company will be able to attract and retain the personnel necessary for
the development and integration of these businesses. Delays in hiring such
personnel could delay the achievement of development and marketing objectives.
The loss of the services of key personnel or the failure to attract additional
personnel as required could have a material adverse effect on the Company.
Control by Principal Shareholder
Immediately following the Offerings (assuming no exercise of the
Underwriters' over-allotment options) and the Thomson Conversion, MIH Holdings
Limited ("MIH Holdings") will own, through its wholly-owned subsidiary MIH
(BVI) Limited, 100.0% of the Class B Ordinary Shares outstanding, representing
83.3% of the voting interest of the Issuer. MIH Investments (Proprietary)
Limited ("MIH Investments") owns 52.9% of the voting stock of MIH Holdings, and
Naspers Limited ("Naspers") owns 100.0% of the voting stock of MIH Investments
along with direct ownership of 2.8% of MIH Holdings. As a result of its
ownership of Class B Ordinary Shares, MIH Holdings and its parent companies
have sufficient voting power, without the vote of any other shareholders, to
determine the outcome of any action requiring shareholder approval, to amend
the Memorandum and Articles for any purpose, which could include increasing or
reducing the Issuer's authorized capital or authorizing the issuance of
additional shares and to elect all of the issuer's directors who determine the
declaration and payment of dividends and any other action to be taken by the
Issuer. The Company engages in transactions with subsidiaries of Naspers in the
ordinary course of business. The interests of holders of the Class B Ordinary
Shares may diverge from the interests of the holders of the Class A Ordinary
Shares, and holders of Class B Ordinary Shares may be in a position to require
the Company to act in a way that is not consistent with the general interests
of the holders of the Class A Ordinary Shares, including through transactions
with related companies. See "Management", "Security Ownership" and "Certain
Transactions".
Broad Discretion on Application of Proceeds
The Company's business plan is general in nature and is subject to change
based upon changing conditions and opportunities. The management of the Company
will have broad discretion in applying the net proceeds of the Offerings. The
Company may use the net proceeds for future acquisitions and investments;
however, the
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Company at present is not party to any definitive, material agreements relating
to such future acquisitions. There can be no assurance that suitable
opportunities for any such acquisitions will be available to the Company and no
assurance of the timing of such acquisitions or of the portion of the net
proceeds from the Offerings necessary for their consummation. See "Use of
Proceeds".
Year 2000 Risks
Many computer programs and electronic devices in use today mistakenly
treat dates falling after December 31, 1999 as dates during the twentieth
century. The Company is conducting a comprehensive review of its internal
computer systems and the products and services it offers to customers in order
to identify which of them will have to be modified in order to properly
recognize and process dates after December 31, 1999. The testing which the
Company has conducted to date (and will conduct in respect of all of its
products and business critical systems) is designed to identify which of its
products and business critical systems are not Year 2000 compliant and
determine the remedies necessary to ensure such compliance. The Company has
also requested its suppliers to provide it with details of what action they are
taking to ensure that the products and services supplied to the Company will be
Year 2000 compliant. Although the Company believes that with certain planned
modifications and upgrades, the Year 2000 issue will not pose significant
operational problems for its products and business critical systems, there can
be no assurance that its Year 2000 compliance efforts will be completed on time
or that it will be successful. Any delays or omissions by the Company or its
suppliers to resolve the Year 2000 issue could materially adversely affect the
Company. Further, in certain countries in which the Company operates, the
governments, governmental agencies, utility companies and the Company's
suppliers may not be applying sufficient resources to the resolution of the
Year 2000 issue. Such failure could materially adversely affect the Company.
Finally, the Company has incurred and will continue to incur internal staff
costs, consultancy fees and other expenses in preparation for the Year 2000.
There can be no assurance that such amounts will not be material. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue".
Shareholder Rights under British Virgin Islands Law
The Issuer's corporate affairs are governed by its Memorandum and Articles
and by the International Business Companies Act of the British Virgin Islands.
Principles of law relating to such matters as the validity of corporate
procedures, the fiduciary duties of management and the rights of the Issuer's
shareholders may differ from those that would apply if the Issuer were
incorporated in the United States or another jurisdiction. The rights of
shareholders under British Virgin Islands law are not as clearly established as
are the rights of shareholders in many other jurisdictions. Thus, the public
shareholders of the Issuer may have more difficulty in protecting their
interests in the face of actions by the Board of Directors or the principal
shareholders (see "--Control by Principal Shareholder") than they would have as
shareholders of a corporation incorporated in another jurisdiction. In
addition, it is unlikely that the courts of the British Virgin Islands would
enforce, either in an original action or in an action for enforcement of
judgments of other courts, liabilities which are predicated upon the securities
laws of the United States or other jurisdictions. See "--Enforceability of
Civil Liabilities".
Enforceability of Civil Liabilities
The Issuer is a holding corporation organized as an International Business
Company under the laws of the British Virgin Islands with its business
operations located in several countries, principally South Africa, the
Netherlands, Greece and Thailand. The Issuer has appointed CT Corporation
System as its agent upon whom process may be served in any action brought
against the Issuer under the securities laws of the United States. However,
outside the United States, it may be difficult for investors to enforce
judgments against the Issuer obtained in the United States in any such actions,
including actions predicated upon civil liability provisions of securities
laws. In addition, all of the Issuer's officers and directors reside outside
the United States and nearly all of the assets of these persons and of the
Issuer are located outside of the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons, or to enforce against the Issuer or such persons judgments
predicated upon the liability provisions of the securities laws of the United
States. The Issuer has been advised by Mallinicks, its South African counsel,
Nauta Dutilh, its Dutch counsel, Zepos & Zepos, its Greek counsel, White & Case
(Thailand) Limited, its Thai counsel and Harney Westwood and Riegels, its
British Virgin Islands counsel that there is substantial doubt as to the
enforceability against the Issuer or any of its directors and officers located
outside the United States in original actions or in actions for enforcement of
judgments of U.S. courts of liabilities predicated on the civil liability
provisions of the United States securities laws.
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No Prior Public Market; Possible Volatility of Stock Price
Prior to the Offerings, there has been no public market for the Class A
Ordinary Shares. Although the Company expects that the Class A Ordinary Shares
will be approved for listing on the Nasdaq and the Amsterdam Stock Exchange,
there can be no assurance that an active public market for the Class A Ordinary
Shares will develop or continue after the Offerings. The initial public
offering price per Class A Ordinary Share will be determined by negotiations
among the Issuer and the representatives of the Underwriters and may not be
indicative of the price at which the Class A Ordinary Shares will trade after
the Offerings. See "Underwriting". Prices for the Class A Ordinary Shares will
be determined in the marketplace and may be influenced by many factors,
including the financial results of the Company, changes in earnings estimated
by industry research analysts, investors' perceptions of the Company and
general economic, industry and market conditions. In addition, the stock
markets have from time to time experienced extreme price and volume volatility,
and such volatility may adversely affect the market price of the Class A
Ordinary Shares. Accordingly, there can be no assurance that the market price
of the Class A Ordinary Shares will not decline below the initial public
offering price.
Absence of Dividends
The Issuer anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business,
and, therefore, the Issuer has no intention to pay cash dividends on its
Ordinary Shares in the foreseeable future. In the event that the Issuer or its
subsidiaries enter into future financings, the terms of such financings may
include restrictions on the payment of dividends. See "Dividend Policy" and
"--Holding Company Structure; Significant Limitations on Access to Cash Flow of
Subsidiaries and Joint Ventures".
Shares Eligible for Future Sale
SuperSport International Holdings Limited ("SSIH") and Johnnic (IOM)
Limited ("Johnnic") collectively own 7,447,681 Class A Ordinary Shares;
Thomson, after the Thomson Conversion (and assuming an initial public offering
price of $17.00), will own approximately 2,733,861 Class A Ordinary Shares; and
MIH Holdings, through MIH (BVI) Limited, owns all of the 30,787,319 Class B
Ordinary Shares. SSIH, Johnnic, MIH (BVI) Limited and Thomson, together with
the Issuer and its officers and directors, have entered into agreements (the
"Lock-Up Agreements") not to sell, contract to sell, or otherwise dispose of,
any Ordinary Shares without the consent of the Underwriters for a period of 180
days after the date of this Prospectus and to accept other restrictions on the
sale of Ordinary Shares for a period of one year after the Offerings. In
addition, SSIH, Johnnic and MIH (BVI) Limited have agreed (in accordance with
the rules for admission to listing on the Amsterdam Stock Exchange of issuers
with less than three financial years' net profit) that they will not, for a
period of three years after the date of such admission, dispose of Ordinary
Shares that total, in the aggregate, more than 50% (as long as not more than
one of the financial years of the Issuer has closed with a net profit) or 75%
(if and when two financial years of the Issuer have closed with a net profit)
of the number of Ordinary Shares currently outstanding, subject to certain
exceptions (the "ASE Lock-Up Agreement"). Upon expiration of the Lock-Up
Agreements, such shares will be eligible for resale in the public markets in
accordance with Regulation S ("Regulation S") and Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933 (the "Securities Act").
Upon consummation of the Offerings and the Thomson Conversion, but subject
to the continued applicability of the ASE Lock-Up Agreement to SSIH, Johnnic
and MIH (BVI) Limited, the Issuer will have outstanding options to purchase a
total of 950,140 Class A Ordinary Shares, which options will be exercisable
immediately following consummation of the Offerings, with delivery of the
shares occurring from three to five years after issuance of the option. The
shares issued upon exercise of these options will be potentially eligible for
public sale 90 days after the date of this Prospectus pursuant to Rule 701
under the Securities Act. All holders of such options, however, have signed
Lock-Up Agreements. Except as limited by the Lock-Up Agreements and by volume
limitations applicable to affiliates under Rule 144, shares issued upon the
exercise of stock options generally are available for sale in the open market.
Future sales of significant amounts of Class A Ordinary Shares in the public
market after the Offerings could adversely affect the prevailing market price
of the Class A Ordinary Shares. See "Shares Eligible for Future Sale".
Certain Anti-Takeover Matters
The low voting rights of the Class A Ordinary Shares, as well as certain
other provisions of the Issuer's Memorandum and Articles, may discourage other
persons from attempting to acquire control of the Issuer. These provisions
include, but are not limited to, a classified Board of Directors, the
authorization of the Board of Directors to issue shares of undesignated
preferred stock in one or more series without the specific approval of the
holders
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of Ordinary Shares, the establishment of advance notice requirements for
director nominations and actions to be taken at shareholder meetings and the
requirement that two-thirds of the shareholders entitled to vote at a meeting
are required to approve any change to certain provisions of the Memorandum and
Articles. The low voting rights of the Class A Ordinary Shares and such
provisions, as well as certain provisions of British Virgin Islands law to
which the Issuer is subject, could impede a merger, takeover or other business
combination involving the Issuer or discourage a potential acquiror from making
a tender offer or otherwise attempting to obtain control of the Issuer. In
certain circumstances, such provisions may inhibit or discourage takeover
attempts and could reduce the market value of the Class A Ordinary Shares. See
"Description of Capital Stock--Certain Anti-Takeover Matters".
Immediate and Substantial Dilution
Investors purchasing Class A Ordinary Shares in the Offerings will
experience immediate and substantial dilution in the net tangible book value of
their shares. See "Dilution".
Forward-Looking Statements
This Prospectus contains "forward-looking statements". These
forward-looking statements are subject to a number of risks and uncertainties,
many of which are beyond the Company's control. Forward-looking statements are
typically identified by the words "believe", "expect", "anticipate", "intent",
"estimate" and similar expressions. All statements other than statements of
historical facts contained in this Prospectus, including, without limitation,
the statements under "Prospectus Summary", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
located elsewhere herein regarding industry prospects and the Company's results
of operations or financial position are forward-looking statements. Actual
results could differ materially from those contemplated by these
forward-looking statements as a result of factors ("Cautionary Statements")
such as product and service development, market acceptance risks, the impact of
competitive products, services and pricing, the results of current and future
programming agreements and regulatory relationships, the results of financing
efforts, the pursuit and consummation of certain acquisitions, developments
regarding intellectual property rights and litigation, and risks described
under "Risk Factors". In light of these risks and uncertainties, there can be
no assurance that the results and events contemplated by the forward-looking
information contained in this Prospectus will in fact transpire. Potential
investors are cautioned not to place undue reliance on these forward-looking
statements. Neither the Company nor any of the Underwriters undertake any
obligation to update or revise any forward-looking statements. All subsequent
written or oral forward-looking statements attributable to the Company or
persons acting on behalf of the Company are expressly qualified in their
entirety by the Cautionary Statements.
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USE OF PROCEEDS
The net proceeds to the Issuer from the Offerings are estimated to be
approximately $127.5 million after deducting underwriting discounts and
offering expenses. The Company intends to use these proceeds to make
acquisitions and investments, fund the growth and improvement of existing
businesses, repay debt and fund working capital and general corporate purposes.
As described under "Business--Objectives and Strategy", the Company
intends to make investments in and acquisitions of pay-television services,
Internet services, interactive television services and related technology
businesses. The Company is currently considering a number of acquisitions but
has not yet entered into definitive agreements with regard to any of them and
expects additional acquisition opportunities to arise. The Company also intends
to fund the growth and improvement of its existing businesses and may use the
majority of the proceeds for this purpose if the available investment
opportunities warrant. The Company's management will have substantial
discretion in investing the net proceeds of the Offerings.
The acquisitions and investments described above reflect the Company's
current expectations and plans, which are subject to change. Any acquisition or
investment will be subject to various contingencies, including the results of
negotiations with third parties, obtaining required government approvals, and
obtaining required shareholder or board approvals. See "Risk Factors--Risks
Associated with Growth Strategies".
The Company also intends to use the proceeds of the Offerings for the
repayment of certain indebtedness. This indebtedness consists of (i) drawings
of approximately $33 million under a revolving demand facility from ABSA Bank
Limited that bears interest at a rate of LIBOR + 2% and (ii) expected drawings
of approximately $10 million under a loan from MeesPierson N.V. that bears
interest at a rate of LIBOR + 0.9% and is repayable upon the earlier of
February 12, 2000 and the completion of the Offerings or another public
offering or credit facility. These loans were used to (i) repay $30 million of
debt assumed in connection with the Canal+ Transaction (as defined herein),
(ii) make payments to third parties to purchase 1.7% of the voting shares of
UBC and (iii) for working capital and general corporate purposes.
The Company will use the balance of the proceeds for working capital and
general corporate purposes.
DIVIDEND POLICY
The Issuer anticipates that all of its earnings in the foreseeable future
will be retained to finance its continued growth and expansion and has no
current intention to pay cash dividends on its Ordinary Shares. The payment of
dividends is within the discretion of the Issuer's Board of Directors and will
be dependent upon, among other factors, the Company's results of operations,
financial condition, capital requirements, restrictions imposed by the
Company's financing arrangements and legal requirements. See "Risk
Factors--Holding Company Structure; Significant Limitations on Access to Cash
Flow of Subsidiaries and Joint Ventures".
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DILUTION
At September 30, 1998, the Issuer had a net tangible book value of
approximately $61.0 million, or $1.60 per Ordinary Share. Net tangible book
value per share represents the amount of total tangible assets less total
liabilities divided by the number of Ordinary Shares outstanding. After giving
effect to the sale of Class A Ordinary Shares in the Offerings and the Thomson
Conversion at an assumed initial public offering price of $17.00 per share (the
mid-point of the estimated price range) and after deducting the estimated
underwriting discount and offering expenses payable by the Issuer, the pro
forma net tangible book value of the Issuer as of September 30, 1998 would have
been approximately $ 184.9 million, or $ 3.75 per share. This represents an
immediate increase in net tangible book value of $2.15 per share to the
existing shareholders and an immediate dilution of $13.25 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ........................... $ 17.00
Net tangible book value as of September 30, 1998(1) ......... $ 1.60
Increase attributable to net proceeds to the Issuer
from the Offerings and the Thomson Conversion(2) ............ 2.15
------
Pro forma net tangible book value after the Offerings and the
Thomson Conversion(2) ....................................... 3.75
--------
Dilution to new investors ....................................... $ 13.25
========
</TABLE>
- ----------------
(1) The net tangible book value of the Company is calculated as shareholders'
equity less intangible assets.
(2) After giving effect to the estimated underwriting discount and the
estimated expenses of the Offerings and adjusted to exclude $50.0
million, representing the estimated excess of the purchase price over the
assumed fair value of net liabilities acquired in OpenTV as a result of
the purchase of common stock of OpenTV from Thomson (see Recent
Developments). The final allocation of the purchase price may differ
materially from amounts assumed in the pro forma information.
15
<PAGE>
SUMMARY ORGANIZATIONAL CHART
(Ownership figures reflect economic interests rather than voting rights)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
--------------- --------
MIH Holdings(1) ------------------------------------ M-Web(1)
--------------- (shares lined on JSE) --------
| A leading
-------------------- | 62%(2) -------------------- ISP in
SSIH(1) | Johnnic South Africa
-------------------- | --------------------
Provides pay- | 7%(2) | 9%(2) | Wholly-owned
television +--------| | |--------------+ subsidiary of
programming, -------------------- JSE listed
mostly sports MIH Limited investment
(the "Issuer") company
--------------------
|
|
-----------------------------------------------------------------------------------------------
| | | | |
| | | | |
--------------------------------- --------------- ------ --------------------------
AFRICA AND THE MIDDLE EAST MEDITERRANEAN ASIA TECHNOLOGY
--------------------------------- --------------- ------ (Mindport)
| | | | --------------------------
| 100% | various% |100%(3) | 28%(4) | |
------------------- ---------------- ------------- --------------- | |
MultiChoice Egypt and the NetMed UBC(5) | |
Africa Middle East | |
------------------- ---------------- ------------- --------------- | |
| | | various Manages the | | Leading | |
| 100% | | % subscriber Leading provider | |
-------------- | -------------- base of pay- provider of pay- | |
South | Sub-Saharan television of pay- television | |
Africa | Africa providers in television services | 100% | 80%
-------------- | -------------- Egypt and services in Thailand ------------ --------------
| certain in Greece Irdeto OpenTV
Leading | Leading Middle-Eastern and Cyprus ------------ --------------
provider of | provider of countries | | Technology Develops and
pay-television | pay-television | | company sells software
services in | services in various | | serving pay- platforms for
South Africa | Sub-Saharan % | | 51% media interactive
| Africa --------- --------- businesses television
| 20%(6) Greece Cyprus
----------------------------- --------- ---------
| |
- - ------------- -------------
(shares
SSIH(1) linked on JSE) M-Net(1)
----------------
- - ------------- -------------
Provides pay- Provides pay-
television television
programming, programming, mostly
mostly sports premium movies
</TABLE>
(1) Publicly listed in South Africa.
(2) Adjusted to give pro forma effect to the Offerings and the Thomson
Conversion, assuming no exercise of the Underwriters' over-allotment
options.
(3) Effectively 100% because the Company holds an option to purchase the
remaining 48% of NetMed at a fixed price on demand and NetMed does not pay
dividends.
(4) The Company holds an option to purchase an additional 3.3% of UBC.
(5) Publicly listed in Thailand.
(6) One half of such interest is held by a trust, but the Company is entitled
to any dividends until 2001. See Note 3 to Consolidated Financial
Statements.
16
<PAGE>
THE COMPANY
Overview
The Company is a multinational supplier of pay-television services and
related technology. The Company plans to leverage its management and industry
expertise to provide a full array of pay-media content and services over a
variety of electronic platforms, including pay-television, Internet and
interactive television. MIH Limited is incorporated in the British Virgin
Islands and conducts its businesses through subsidiaries and joint ventures.
After giving effect to the Offerings and the Thomson Conversion, MIH Holdings,
which is quoted on the Johannesburg Stock Exchange (the "JSE") under the symbol
"MIB", will indirectly own shares representing 62.5% of the economic interest
and 83.3% of the voting interest of MIH Limited. The shares of MIH Holdings are
linked with those of M-Web, an Internet service provider that was spun off by
MIH Holdings last year. Together, they had a market capitalization of ZAR
5,134.8 million ($829.4 million) as of March 19, 1999. The diagram on the
preceding page summarizes the Company's group structure and ownership.
Subsidiaries and Joint Ventures
Pay-television
In many of its markets, the Company's pay-television businesses utilize
similar corporate structures. These structures generally include a content
management company which provides the content for the pay-television operation,
a subscription management business and a service transmission and distribution
business. In each region, these companies may have local partners.
Africa. The Company operates its South African businesses through
MultiChoice Africa (Proprietary) Limited ("MultiChoice Africa"), an indirect
wholly owned subsidiary of MIH Limited. MultiChoice Africa obtains channels
from and conducts transmission and distribution through certain of the
Company's affiliates. MultiChoice Africa in turn has ownership interests in
joint ventures operating in Kenya, Ghana, Uganda, Nigeria, Tanzania, Zambia,
Namibia, Botswana and Lesotho. In Africa, the Company considers several factors
when determining the countries within which to establish joint ventures,
including comparative political stability, a free market economy, adequate
infrastructure, a favorable foreign exchange system, a suitable local partner
and sufficient management control. In many other African nations, the Company
operates through agents or franchisees. These parties conduct marketing and
advertising to build the subscriber base and collect subscription revenues on
behalf of the Company. They retain a minor portion of these subscription
revenues as compensation for their services and remit the balance to the
Company.
MultiChoice Middle East Inc. ("MultiChoice Middle East") is a 90.0% owned
subsidiary of MultiChoice Middle East Holdings Inc. ("MultiChoice Middle East
Holdings"), which in turn is 50.0% indirectly owned by MIH Limited. The other
shareholders in MultiChoice Middle East Holdings and MultiChoice Middle East
are strategic regional investors. In Egypt, MIH Limited indirectly owns 10.0%
of Cable Network Egypt ("CNE"), which provides terrestrial analog service, and
75.0% of MultiChoice Egypt Limited ("MultiChoice Egypt"), which provides
subscriber management services to CNE.
Mediterranean. The Company operates its Mediterranean businesses through
its interest in a holding company, NetMed B.V. MIH Limited owns 52.0% of NetMed
B.V. (together with its subsidiaries, "NetMed"), and MP Communications B.V.
("MP") owns the remaining 48.0%. The Company holds an option to purchase MP's
48.0% interest on demand at a fixed, pre-arranged price that is slightly
greater than the price at which MP purchased that interest from the Company.
Pursuant to a shareholders agreement between the Company and MP, NetMed does
not pay dividends. Recent changes in the Greek regulatory environment may lead
to a change in the ownership structure of the Company's Greek subsidiaries and
joint ventures, and the Company is currently reviewing several alternatives.
NetMed manages its pay-television business through the following operating
subsidiaries:
o MultiChoice Hellas S.A. ("MultiChoice Hellas") and MultiChoice Cyprus
Limited ("MultiChoice Cyprus") manage the subscriber base and market and
sell pay-television services in Greece and Cyprus, respectively. NetMed
B.V., through Myriad Development B.V., owns 51% of each of MultiChoice
Hellas and MultiChoice Cyprus. The remainder of MultiChoice Hellas is
42.0% owned by Teletypos S.A., a Greek media company that owns Mega
Channel, the second largest Greek free-to-air television channel. The
other 7.0% is owned by Lumiere Television Limited ("Lumiere"), a Cypriot
investor. Lumiere also owns the remaining 49.0% of MultiChoice Cyprus.
MultiChoice Hellas and MultiChoice Cyprus collect subscriber revenues,
retain a portion as payment for their services and pass the balance to
NetMed Hellas S.A. ("NetMed Hellas"), Lumiere and Alfa TV.
17
<PAGE>
o NetMed Hellas is 96.0% owned by NetMed B.V. NetMed Hellas operates the
FilmNet, SuperSport and K-T.V. pay-television channels in Greece and
provides programming to Lumiere and AlfaTV in Cyprus. The remaining 4.0%
ownership is held by Lumiere.
o Synergistic Network Development S.A. ("Syned") is 100.0% owned by NetMed
B.V. and is responsible for signal transmission and distribution.
Asia. The Company conducts its development operations in Asia through its
office in Hong Kong. The Company's first Asian investment is its joint venture
interest in the United Broadcasting Corporation Public Company Limited,
formerly the International Broadcasting Corporation Public Company Limited
("UBC"), and its subsidiaries (together, the "UBC Group") in Thailand. Founded
in 1985, UBC is quoted on the Stock Exchange of Thailand under the symbol "UBC"
and had a market capitalization of Baht 11,482 million ($306.4 million) on
March 19, 1999. The Company became an investor in UBC in January 1997 and has
gradually increased its total share of ownership of UBC to approximately 27.8%
with an option to purchase an additional 3.3% from London National Corporation.
As of February 8, 1999, the remaining shares were beneficially owned 41.0% by
Telecom Holding Company Limited ("Telecom Asia"), 0.4% by the Mass
Communications Organization of Thailand ("MCOT") and 30.8% by other private
investors and the public. The Company has pledged its shares in UBC to ABSA
Bank Limited as security for a revolving demand facility. The Company expects
the pledge to be released once the debt has been repaid from the proceeds of
the Offerings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Debt".
The UBC Group's pay-television business is managed through four operating
entities. UBC operates the digital satellite and MMDS services and acts as a
holding company for the remaining parts of the business. UBC Cable Network
Public Company Limited ("UBC Cable"), formerly UTV Cable Network Public Company
Limited, which is 97.9% owned by UBC, operates the cable television services
business for the UBC Group. Cineplex Company Limited ("Cineplex"), which is
99.9% owned by UBC, produces channels featuring movies, drama, educational
programming, news and sports for the UBC Group's pay-television systems. Both
UBC Cable and Cineplex were founded by Telecom Asia and later purchased by UBC.
Satellite Services Company Limited ("SSV"), which is 96.0% owned by UBC,
provides certain services used by the UBC Group in its pay-television systems,
including signal transmission and distribution.
Technology
The Company's Mindport division is a leading provider of pay-television
software and hardware solutions and services both to the Company's pay-media
businesses and to third-party pay-media operators. The Company operates its
Mindport technology division mainly through its wholly owned subsidiary Irdeto
B.V. ("Irdeto"). In addition, the Company owns 80.1% of OpenTV (72.3% on a
fully diluted basis after giving effect to the exercise of outstanding stock
options), which produces operating systems for interactive television. In the
future, the Company plans to form a new subsidiary named Mindport as a holding
company for all of its technology assets.
Affiliates
The Company has several non-subsidiary affiliates, including Electronic
Media Network Limited ("M-Net Ltd."), SSIH, M-Web and Orbicom (Proprietary)
Limited ("Orbicom"). M-Net Ltd. is a publicly traded South African company that
provides the premium film channels carried by the Company on its pay-television
platforms in Africa. SSIH is a publicly traded South African company that
provides the sports channels carried by the Company on its pay-television
systems in Africa and the Middle East. Shares of SSIH are linked with those of
M-Net Ltd., and as of March 19, 1999, their market capitalization was
approximately ZAR 919.7 million ($148.6 million). The linking provides that
each share of either company's stock trades with one share of the other
company's stock, with a single price for both shares combined. The shares can
be delinked by declaration by each company's board.
The Company currently owns 19.8% of each M-Net Ltd. and SSIH and is 8.5%
owned by SSIH. The Company has pledged its shares in M-Net Ltd. and SSIH to
ABSA Bank Limited as security for a revolving demand facility. The Company
expects this pledge to be released once the debt has been repaid from the
proceeds of the Offerings.
M-Web was formed in 1997 through a series of transactions whereby the
Issuer contributed its Internet related business to a new entity, M-Web, and
subsequently capitalized it with a special dividend to MIH Holdings. M-Web is a
leading Internet service provider in South Africa. It provides Internet access
and aggregates content oriented toward South Africans. As of December 31, 1998,
it had 126,882 subscribers. The Company has no economic or voting interest in
M-Web.
18
<PAGE>
Orbicom is owned 80.0% by MIH Holdings and 20.0% by the Company. It
provides the uplink and signal backhaul facility for the Company's operations
in Africa. Orbicom is not operated as a profit center as it provides its
services at cost to various subsidiaries of MIH Holdings, including the
Company.
History
In 1985, several large South African media companies formed a pay-media
business, M-Net Ltd., the predecessor to the Company. M-Net Ltd. was listed on
the JSE in 1990.
Effective October 1993, M-Net Ltd. was divided into two companies. The
subscriber management, signal distribution and cellular telephony businesses,
together with the holding in FilmNet, a leading pay-television operator in
Europe, were placed in a new company, MIH Holdings (then called MultiChoice
Ltd.). M-Net Ltd. continued to hold other corporate operations and provide
pay-television programming.
In late 1992, MIH Holdings joined a consortium that procured the second
GSM cellular license awarded in South Africa. MIH Holdings owned 25.0% of
Mobile Telephone Networks Holdings (Proprietary) Limited ("MTN"), the cellular
network operator, and subsequently increased its stake in MTN to 34.7%. In
1995, MIH Holdings spun off its interest in MTN as a new corporation, M-Cell
Limited ("M-Cell"). M-Cell is listed on the JSE and has a market capitalization
of approximately ZAR 5,387.4 million ($870.3 million) as of March 19, 1999.
In 1995, Richemont S.A. ("Richemont") and MIH Holdings merged their global
pay-television operations, including their interest in FilmNet, the Company's
operations in Africa and Richemont's interest in Telepi-, into a single venture
called NetHold B.V. ("NetHold"), which MIH Holdings held through MIH Limited.
In March 1997, the Company and Richemont merged most of NetHold with Canal+,
the French-based pay-television operator. The Company retained NetHold's
African, Mediterranean and Middle East pay-television businesses, acquired 49%
of Irdeto, now part of the Mindport division, and received an interest in
Canal+. The Company has since sold its interest in Canal+ to fund its expansion
in Asia. The Company purchased the remainder of Irdeto from Canal+ in January
1998. The Company purchased its interests in its Thai pay-television joint
venture, UBC, from 1997 until the present. In 1998, the Company purchased its
44.5% interest in OpenTV, now a part of the Company's Mindport technology
division, and increased its ownership to 80.1% in March 1999.
In 1997, the Company purchased an Internet service provider and renamed it
M-Web. In March 1998, M-Web was spun off and listed on the JSE.
19
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical consolidated cash and
capitalization of the Company at September 30, 1998 derived from the Company's
historical financial statement as of that date, and (ii) the pro forma
consolidated capitalization as adjusted to give effect to the Thomson
Conversion, the issuance and sale of Class A Ordinary Shares in the Offerings
and the application of the net proceeds therefrom. This table is based upon MIH
Limited's Consolidated Statements, which have been prepared in accordance with
International Accounting Standards ("IAS"). This information should be read in
conjunction with the Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1998
-------------------------------
Actual As adjusted(1)
------------- ---------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents ......................................... $ 87,473 $ 181,946
========== ==========
Long-term debt:
Long-term debt, including current portion but
excluding program and film rights .............................. 63,135 30,135
Lease obligations(2) ............................................. 73,288 73,288
---------- ----------
Total long-term debt(3) .......................................... 136,423 103,423
---------- ----------
Shareholders' equity:
Class A Ordinary Shares, no par value; 103,468,878 shares
authorized, 7,447,681 issued and outstanding, actual; 18,481,542
shares issued and outstanding, as adjusted(4) .................. 113,986 287,935
Class B Ordinary Shares, no par value; 55,920,509 shares
authorized; 30,787,319 shares issued and outstanding,
actual and as adjusted ......................................... 475,566 475,566
Accumulated loss ................................................. (314,281) (314,281)
Foreign currency translation adjustment .......................... (19,933) (19,933)
---------- ----------
Total shareholders' equity ..................................... 255,338 429,287
---------- ----------
Total capitalization .......................................... $ 391,761 $ 532,710
========== ==========
</TABLE>
- ----------------
(1) Gives effect to the Thomson Conversion, the Offerings and the application
of the proceeds of the Offerings, including the expected repayment of
approximately $33 million of indebtedness that was incurred after
September 30, 1998.
(2) Lease obligations include obligations under transponder leases.
(3) For details of the Company's debt, see Note 7 to the Condensed
Consolidated Statements and Note 14 to the Consolidated Statements
included elsewhere in this Prospectus.
(4) Does not include (i) up to 1,245,000 shares that may be issued upon
exercise of over-allotment options granted to the Underwriters and (ii)
950,140 shares issuable upon exercise of employee share options at an
exercise price of $10.57 per share. As adjusted amount includes shares
issuable pursuant to the Thomson Conversion.
20
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data set forth below for the years ended March 31,
1998, 1997, 1996, 1995 and 1994 have been derived from the Consolidated
Statements for the year ended March 31, 1998 and from the Combined Statements
for the years ended March 31, 1997, 1996, 1995 and 1994. The selected financial
data set forth below for the six months ended September 30, 1998 and 1997 have
been derived from the Condensed Consolidated Statements for such periods. The
data should be read in conjunction with, and are qualified in their entirety
by, the Financial Statements included elsewhere in this Prospectus. The
Financial Statements are prepared in accordance with international accounting
standards ("IAS") and for the years ended March 31, 1998, 1997 and 1996 have
been audited by Coopers & Lybrand. The accounting policies adopted by the
Company under IAS differ in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP"). Such
differences are described in Note 29 to the Consolidated Statements and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--US GAAP Reconciliation". The Combined Statements include the
combined accounts of the Acquired MIH Businesses (as defined herein) and
eliminate all accounts among the Acquired MIH Businesses. The Combined
Statements do not eliminate amounts due from the Acquired MIH Businesses to MIH
Limited, which the Consolidated Statements do eliminate, nor do they include
purchase accounting adjustments that occurred as a result of the Canal+
Transaction (as defined).
<TABLE>
<CAPTION>
Company Consolidated(1)
---------------------------------
Six Months Ended
September 30,
---------------------------------
1998 1997
---------------- ----------------
(dollars in millions, except
per share and per subscriber data)
<S> <C> <C>
Statements of Operations Data:
Amounts in accordance with IAS:
Revenues:
Subscriptions ............................... $ 205.4 $ 202.9
Decoder sales and repair .................... 44.1 25.3
Technology and other ........................ 36.8 7.3
----------- -----------
Total revenues, net(2) .................... 286.3 235.5
Operating expenses:
Cost of providing services .................. (188.7) (147.3)
Selling, general and administrative ......... (77.9) (79.1)
Depreciation and amortization(3) ............ (25.0) (28.1)
----------- -----------
Operating loss ............................ (5.3) (18.9)
Financial results, net(4) ................... (8.8) (0.6)
Equity results in joint ventures and
associates ................................. (14.2) (4.2)
Profit on sale of joint venture ............. 31.1 --
------------ ------------
Profit/(loss) before taxation ............. 2.8 (23.7)
Loss from continuing operations ............. (0.7) (26.4)
Net loss .................................... (0.7) (30.4)
Per share amounts(5):
Loss from continuing operations ............. $ (0.02) $ (0.69)
Pro forma(6) .............................. 0.02
Net loss .................................... (0.02) (0.79)
Pro forma(6) .............................. 0.02
Dividends(7) ................................ -- --
Weighted average shares outstanding ......... 38,235,000 38,235,000
Amounts in accordance with US GAAP:
Loss from continuing operations ............. $ (5.9) $ (31.1)
Cumulative effect of a change in
accounting principle ....................... -- --
Net loss .................................... (5.9) (35.1)
Per share amounts(5):
Loss from continuing operations ............. (0.16) (0.81)
Pro forma(6) .............................. (0.11)
Net loss .................................... (0.16) (0.92)
Pro forma(6) .............................. (0.11)
<CAPTION>
Acquired MIH
Company Businesses Combined
Consolidated(1) (Predecessor)(1)
-------------- -----------------------------------------------
Year Ended March 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- ----------- ----------- ----------- -----------
(dollars in millions, except per share and per subscriber data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Amounts in accordance with IAS:
Revenues:
Subscriptions ............................... $ 404.5 $ 315.5 $ 233.3
Decoder sales and repair .................... 63.1 60.2 43.6
Technology and other ........................ 33.9 16.2 6.0
----------- -------- --------
Total revenues, net(2) .................... 501.5 391.9 282.9 $ 266.9 $ 271.9
Operating expenses:
Cost of providing services .................. (309.0) (259.4) (212.9)
Selling, general and administrative ......... (177.2) (140.4) (77.6)
Depreciation and amortization(3) ............ (58.0) (16.2) (9.8)
----------- -------- --------
Operating loss ............................ (42.7) (24.1) (17.4)
Financial results, net(4) ................... (5.5) (5.3) (0.9)
Equity results in joint ventures and
associates ................................. (7.9) 3.8 0.6
Profit on sale of joint venture ............. -- -- --
----------- -------- --------
Profit/(loss) before taxation ............. (56.1) (25.6) (17.8)
Loss from continuing operations ............. (59.9) (26.0) (21.5)
Net loss .................................... (63.8) (26.0) (21.5)
Per share amounts(5):
Loss from continuing operations ............. $ (1.57)
Pro forma(6) .............................. (1.41)
Net loss .................................... (1.67)
Pro forma(6) .............................. (1.51)
Dividends(7) ................................ 1.36
Weighted average shares outstanding ......... 38,235,000
Amounts in accordance with US GAAP:
Loss from continuing operations ............. $ (75.3) $ (26.0) $ (21.6)
Cumulative effect of a change in
accounting principle ....................... -- -- (3.9)
Net loss .................................... (79.3) (26.0) (25.4)
Per share amounts(5):
Loss from continuing operations ............. (1.97)
Pro forma(6) .............................. (1.79)
Net loss .................................... (2.07)
Pro forma(6) .............................. (1.90)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Acquired MIH
Businesses Combined
Company Consolidated(1) (Predecessor)(1)
---------------------------------- ----------------------------------------
Six Months Ended
September 30, Year Ended March 31,
-------------------- ------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ----------- ----------- ---------- ---------- --------- --------
(dollars in millions, except per share and per subscriber data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at period end):
Amounts in accordance with IAS:
Cash and cash equivalents ................... $ 87.5 -- $ 153.4 $ 53.9 $ 15.1
Total assets ................................ 700.8 -- 646.1 287.2 156.1
Total debt(8) ............................... 146.7 -- 107.6 76.8 16.1
Total liabilities ........................... 445.5 -- 392.5 337.7 188.6
Amounts in accordance with US GAAP:
Total assets ................................ $ 670.9 -- $ 621.2 $287.2 $ 156.1
Total debt(8) ............................... 146.7 -- 107.6 76.8 16.1
Total liabilities ........................... 445.5 -- 392.5 337.7 188.6
Other Data:
Operating Income Before Depreciation
and Amortization(9) ........................ $ 19.7 $ 9.1 $ 15.3 $ (7.9) $ (7.6)
Cash flow from operating activities ......... (27.0) (39.5) 5.2 68.5 6.6
Cash flow from investing activities ......... (73.6) (12.2) 170.5 (14.6) (10.7)
Cash flow from financing activities ......... 18.6 52.7 (77.0) (13.3) (1.3)
Capital expenditures ........................ (1.8) (10.2) (31.7) (17.6) (13.0)
Subscribers in thousands (at period end):
Africa
South Africa .............................. 1,086 1,025 1,054 1,008 943
Sub-Saharan Africa ........................ 127 103 109 104 73
Egypt ..................................... 22 14 18 13 9
Middle East ............................... 47 23 27 15 --
------- ------- -------- ------- -------
Total Africa ............................ 1,282 1,166 1,208 1,140 1,025
------- ------- -------- ------- -------
Mediterranean
Greece .................................... 277 217 254 203 101
Cyprus .................................... 33 30 31 26 11
------- ------- -------- ------- -------
Total Mediterranean ..................... 310 247 285 230 112
------- ------- -------- ------- -------
Asia
Thailand .................................. 289 308 313 253 130
------- ------- -------- ------- -------
Total subscribers ....................... 1,881 1,720 1,806 1,623 1,268
======= ======= ======== ======= =======
Average monthly revenue per
subscriber(10) ............................. $ 22.74 $ 24.65 $ 23.90 $ 21.10 $ 18.63
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Company Consolidated(1)
-----------------------------------------------------------------
Year ended March 31,
-----------------------------------------------------------------
1997 1996 1995 1994
-------------- -------------- -------------- --------------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Amounts in accordance with IAS:
Net profit/(loss) ........................... $ 409.2 $ (85.7) $ (52.0) $ (33.6)
Weighted average shares outstanding ......... 38,235,000 38,235,000 38,235,000 38,235,000
Profit/(loss) per share ..................... $ 10.68 $ (2.24) $ (1.36) $ (0.88)
Amounts in accordance with US GAAP:
Net Income .................................. 409.64
Income per share ............................ 10.69
Balance Sheet Data (at period end):
Amounts in accordance with IAS:
Total assets ................................ 803.1 63.7 65.4 370.1
Total debt(8) ............................... 124.0 94.5 -- --
Amounts in accordance with US GAAP:
Total assets ................................ 803.1
Total debt(8) ............................... 124.0
</TABLE>
- ----------------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Presentation of Financial Information".
(2) Prior to March 31, 1995, the revenues of the Company's predecessors were
primarily generated by its operations in Africa. The other operations did
not generate significant revenue. The business of the Company's
Africa-based predecessor was included with the operations of affiliates
prior to March 31, 1995. Therefore, only total net revenues have been
presented.
(3) The operating results of the Company for the year ended March 31, 1998 and
the six-month period ended September 30, 1998 include amortization of
$39.3 million and $20.9 million, respectively attributable to intangible
assets of $207.9 million, which were recorded as a result of the
acquisition of the Acquired MIH Businesses (as defined herein).
Amortization of film and sports rights is included in the cost of
providing services.
(4) Includes interest expense, interest income, dividend income, foreign
exchange gains and losses, and gains on disposal of investments.
(5) Per share amounts are not applicable to the results of the Acquired MIH
Businesses.
(6) Pro forma amounts are historical amounts adjusted to give effect to the
number of shares whose proceeds are expected to be used to repay $33.0
million of indebtedness and the impact on interest expense. See "Use of
Proceeds".
(7) Dividend paid to facilitate the capitalization of M-Web. The Company does
not expect to pay dividends in the near future. See "Dividend Policy".
(8) Includes bank overdrafts, current portion of long-term debt, long-term
debt (including approximately $21.3 million including accreted interest,
which was recorded in connection with the transfer of shares of
M-Net/SSIH during the six-month period ended September 30, 1998. See Note
3 to the Condensed Consolidated Statements). In fiscal 1997 and 1996,
excludes debt owed to MIH Limited included in the liabilities of the
Acquired MIH Businesses, as such amounts would be eliminated upon
consolidation.
(9) Operating Income Before Depreciation and Amortization is defined as
operating income (loss) before depreciation and amortization (other than
amortization of film and sports rights). Operating Income Before
Depreciation and Amortization is presented supplementally as the Company
believes it is the most appropriate measure for evaluating operating
performance. The Company believes Operating Income Before Depreciation
and Amortization is a standard measure commonly reported and widely used
by analysts, investors and others associated with the pay-media industry.
Operating Income Before Depreciation and Amortization eliminates the
uneven effect across reporting periods and companies of (1) depreciation
of tangible fixed assets and (2) amortization of intangible assets
acquired in business combinations accounted for by the purchase method of
accounting. While many in the financial community consider Operating
Income Before Depreciation and Amortization to be an important measure of
comparative operating performance, it should be considered in addition
to, and not as a substitute for, operating income, net income, cash flow
and other measures of financial performance prepared in accordance with
generally accepted accounting principles which are presented in the
audited financial statements included elsewhere in this Prospectus.
Additionally, the Company's calculation of Operating Income Before
Depreciation and Amortization may be different than the calculation used
by other companies and, therefore, comparability may be affected.
(10) Excludes the Company's Asia and Middle East pay-television operations
because such revenues are not consolidated with the Company's income
statements. Total subscribers from consolidated operations were 1.545
million, 1.390 million, 1.466 million, 1.355 million and 1.137 million as
of September 30, 1998 and 1997 and March 31, 1998, 1997 and 1996,
respectively.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements included elsewhere in this Prospectus.
Presentation of Financial Information
MIH Limited is a holding company that operates in the pay-media and
related technology industries through its interests in subsidiaries and joint
ventures.
Prior to March 31, 1997, MIH Limited's activities consisted almost
entirely of its 50% interest in NetHold, a pay-television joint venture. Prior
to March 1997, NetHold had investments in pay-television operations in Africa,
Cyprus, Greece, Italy, Belgium, the Netherlands, Scandinavia and the Middle
East. NetHold also owned Irdeto, a pay-television technology company. In March
1997, the Company sold its interest in NetHold to Canal+ in exchange for a 5%
equity interest in Canal+, all of NetHold's pay-television businesses in
Africa, Cyprus, Greece and the Middle East (the "Canal+ Transaction") and 49%
of Irdeto. In subsequent transactions, the Company acquired all of the
ownership interest of Irdeto. The pay-television businesses in Africa, Cyprus,
Greece and the Middle East, along with 49% of Irdeto, are collectively referred
to as the "Acquired MIH Businesses." As a result of these factors, for the
years ended March 31, 1997 and 1996, MIH Limited's financial information
consists almost entirely of its investment in NetHold, which owned, in addition
to the Acquired MIH Businesses, a substantial number of other businesses.
Accordingly, the Company's historical financial information after March 31,
1997 is not comparable to its financial information prior to that date.
Accordingly, two sets of financial statements are included herein. The
Consolidated Statements present on a consolidated basis the financial position
and results of operations of MIH Limited and its subsidiaries, including the
results of joint ventures and associates accounted for under the equity method.
In addition, the Combined Statements present the financial position and results
of operations of the Acquired MIH Businesses on a combined basis. The Company
believes that the Acquired MIH Businesses are effectively the predecessor of
the Company prior to March 31, 1997. This is because the Acquired MIH
Businesses include nearly all of the businesses currently operated by the
Company, and do not include businesses that have been discontinued or sold.
Because of this, the Company believes that a period to period comparison of the
Acquired MIH Businesses will be more meaningful to potential investors and will
more accurately reflect the Company's business trends. Therefore, the
discussion in this section compares the Consolidated Statements for the year
ended March 31, 1998 and the Combined Statements for the year ended March 31,
1997 and 1996.
The comparability of the Consolidated Statements for the year ended March
31, 1998 with the Acquired MIH Businesses is affected by the intangible assets
recognized upon the acquisition of the Acquired MIH Businesses and the
amortization thereof. Further, during fiscal 1998, the Company acquired 100% of
Irdeto and began consolidating results which were equity accounted in the
Combined Statements.
Both the Consolidated Statements and Combined Statements have been
prepared in accordance with IAS, which differs in certain significant respects
from US GAAP. See "--US GAAP Reconciliation" and Note 29 and Note 24 to the
Consolidated Statements and Combined Statements, respectively, for a
description of the principal differences between IAS and US GAAP as they relate
to the Company and the Acquired MIH Businesses.
Overview of Operations
The Company is a multinational provider of pay-television services and the
technology employed in the provision of such services. As of September 30,
1998, the Company provided pay-television and related services to over 1.8
million households, and operated its businesses in over 45 countries around the
world. The current holdings of MIH Limited consist of:
o Pay-television operations in Africa, the Mediterranean and Asia.
o Pay-media technology businesses, based in The Netherlands and the United
States, that collectively compose the Company's Mindport division.
o Ownership of 19.8% of M-Net Ltd. and SSIH.
In Africa, MultiChoice Africa provides a range of subscriber management
services to pay-television households in over 35 countries on the African
continent and adjacent islands, principally in South Africa.
24
<PAGE>
MultiChoice Africa also has direct investments with fully-staffed offices for
pay-television services in Lesotho, Namibia, Botswana, Zambia, Nigeria, Ghana,
Uganda, Kenya and Tanzania. In the Mediterranean, NetMed operates analog
platforms in Greece and Cyprus. In Asia, the Company owns 27.8% (26.1% as of
September 30, 1998 and 17.3% as of March 31, 1998) of UBC, the only major
pay-television provider in Thailand. In the Middle East, the Company performs
subscriber management operations for the two digital platforms in the Middle
East and, through MultiChoice Egypt, services the Egyptian subscriber base for
both digital and analog platforms.
The Company's Mindport technology division consists of Irdeto and its
subsidiaries, which develop and market conditional access, subscriber
management systems and other pay-television technologies. Mindport also
consists of an 80.1% interest in the outstanding stock of OpenTV (44.5% as of
September 30, 1998 and earlier), which develops and provides operating systems
for interactive television.
The Company's operating results are affected by a number of items,
including the number of households subscribing to its pay-television service,
the average revenue per subscriber, churn rates, seasonality and foreign
exchange rates. Foreign exchange rates can have a significant effect on the
Company's reported earnings as the Company generates revenues predominantly in
the local currencies of the countries in which it operates, whereas a
substantial portion of the Company's expenses are incurred in U.S. dollars.
Revenues. The Company's primary source of revenue is subscriber fees. The
Company also generates revenue from the sale, rental and maintenance of
decoders, and other income. As a result of the subsequent acquisition of the
remaining interest in Irdeto and its interest in OpenTV, the Company began in
January 1998 to consolidate the revenue it generated from technology licenses.
Cost of Providing Services. These include programming, subscriber
management, decoder purchase, transmission and development costs. Programming
costs include the cost for third-party programs and the production cost of
programs produced by the Company, as well as the amortization of programming
rights for sporting events and movies. Subscriber management costs include the
direct costs of service and maintenance of equipment installed at subscribers'
homes and the cost of customer service. Decoder costs include the purchase of
decoders by the Company for use, lease or resale. Transmission costs consist of
transmission and uplinking and backhauling charges paid by the Company to
various satellite vendors under operating lease agreements. Development costs
include the costs of research necessary to enhance the Company's existing
technology products and develop new technologies.
Selling, General and Administrative Expenses. These costs include overhead
costs from the various departments such as marketing, public relations,
subscriber sales, warehousing, information systems, finance and accounting,
accounts receivable and the human resources department.
Depreciation and Amortization. These costs include charges relating to the
amortization of intangible assets arising from acquisitions and the
depreciation of the Company's tangible fixed assets, including transponders,
decoders and assets under capital lease.
Recent Developments
Additional Investments in OpenTV and UBC
In March 1999, the Company purchased all of Thomson's interest in OpenTV
in exchange for a convertible note of approximately $46.2 million. The note
will convert simultaneously with the Offerings into Class A Ordinary Shares at
the price such shares are sold to the public in the Offerings. The Company has
agreed to sell to a subsidiary of Sun Microsystems a portion of the OpenTV
interest purchased from Thomson for approximately $9.2 million in cash. The
sale to this Sun Microsystems subsidiary is expected to occur immediately after
the Offerings, subject to regulatory approval. After giving effect to such
sale, the Company owns 80.1% of the outstanding common stock of OpenTV.
In February 1999, the Company acquired an additional 1.7% interest in UBC
for $4.5 million in cash. In August 1999, the Company intends to exercise an
option to purchase an additional 3.3% of UBC for $8.9 million in cash.
Recent Results
The Company expects that revenues in the second half of fiscal year 1999
should be in line with revenues in the first half of fiscal year 1999. However,
the Company expects the operating loss in the second half of fiscal year 1999
to be greater than the operating loss in the first half of fiscal year 1999,
primarily due to the full period
25
<PAGE>
effect of the amortization of the Greek basketball programming rights,
additional amortization of lease payments for increased transponder capacity
and adverse net currency movements. Some of the factors adversely affecting the
Company's second half results are expected to continue into fiscal year 2000.
Results of Operations
The Company's results of operations are summarized in the following
tables:
<TABLE>
<CAPTION>
Consolidated Combined
--------------------------------------- -------------------------
Six months ended
September 30, Year Ended March 31,
------------------------- ---------------------------------------
1998 1997 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C>
Subscription revenues ....................... $ 205.4 $ 202.9 $ 404.5 $ 315.5 $ 233.3
Decoder sales and repairs ................... 44.1 25.3 63.1 60.2 43.6
Technology and other ........................ 36.8 7.3 33.9 16.3 6.0
-------- -------- -------- -------- --------
Net revenues ............................... 286.3 235.5 501.5 391.9 282.9
-------- -------- -------- -------- --------
Cost of providing services .................. (188.7) (147.3) (309.0) (259.4) (212.9)
Selling, general and administrative expenses. ( 77.9) ( 79.1) (177.2) (140.4) ( 77.6)
Depreciation and amortization ............... ( 25.0) ( 28.1) ( 58.0) ( 16.2) ( 9.8)
-------- -------- -------- -------- --------
Total operating expenses ................... (291.6) (257.2) (544.2) (416.0) (300.3)
Operating loss ............................. ( 5.3) ( 18.9) ( 42.7) ( 24.1) ( 17.4)
Financial results, net ...................... ( 8.8) ( 0.6) ( 5.5) ( 5.3) ( 0.9)
Equity results in joint ventures ............ ( 13.7) ( 2.9) ( 5.1) 1.1 ( 1.8)
Equity results in associates ................ ( 0.5) ( 1.3) ( 2.8) 2.6 2.4
Profit on sale of joint venture ............. 31.1 -- -- -- --
-------- -------- -------- -------- --------
Profit/(loss) before taxation .............. 2.8 ( 23.7) ( 56.1) ( 25.6) ( 17.8)
Income taxation ............................. ( 3.6) ( 3.6) ( 7.6) ( 1.2) ( 3.9)
-------- -------- -------- -------- --------
Loss after taxation ........................ ( 0.7) ( 27.3) ( 63.7) ( 26.8) ( 21.6)
Minority interest ........................... -- 0.8 3.8 0.7 0.1
-------- -------- -------- -------- --------
Loss from continuing operations ............ ( 0.7) ( 26.4) ( 59.9) ( 26.0) ( 21.5)
Loss from discontinued operations .......... -- ( 3.9) ( 3.9) -- --
-------- -------- -------- -------- --------
Loss for the period ....................... $ (0.7) $ (30.4) $ (63.8) $ (26.0) $ (21.5)
======== ======== ======== ======== ========
</TABLE>
Six-months ended September 30, 1998 (Consolidated Statements) compared to the
six-months ended September 30, 1997 (Consolidated Statements)
Revenues
Subscription revenues increased by $2.5 million, or 1.2%, to $205.4
million during the period ended September 30, 1998 from $202.9 million in the
same period in 1997, mainly as a result of an increase in the number of
subscribers as reflected in the table below:
<TABLE>
<CAPTION>
Number of
Subscribers(1)
September 30,
-------------------
1998 1997
-------- --------
(thousands)
<S> <C> <C>
Digital ................. 299 156
Analog .................. 1,246 1,233
----- -----
Total .................. 1,545 1,390
===== =====
</TABLE>
- ----------------
(1) Excludes non-consolidated joint ventures and associates.
Total subscribers increased by 155,454, or by 11.2%, from 1,389,500 at
September 30, 1997 to 1,544,954 at September 30, 1998. In Africa, the number of
digital subscribers increased by 143,147 and analog subscribers
26
<PAGE>
decreased by 51,188. The reduction in African analog subscribers resulted
primarily from the Company's campaign to convert analog customers to digital
service. The Company's subscribers in Greece and Cyprus, where the Company
currently provides only analog service, increased by 25.8%, from 246,535 at
September 30, 1997 to 310,030 at September 30, 1998. The net increase in
overall analog subscribers is 12,307.
Average subscription revenue per subscriber per month decreased by $1.91,
or 7.7%, to $22.74 for the period ended September 30, 1998 from $24.65 for the
same period in 1997. The decrease was primarily attributable to the effects of
the devaluation of local currencies against the U.S. dollar partially offset by
increases in monthly subscriber fees in local currencies (primarily rand and
drachma) by 10%-20% and a shift from analog service to higher-priced digital
service.
Decoder sales and repairs increased $18.8 million, or 74.3%, to $44.1
million during the period ended September 30, 1998 from $25.3 million during
the same period in 1997. This increase is attributable to the increase in
digital subscribers and the Company's increased activity in selling digital
decoders directly to subscribers. During the same period in 1997, digital
decoders were sold through independent retail outlets. This trend is partly
offset by the decrease of the sales price per decoder, as the Company passed on
the savings in the price it pays for decoders to its customers.
Technology and other revenue increased $29.5 million, or 404.1%, to $36.8
million during the period ended September 30, 1998 from $7.3 million in the
same period in 1997, primarily as a result of the consolidation of Irdeto for
the full six month period ended September 30, 1998. During the period ended
September 30, 1997, Irdeto was accounted for under the equity method.
Operating expenses
Costs of providing services increased by $41.4 million, or 28.1%, to
$188.7 million during the period ended September 30, 1998 from $147.3 million
in the same period in 1997. This increase is primarily attributable to the
inclusion of costs associated with the consolidation of Irdeto, effective
January 1998, and the increase in the amortization of sports and programming
rights in NetMed as compared to the same period in 1997.
Depreciation and amortization decreased $3.1 million, or 11.0%, to $25.0
million during the period ended September 30, 1998, from $28.1 million in the
same period in 1997. The decrease is primarily attributable to the transfer of
assets from the Company to Orbicom. Subsequent to September 30, 1998, these
assets were transferred back to the Company.
Operating profit/(loss)
Operating loss decreased by $13.6 million, or 72.0% to $5.3 million during
the period ended September 30, 1998 from a loss of $18.9 million for the same
period in 1997 as a result of the combined effect of the foregoing factors.
Finance results, net
The net financial results decreased by $8.2 million from a net financial
loss of $0.6 million during the period ended September 30, 1997 to a net
financial loss of $8.8 million during the same period in 1998. The change in
the net financial result was affected by a profit of $2.4 million on the
disposal of the Company's interest in Canal+ during the period ended September
30, 1997 and: (i) an increase in interest paid of $3.3 million, or 76.7%, to
$7.6 million during the period ended September 30, 1998, from $4.3 million
during the same period in 1997, as a result of the increase in long term debt,
(ii) a decrease in dividends received of $2.8 million, or 87.5%, to $0.4
million during the period ended September 30, 1998 from $3.2 million during the
same period in 1997, which mainly related to the dividend received from Canal+,
(iii) a decrease of exchange losses of $1.0 million, or 22.2%, to $3.5 million
during the period ended September 30, 1998 from $4.5 million during the same
period in 1997, (iv) interest accretion of $0.9 million attributable to the
liability recorded in connection with the transfer of M-Net/SSIH shares in
April 1998, net of amortization of the related option premium and (v) an
increase of interest received of $0.8 million, or 29.6%, to $3.3 million during
the period ended September 30, 1998 from $2.5 million during the same period in
1997.
Equity results in joint ventures
The Company's share in the loss of its investment in joint ventures
increased by $10.7 million, or 365.4%, to $13.7 million during the period ended
September 30, 1998, from $2.9 million in the same period in 1997. The reason
for the increase is primarily attributable to the Company's share of $11.4
million, including goodwill amortization allocation of $3.3 million, in the
losses of UBC, which was previously accounted for using the cost method; and a
$3.0 million share, including goodwill amortization allocation of $1.2 million,
in the losses of OpenTV, which was acquired during
27
<PAGE>
January 1998. Since January 1998, Irdeto and its subsidiaries have been
consolidated in MIH's results of operations and not included in equity result
in joint ventures. The equity loss relating to Irdeto for the period ended
September 30, 1997 was $2.9 million, including goodwill amortization allocation
of $1.4 million.
Equity results in associates
The Company's equity results in associates (mainly a 19.8% interest in
M-Net/SSIH) was a loss of $0.5 million after goodwill amortization allocation
of $0.7 million for the period ended September 30, 1998. As described in Note 3
to the Condensed Consolidated Statements, the Company transferred a 9.9%
interest in M-Net/SIHH to a trust, but continues to equity account for 19.8% of
M-Net/SIHH. For the same period in 1997, the Company's equity result in
associates was a loss of $1.3 million after goodwill amortization allocation of
$1.0 million. The Company accounts for its investment in M-Net using the equity
method of accounting because of the significant influence the Company exercises
over M-Net as a result of common ownership, the Company's management and
directors' representation on the Board of Directors of M-Net and the fact that
substantially all of M-Net's revenues are derived from the Company.
Profit on sale of joint venture
The profit on sale of joint venture resulted from the release of
provisions relating to the sale of the NetHold joint venture to Canal+. At
March 31, 1997 the Company deferred recognition of approximately $73.3 million
of this gain, relating to liability for warranties of decoder technology,
guarantees of the number of subscribers and the potential reimbursement of
programming costs. During the six month period ended September 30, 1998, $31.1
million of these provisions were released, as they were no longer required
following the expiry of the these warranties and guarantees on June 30, 1998.
Taxation expense
The taxation expense did not fluctuate significantly for the period ended
September 30, 1998 compared with the same period in 1997. The taxation charge
mostly reflects the charge for foreign taxes payable. No significant amount of
tax is payable by the Company due to losses incurred and accumulated tax losses
available in various companies.
Net loss for the period
As a result of the foregoing factors, the Company realized a net loss of
$0.7 million during the period ended September 30, 1998 compared to a net loss
of $30.4 million for the same period in 1997.
Year ended March 31, 1998 (Consolidated Statements) compared to
the year ended March 31, 1997 (Combined Statements)
Revenues
Subscription revenues increased $89.0 million, or 28.2%, to $404.5 million
during the year ended March 31, 1998 from $315.5 million in the same period in
1997, mainly as a result of an increase in the number of subscribers in MIH
Limited's consolidated subsidiaries, as reflected in the table below:
<TABLE>
<CAPTION>
Number of
Subscribers(1)
Mar. 31,
-------------------
1998 1997
-------- --------
(thousands)
<S> <C> <C>
Digital ................. 212 105
Analog .................. 1,254 1,250
----- -----
Total .................. 1,466 1,355
===== =====
</TABLE>
- ----------------
(1) Excludes non-consolidated joint ventures and associates.
Total subscribers increased by 111,070, or 8.2%, from 1,354,713 at March
31, 1997 to 1,465,783 at March 31, 1998. In Africa, the number of digital
subscribers increased by 107,136 and the number of analog subscribers decreased
by 51,527. The reduction in African analog subscribers resulted primarily from
the Company's campaign to convert analog customers to digital service, a trend
that the Company expects to continue. The Company estimates that in South
Africa 60% of analog subscribers that discontinue service do so as a result of
conversion to digital service. The Company's
28
<PAGE>
subscribers in Greece and Cyprus, where the Company currently provides only
analog service, increased by 24.2%, from 229,594 to 285,055. This resulted in a
net increase of 3,934 in overall analog subscribers.
Average revenue per subscriber per month increased by $2.80, or 13.3%, to
$23.90 for the year ended March 31, 1998 from $21.10 for the year ended March
31, 1997. The increase was attributable to the shift in subscribers in Africa
from analog service to the higher-priced digital service, increases in monthly
subscriber fees in local currencies (primarily rand and drachma) by
approximately 18% and 11% for the analog and digital service, respectively,
offset by the effects of devaluation of local currencies against the U.S.
dollar.
Decoder sales and repairs increased $2.9 million, or 4.8%, to $63.1
million during the year ended March 31, 1998 from $60.2 million in the same
period in 1997. During the fiscal year ended March 31, 1998 the retail price of
decoders decreased consistent with the reduction in manufacturing cost of
decoders. The Company passed on the savings in the price it pays for decoders
to its customers. The revenue per decoder has therefore decreased, resulting in
a slower rate of growth in decoder revenues relative to the growth in the
number of subscribers. This trend is partly offset by a shift of subscribers
from analog to digital decoders, which are more expensive.
Technology and other revenue increased $17.7 million, or 108.8%, to $33.9
million during the year ended March 31, 1998 from $16.2 million in the same
period in 1997. Of this increase, $11.5 million related to the consolidation of
Irdeto for the three months beginning in January 1998. Prior to that time,
Irdeto was accounted for under the equity method.
Operating expenses
Costs of providing services increased by $49.6 million, or 19.1%, to
$309.0 million during the year ended March 31, 1998 from $259.4 million in the
same period in 1997. The increase in the cost of providing services is
primarily attributable to: (i) the inclusion of costs associated with Irdeto
effective January 1998, (ii) the amortization of sports rights which were
acquired by NetMed for the first time in fiscal 1998, (iii) increased charges
for additional satellite capacity and (iv) net increased programming costs
associated with the increased number of digital subscribers.
Selling, general and administrative ("SG&A") costs increased by $36.8
million, or 26.2%, to $177.2 million during the year ended March 31, 1998 from
$140.4 million in the same period in 1997, primarily as a result of (i)
consolidation of the SG&A of Irdeto beginning in January 1998, which was $5.8
million, (ii) an increase in staff and communication costs primarily due to the
expansion of call centers required to match the increased number and length of
calls arising from the growth in the digital subscriber base, (iii) an expanded
advertising campaign and (iv) costs associated with the establishment of group
corporate functions.
Depreciation and amortization increased $41.8 million, or 258.3%, to $58.0
million during the year ended March 31, 1998 from $16.2 million in the same
period in 1997. Depreciation and amortization for the fiscal year ended March
31, 1998 included amortization of $37.0 million relating to intangible assets
recorded on March 31, 1997 in connection with the Canal+ Transaction. The
remaining increase in depreciation and amortization was attributable to the
increase in depreciation of various tangible assets and capital leases for
transponders.
Operating loss
Operating loss increased by $18.6 million, or 77.1%, to $42.7 million
during the year ended March 31, 1998 from $24.1 million for the same period in
1997 as a result of the combined effect of the foregoing factors.
Financial results, net
Financial results decreased by $0.2 million, or 4.2%, to a net financial
loss of $5.5 million during the year ended March 31, 1998 from a net financial
loss of $5.3 million in the corresponding period of 1997. Dividend income of
$3.2 million and gain on disposal of investments of $2.6 million (representing
the sale of the Company's interest in Canal+) were recorded in 1998, with no
corresponding amounts recorded in 1997. Interest income increased $3.9 million,
or 97.2%, to $7.9 million from $4.0 million in the corresponding period of
1997, primarily as a result of increased cash balances produced from the
disposal of Canal+ shares. Interest expense increased $5.4 million, or 69.2%,
to $13.2 million from $7.8 million in the corresponding period of 1997. The
main reason for the change is the capitalization of the satellite leases and
the corresponding interest charge. Exchange losses increased by $4.6 million,
or 305.4%, to $6.0 million from $1.5 million in the corresponding period of
1997.
Equity result in joint ventures
The Company's equity result in joint ventures was a loss of $5.1 million
(consisting of OpenTV ($2.9 million)) and, for the nine months ended December
31, 1997, Irdeto ($2.2 million)) net of a goodwill allocation of $0.8 million
29
<PAGE>
during the year ended March 31, 1998. In fiscal 1997, the Acquired MIH
Businesses had net income from joint ventures of $1.1 million. Since January
1998, Irdeto and its subsidiaries have been consolidated in MIH Limited's
results of operations and not included in equity result in joint ventures.
Equity result in associated companies
Equity result in associates decreased by $5.4 million, or 205.3%, to $2.8
million loss during the year ended March 31, 1998 from $2.6 million gain in the
corresponding period of 1997. Equity result in associates for the year ended
March 31, 1998 is net of a goodwill allocation of $3.8 million in fiscal 1998,
attributable to the Company's 19.9% interest in M-Net Ltd. and SSIH. The
Company accounts for its investment in M-Net using the equity method of
accounting because of the significant influence the Company exercises over
M-Net as a result of common ownership, the Company's management and directors'
representation on the Board of Directors of M-Net and the fact that
substantially all of M-Net's revenues are derived from the Company.
Taxation expense
Taxation expense increased to $7.6 million during the year ended March 31,
1998 from $1.2 million in the corresponding period of 1997. The taxation charge
reflects mainly the charge for foreign taxes payable. No significant amount of
taxes is payable by the Company, due to losses incurred in the various
companies to date. Taxes provided mainly relate to minimum statutory
requirements and changes resulting from new tax legislation introduced during
fiscal 1998. The deferred taxes are as a result of timing differences between
the values for financial reporting and fiscal purposes under the liability
method.
Minority interest
Minority interest increased by $3.1 million, or 414.0%, to $3.8 million
during the year ended March 31, 1998 from $0.7 million in the corresponding
period of 1997. The minority interest primarily relates to NetMed Hellas and
MultiChoice Hellas for the losses incurred in these operations. The provision
for minority interest was limited to the capital infusion from the minority
parties. The Company has recorded cumulative losses attributable to minority
interest shareholders of $8.4 million through March 31, 1998.
Net loss
As a result of the foregoing factors the Company realized a net loss of
$63.8 million during the year ended March 31, 1998 compared to a net loss of
$26.0 million for the comparable period in 1997.
Year ended March 31, 1997 (Combined Statements) compared to the year ended
March 31, 1996 (Combined Statements)
Revenues
Subscription revenues increased $82.2, or 35.2%, to $315.5 million during
the year ended March 31, 1997 from $233.3 million in the same period in 1996,
mainly as a result of an increase in the number of subscribers as reflected in
the table below:
<TABLE>
<CAPTION>
Number of
Subscribers(1)
Mar. 31,
-------------------
1997 1996
-------- --------
(thousands)
<S> <C> <C>
Digital ................. 105 22
Analog .................. 1,250 1,115
----- -----
Total .................. 1,355 1,137
===== =====
</TABLE>
- ----------------
(1) Excludes non-consolidated joint ventures and associates.
Total subscribers increased by 217,552, or 19.1%, from 1,137,161 at March
31, 1996 to 1,354,713 at March 31, 1997. The number of digital subscribers
increased by 82,068 in Africa, while the aggregate number of analog subscribers
increased by 17,824 for a total increase of 99,892 subscribers in Africa. The
relatively low net increase in analog
30
<PAGE>
subscribers resulted partially from the Company's campaign to convert analog
customers to digital service, a trend that the Company expects to continue. The
Company estimates that 60% of analog subscribers that discontinue service do so
as a result of conversion to digital service. The Company's subscribers in
Greece and Cyprus, where the Company provided only analog service, increased by
117,660, or 105.1%, from 111,934 to 229,594.
Average revenue per subscriber per month increased by $2.47, or 13.3%, to
$21.10 for the year ended March 31, 1997 as compared to $18.63 for the year
ended March 31, 1996. The increase was attributable to the shift in subscribers
in Africa from analog service to higher priced digital service and increases in
monthly subscriber fees in local currencies (primarily rand and drachma) by
approximately 11%-18%, offset by the effects of devaluation of local currencies
against the U.S. dollar.
Sales from decoders increased $16.5 million, or 37.9%, to $60.2 million
during the year ended March 31, 1997 from $43.7 million in the same period in
1996. The increase in sales correlated to the increase in the number of
subscribers, as well as the change in subscriber composition between analog and
digital services.
Other revenue increased $10.3 million, or 174.7%, to $16.2 million during
the year ended March 31, 1997 from $5.9 million in the same period in 1996. The
increase related mainly to advertising revenues, which increased from $3.0
million to $8.0 million.
Operating expenses
Costs of providing services increased by $46.5 million, or 21.8%, to
$259.4 million during the year ended March 31, 1997 from $212.9 million in the
same period in 1996. The costs consisted primarily of programming and
transmission costs which are computed based on number of subscribers. Satellite
costs incurred in Africa related to a full year as compared to six-months in
the previous year. Additional costs in respect of the roll out of the digital
service during February 1996 in Africa were incurred during fiscal 1997.
Selling, general and administrative costs increased $62.9 million, or
81.1%, to $140.4 million during the year ended March 31, 1997 from $77.6
million in the same period in 1996. The staff complement increased dramatically
during the 1997 fiscal year in order to facilitate the increased numbers of
subscribers and channels and enhanced customer service facilities.
Depreciation and amortization increased $6.4 million, or 64.9%, to $16.2
million during the year ended March 31, 1997 from $9.8 million in the same
period in 1996. Certain satellite transponder leases were capitalized during
the 1997 fiscal year, resulting in a significant increase in depreciation in
the 1997 fiscal year.
Operating loss
Operating loss increased $6.7 million, or 38.7%, to $24.1 million during
the year ended March 31, 1997 from $17.4 million in the same period in 1996 as
a result of the combined effect of the foregoing factors.
Financial results, net
Financial expense increased $4.4 million, or 468.8%, to $5.3 million
during the year ended March 31, 1997 from $0.9 million in the corresponding
period of 1996. Interest income increased $1.7 million, or 74.1%, to $4.0
million from $2.3 million in the corresponding period of 1996. Interest expense
increased $4.6 million, or 143.1%, to $7.8 million from $3.2 million in the
corresponding period of 1996. The main reason for the change is the
capitalization of the satellite leases and the corresponding interest charge.
During the 1997 fiscal period, the NetHold Finance VOF loan, originated in
connection with the acquisition of the Acquired MIH Businesses, accounted for
additional interest. Exchange losses were $1.5 million in 1997.
Equity results in joint ventures
Equity results in joint ventures increased to a profit of $1.1 million
during the year ended March 31, 1997 from a loss of $1.8 million in the
corresponding period of 1996. The increase was primarily the result of the
increased earnings from MultiChoice Supplies (Proprietary) Limited, offset in
part by losses incurred by the Middle East joint ventures.
Equity results in associates
Equity results in associates (mainly a 20.0% interest in M-Net Ltd. and
SSIH) increased to $2.6 million during the year ended March 31, 1997 from $2.4
million in the corresponding period of 1996.
31
<PAGE>
Taxation expense
Taxation expense decreased by $2.7 million, or 70.2%, to $1.2 million
during the year ended March 31, 1997 from $3.9 million in the corresponding
period of 1996. The taxation charge relates to the certain required minimum
statutory charges from the business units.
Minority interest
Minority interest increased by $0.6 million, or 547.4%, to $0.7 million
during the year ended March 31, 1997 from $0.1 million in the corresponding
period of 1996. The increase in minority interest is limited to actual capital
infusions.
Net loss
As a result of the foregoing factors the Company realized a net loss of
$26.0 million during the year ended March 31, 1997 compared to a net loss of
$21.5 million for the comparable period in 1996.
Liquidity and Capital Resources
The Company's business and growth strategy has required and will continue
to require substantial capital for acquisitions, expansion of services, the
financing of operating losses and working capital. For example, the Company is
incurring operating expenses in connection with the launch of digital service
in Greece and Cyprus, and the revenue from such service is not expected to
fully offset those expenses in the near future.
During the years ended March 31, 1997 and 1996, the Company had no
significant cash flows as its activities consisted almost entirely of its
investment in NetHold. During the period from April 1997 through October 1997,
the Company sold its shares in Canal+, which it had obtained in connection with
the Canal+ Transaction, for net proceeds of $261.5 million and invested a
portion of the proceeds in pay-television and technology businesses.
The Acquired MIH Businesses have historically obtained cash flow from
operations, capital infusions by equity holders, proceeds from the sale of
investments and seller financings.
The Company expects to meet its capital needs for the foreseeable future
with the proceeds of the Offerings, cash on hand and existing loan facilities.
During the fiscal year ended March 31, 1998, the Company acquired an
additional 51% in Irdeto for $11 million, such price having been predetermined
as part of a call option granted at the time of the Canal+ Transaction, and
invested $17.7 million in UBC. The Company also made an initial investment in
OpenTV of $9.1 million. During the six months ended September 30, 1998 the
Company made additional contributions to OpenTV of $6.4 million and increased
its ownership interest in UBC to 26.1% by acquiring additional shares for $62.2
million. Since September 30, 1998, the Company has made additional investments
in each of these businesses. See "--Recent Developments".
The Company intends to make investments in and acquisitions of businesses
operating in the pay-television, Internet services, interactive television
services and pay-media technology industries. The Company's general approach
has been to make investments that are expected to be sufficient to meet cash
needs until the operation can, within a predictable period of time, become
self-funding. MIH Limited's South African subsidiaries are subject to
significant restrictions on the ability to remit funds outside of South Africa.
While such restrictions have been liberalized in recent years, a South African
company's ability to raise and deploy capital outside of South Africa remains
subject to significant restrictions. See "Risk Factors--South African Exchange
Control". The Company anticipates funding future acquisitions and investments
through issuances of debt or equity and available cash resources.
During the fiscal year ended March 31, 1998, MIH Limited paid a special
dividend of $51.8 million. MIH Holdings used its pro rata portion of the
dividend to capitalize M-Web. Following this capitalization, M-Web purchased
the Company's South African Internet businesses for $20.5 million. No dividends
were declared in 1996 and 1997.
On April 4, 1998 the Company transferred 28 million of its shares in
M-Net/SSIH to a trust for a total consideration of $22.2 million in cash as
described in Note 3 to the Condensed Consolidated Statements. Consideration of
$20.0 million was financed with bank borrowings by the purchaser and under
certain circumstances on April 14, 2001, the Company could be required to
assume the obligations and reacquire the ownership of the
32
<PAGE>
shares. Accordingly the transaction has been accounted for as a financing
transaction. The borrowings bear interest at 12.55% and mature on April 14,
2001. The Company retains rights to the dividends on the M-Net/SSIH shares.
At September 30, 1998 and March 31, 1998, the Company had cash balances of
$87.5 million and $153.4 million, respectively, available unused overdraft
borrowing facilities of $29.7 million and $43.7 million, respectively, and
available unused decoder rental funding facilities of $5.4 million and $10.3
million, respectively.
Commitments and capital expenditures
The Company has lease commitments of $47.9 million, $46.6 million, and
$44.3 million in each of the years ended March 31, 1999, 2000 and 2001,
respectively, for land and buildings, machinery, furniture and equipment and
transponders and transmitters. The Company does not expect to make significant
additional capital expenditures.
Program and Film Rights
Program and film rights increased from $31.0 million at March 31, 1998 to
$96.4 million at September 30, 1998 primarily as a result of the soccer and
basketball contracts in Greece. Program and film rights are non-interest
bearing liabilities and, at September 30, 1998, amounts due in future fiscal
years were $10.0 million in 1999, $15.9 million in 2000 and $5.1 million
thereafter.
Debt
At September 30, 1998, long-term debt of $136.4 million consisted
primarily of capital lease obligations ($73.3 million) and loans ($63.1
million). Capital lease obligations increased by $6.1 million during the six
months ended September 30, 1998 primarily as a result of additional transponder
leases obtained for coverage in the Mediterranean region. The capital leases
bear interest at rates ranging from 6.0% to 21.0%. Loans increased by $19.2
million as a result of additional funds drawn from facilities and a $20 million
liability recorded as a result of the transfer of 28 million M-Net/SSIH shares
as described above. Long-term debt at March 31, 1998 of $91.2 million consisted
primarily of capital lease obligations ($67.2 million) and loans ($24.0
million). Capital lease obligations increased by $18.3 million during the year
ended March 31, 1998, primarily as a result of additional transponder leases
obtained for coverage in the Mediterranean region. Included in loans is a
Netherlands guilder denominated loan the equivalent of $24.0 million bearing
interest at 2.0% above the Amsterdam Interbank Offering Rate and maturing on
October 5, 1998.
In connection with the Canal+ Transaction, the Company deferred
recognition of approximately $73.3 million of the associated gain representing
an estimated probable liability for warranties relating to decoder technology,
guarantees of numbers of subscribers and reimbursement of programming costs
which were expected to be incurred by Canal+. The gain deferral relating to the
guaranteed number of subscribers was calculated based on an estimate of the
shortfall in the number of subscribers at the date of the transaction. The
Company was aware that a defect in the technology included in certain set top
boxes would prevent the boxes from providing certain services and were likely
to cause the Company to have to replace them. The provision was calculated as
the amount of the replacement cost of decoder boxes to be replaced under the
warranty. The Company also believed that the costs to Canal+ of renegotiated
programming contracts were likely to exceed costs of contracts in force at the
sale date. The amount provided was the Company's best estimate of this
exposure, based on its experience with renegotiating similar contracts. During
the year ended March 31, 1998, the Company paid approximately $38.0 million for
guarantees of number of subscribers. At March 31, 1998 approximately $31.8
million of such provisions remained and were included in current liabilities.
The Company continued to believe that payment of the amount provided was
probable as the circumstances concerning the warranties had not changed and
discussions with Canal+ indicated a substantial likelihood that it would pursue
all claims available. No further claims were made prior to their expiry on June
30, 1998 and the remaining provision was reversed.
In October 1998, the Company established a $40 million revolving demand
facility with ABSA Bank Limited that bears interest at a rate of LIBOR + 2%.
The Company expects to have drawn approximately $33 million under this facility
on the date of the Offerings. In February 1999, the Company established a $50
million loan from MeesPierson N.V. The loan bears interest at a rate of LIBOR +
0.9% and is repayable upon the earlier of February 12, 2000 and the completion
of the Offerings. The Company expects to have drawn down approximately $10
million under this loan on the date of the Offerings. The ABSA facility is
secured by a pledge of the shares of UBC that are owned by the Company, and the
MeesPierson loan is secured by a pledge of the shares of substantially all the
subsidiaries of the Company. The Company intends to use a portion of the
proceeds of the Offerings to repay the outstanding balance on the loans, at
which time the pledged shares will be released.
33
<PAGE>
Foreign Currency Management
The Company's functional currencies are generally the local currencies of
the countries in which the Company operates. All transactions in currencies
other than the given functional currency are recorded at the rate of exchange
of the transaction or, if hedged forward, at the rate of exchange under the
related forward exchange contract. Any resulting exchange differences are
included in current results. The cumulative translation effects of translating
the financial statements of operations using functional currencies other than
U.S. dollar to the reporting currency are included in foreign currency
translation adjustment in shareholders' equity (net deficit) and are only
included in net earnings upon sale or liquidation of the underlying
investments.
A number of the Issuer's subsidiaries use foreign currency forward
exchange contracts, which typically expire within one year, to hedge a
substantial portion of their currency risks arising from payments of foreign
currencies related to the purchase of goods and services in currencies other
than their functional currency. Realized gains and losses on these contracts
are recognized in the same period as the hedged transactions are included in
earnings. The Issuer and its subsidiaries had foreign exchange forward
contracts on hand at March 31, 1998, hedging South African rand, Greek drachma
and Thai baht against the U.S. dollar and the British pound sterling. The
Company does not currently hold or issue derivative financial or interest rate
instruments for trading purposes, but intends to continue to use forward
exchange contracts to limit its exposure to expected depreciation of some of
its functional currencies relative to foreign currencies in which it incurs a
significant portion of its cost.
The Company's forward exchange contracts are primarily to hedge the South
African rand and Greek drachma against the U.S. dollar. During the six-month
period ended September 30, 1998, the value of the U.S. dollar increased against
the South African rand by approximately 16.8% while the Greek drachma increased
against the dollar by approximately 9.9%. The cost of the Company's foreign
currency commitments were approximately $1.5 million less during this period as
a result of forward currency contracts entered into, measured as the difference
between the spot rate and the contract rate at the contract due date. During
the six month period ended September 30, 1997 the U.S. dollar strengthened
against the South African rand and Greek drachma by approximately 5.6% and
5.3%, respectively. During the year ended March 31, 1998 the U.S. dollar
strengthened against the South African rand and Greek drachma by approximately
14.1% and 20.5%, respectively. During the year ended March 31, 1998, the cost
of the Company's foreign currency commitments were approximately $1.8 million
greater as a result of hedging activities.
The contractual amounts, exchange rates and settlement dates of the
outstanding forward exchange contracts at March 31, 1998 are set out below:
<TABLE>
<CAPTION>
Average
Contractual Amount Exchange
(in thousands) Rates Settlement dates
-------------------- ----------- ------------------------------------
<S> <C> <C> <C>
Greek drachma/U.S. dollar .............. $14,000 307.49 April 27, 1998 to May 25, 1999
South African rand/U.S. dollar ......... $23,849 5.22 August 31, 1998 to January 28, 1999
Thai baht/U.S. dollar .................. $ 8,000 50.35 June 30, 1998
South African rand/
British pound sterling ................ $ 1,727 7.97 July 31, 1998 to August 31, 1998
</TABLE>
US GAAP Reconciliation
As more fully explained in Note 29 to the Consolidated Statements, under
IAS the Company's investment in UBC is carried at cost. In June 1998, the
Company increased its investment in UBC from 17.3% to 26.1%. Under IAS and US
GAAP the investment is accounted for by using the equity method subsequent to
the increase of the Company's shareholding. US GAAP requires retroactive
adjustment of financial statements for an investee that was previously
accounted for on the cost method when that investee becomes qualified for use
of the equity method.
As explained in Note 23 to the Combined Statements, the Company adopted
IAS 19 "Retirement Benefit Costs" on April 1, 1995, which requires recognition
of the costs of post-retirement benefits on an accrual basis. MultiChoice
Africa recognized its cumulative actuarially determined liability for
post-retirement medical benefits as of April 1, 1995 of $3.9 million. In
accordance with IAS 19 and IAS 8, "Net Profit or Loss for the Period,
Fundamental Errors and Changes in Accounting Policies" the change has been
reported retrospectively through an adjustment of $3.9 to the opening balance
of MultiChoice Africa accumulated results. Under US GAAP, SFAS 106 "Employers
Accounting for Postretirement Benefits Other Than Pensions", the effect of
adoption is recognized immediately in net income of the period of change as the
effect of a change in accounting principle.
34
<PAGE>
The effect of the difference between IAS and US GAAP resulted in an
increase in the Company's net loss under US GAAP as compared with IAS for the
years ended March 31, 1998 and 1997 and the six-month periods ended September
30, 1998 and 1997 and a reduction of shareholders' equity as compared with IAS
as at September 30, 1998, March 31, 1998 and 1997.
On April 1, 1999, the Issuer expects to grant options to purchase 950,140
Class A Ordinary Shares at an exercise price of $10.57 per share. The exercise
price represents the estimated fair value of the shares on September 11, 1998
(after giving effect to stock splits), when the Compensation Committee of the
Board of Directors determined it would make the awards. US GAAP, Accounting
Principles Board Option No. 25, requires that the intrinsic value of the
options, defined as the market value of the share at grant date less the
exercise price, be recognized as compensation expense prospectively over the
five-year vesting period. As a result, the Company expects to recognize
compensation expense under U.S. GAAP beginning with the fiscal year ended March
31, 2000.
Year 2000 Issue
The Company is reviewing its computer systems and operations in order to
identify and determine the extent to which any systems may be vulnerable to
potential errors and failures as a result of the "Year 2000" problem. The Year
2000 problem is the result of computer programs being written using two digits,
rather than four digits, to define the applicable year. Any computer
application having time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in a major system
failure or miscalculations.
The effects of the Year 2000 problem are exacerbated because of the
interdependence of computer and telecommunications systems throughout the
world. This interdependence is true for the Company, its suppliers and certain
of its customers.
MIH Year 2000 Project
The management of the Company has been briefed about the Year 2000 problem
and its possible effects on the Company's business activities. The Company is
implementing a Year 2000 project (the "Project"), which will be modified as
events warrant, to ensure Year 2000 compliance.
The Project is managed by the Company's Year 2000 project office which
provides leadership and direction to the Year 2000 efforts of the Company's
operations in Africa, the Middle East, the Mediterranean and Thailand as well
as Irdeto, but not OpenTV. Each of the operations is ultimately responsible for
its own Year 2000 activities, but the Project office has set out a uniform
approach which includes the following activities: inventory; impact assessment;
supplier compliance; testing, corrections and upgrades; and contingency
planning.
Inventory. The first phase is the compilation of an inventory of all of
the Company's computer hardware and software systems and embedded chips and
software (including the compilation of an inventory of all of Irdeto's
products). The Company has completed this phase.
Impact Assessment. The second phase is an assessment of the effects of
Year 2000 problems on the Company's systems and products. This phase includes
the identification of business critical systems and products. The Company has
completed this phase.
Supplier Compliance. Simultaneously with the second phase, all suppliers
and vendors of products and services have been or will be approached to
ascertain whether such suppliers and vendors have determined whether or not
their products and services are Year 2000 compliant and, if not, what efforts
they are making in this regard. The Company will continue working on this phase
through the rest of 1999.
Testing, Corrections and Upgrades. The fourth phase involves the testing
of all products and business critical systems to determine the correct remedial
action which is required to address any Year 2000 problems which are diagnosed.
This phase further includes the verification and testing of those systems to
which remediation efforts have been applied (whether by way of corrections or
upgrade). Irdeto and the African operations have completed diagnostic testing
and expect to complete the implementation of corrections and upgrades by the
second quarter of 1999. The Mediterranean operations have completed diagnostic
testing and expect to have completed the implementation of corrections and
upgrades by April 1999. The Thai and Middle Eastern operations expect to have
completed diagnostic testing by April 1999 and the implementation of
corrections and upgrades by June 1999.
A variety of testing procedures are being used to test business
applications for Year 2000 compliance by the Company's operations. These
include methods that first capture current processing steps and relevant data,
which are
35
<PAGE>
run prior to remediation (baseline test) and again after remediation
(regression test). Such methods are intended to identify any business rules
that may have changed during the remediation effort and to confirm that only
date processors have been changed. Where the regression tests are successfully
completed, test software tools that perform date simulation of the system clock
being rolled forward may be used to age the same data and to verify and compare
results.
Contingency Planning. The final phase involves the preparation of
contingency plans to attempt to ameliorate those aspects of the Year 2000
problem that cannot practically be remedied. These plans will encompass
business continuity, both internally and in the external business environment.
The planning effort includes critical areas such as computing networks,
suppliers and vendors, operations, personnel and business systems. The Company
will continue working on this phase through the rest of 1999.
Outside Systems and Entities
The Company recognizes that the computer, telecommunications and other
systems ("Outside Systems") of outside entities ("Outside Entities") play a
major role in the Company's operations. The Company does not have control of
these Outside Entities or Outside Systems. The Company has, however,
implemented an ongoing process of contacting Outside Entities whose systems
have, or may have, a substantial effect on the Company's ability to continue to
conduct business without disruption from Year 2000 problems. The Company is
attempting to assess the extent to which these Outside Systems may not be Year
2000 compliant. The Company will attempt to coordinate with these Outside
Entities in an ongoing effort to obtain assurance that these Outside Systems
will be Year 2000 compliant before January 1, 2000.
OpenTV
OpenTV has implemented its own Year 2000 activities. OpenTV has undertaken
to notify customers of any and all date-related bugs, errors or deficiencies in
its software. OpenTV believes that because development of its software began
only recently, it has adequately anticipated Year 2000 issues.
Year 2000 Costs
The total remaining cost of the Project is estimated at $5.3 million.
Approximately $2.4 million is for new software and hardware purchases and will
be capitalized. The remaining $3.0 million will be expensed as incurred over
the next nine month period. To date, the Company has incurred and expensed
approximately $1.5 million, related to the phases of the Project which have
been implemented. The costs of the Project and the dates on which the Company
plans to complete the Project are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, the readiness of Outside Systems
and other factors. Until the Company has completed further analysis of the
impact of Year 2000 on its operations and contingency planning, it will be
unable to estimate the additional costs, if any, that it may incur as a result
of its efforts. For these reasons, and for the reasons stated in the next
paragraph, there can be no assurance that the actual costs of implementing the
Project will not differ materially from the estimated costs.
Potential Risks
With respect to its internal operations (those over which the Company has
direct control), the Company believes that the most significant potential risks
concern the Company's ability to use electronic devices to distribute its
services, the Company's ability to render timely bills to its subscribers, the
ability of the Company's subscribers to receive its services, the uninterrupted
use of Irdeto's products by its customers and the Company's ability to maintain
continuous operation of its computer systems. The Project addresses each of
these risks. The Company relies, however, on Outside Systems, and there can be
no assurance, for example, that all Outside Systems will be adequately
remediated so that they are Year 2000 compliant by December 31, 1999, or by
some earlier date, so as not to create a material disruption to the Company's
business. In addition, there can be no assurance that the Company's products
and systems will be Year 2000 compliant. If, despite the Company's efforts in
terms of the Project, there are Year 2000 related failures that create
substantial material disruptions to the Company's operations, the adverse
impact on the Company's business could be material. Moreover, the estimated
costs of implementing the Project do not take into account the costs, if any,
that may be incurred as a result of Year 2000 related failures that occur
despite the Company's implementation of the Project including, for example,
claims from subscribers or customers related to business interruption. See
"Risk Factors--Year 2000 Risks".
Accounting Standards
The Financial Accounting Standards Board (the "FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures
about Pension and other Postretirement Benefits". This
36
<PAGE>
Statement is effective for fiscal years beginning after December 15, 1997 and,
therefore, will be effective for the Company's financial statements beginning
with the year ended March 31, 1999. The Company does not expect the adoption of
this Statement to have a material impact on its financial statements.
SFAS No. 130, "Reporting Comprehensive Income", was issued by the FASB in
June 1997 and is effective for fiscal years beginning after December 15, 1997.
It will be effective for the Company's financial statements for the year ended
March 31, 1999. SFAS No. 130 requires additional disclosure but does not change
the measurement of financial position or net income. Management is currently
assessing the impact that this Statement may have on its financial statements.
SFAS No.133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for fiscal years beginning after June 15, 1999. It
will be effective for the Company's annual financial statements for the year
ended March 31, 2001. Management is currently assessing the impact that this
Statement may have on its financial statements.
In July 1997, the International Accounting Standards Committee ("IASC")
issued International Accounting Standard ("IAS") 1 (revised), "Disclosure of
Accounting Policies". IAS 1 (revised) will be effective for the Company's
financial statements for the year ending March 31, 2000. The Company believes
that it has complied with the main provisions of this standard and does not
believe that this standard will have a significant influence on the Company's
financial statements.
In 1997, the IASC issued IAS 17 (revised 1997), Leases, which supersedes
IAS 17, "Accounting for Leases" and is effective for the Company's financial
statements for the year ending March 31, 2000. The Company does not expect a
material impact on its financial statements as a result of adopting IAS 17
(revised 1997).
In January 1998, the IASC issued IAS 19 (revised 1998), "Employee
Benefits". It will be effective for the Company's financial statements for the
year ending March 31, 2000. The Company is currently assessing the impact that
this standard may have on the Company's financial statements.
In February of 1998, the IASC issued IAS 34, "Interim Financial
Reporting". IAS 34 will be effective for the Company's interim financial
statements issued after March 31, 1999. The Company believes that it has
complied with the main provisions of this standard and does not believe that
this standard will have a significant influence on the Company's financial
statements.
In June of 1998, the IASC issued IAS 35, "Discontinuing Operations". IAS
35 will be effective for the Company's financial statements for the year ending
March 31, 2000. The Company believes that it has complied with the provisions
of this standard and does not believe that this standard will have a
significant influence on the Company's financial statements.
In June of 1998, the IASC issued IAS 36, "Impairment of Assets". IAS 36
will be effective for the Company's financial statements for the year ending
March 31, 2001. The Company is currently assessing the impact that this
standard may have on its financial statements.
In September of 1998, the IASC issued IAS 37, "Provisions, Contingent
Liabilities and Contingent Assets". IAS 37 will be effective for the Company's
financial statements for the year ending March 31, 2001. The Company is
currently assessing the impact that this standard may have on its financial
statements.
In October of 1998, the IASC published IAS 22 (revised 1998), "Business
Combinations", that includes limited revisions to the version of IAS 22
approved in 1993. IAS 22 (revised 1998) is effective for the Company's
financial statements for the year ending March 31, 2001. The provisions of IAS
22 (revised) would apply prospectively.
In October of 1998, the IASC published IAS 38 "Intangible Assets". The
standard becomes effective for the Company's financial statements for the year
ending March 31, 2001, with earlier application encouraged. If an enterprise
chooses to adopt IAS 38 early, it must also apply IAS 22 (revised 1998),
"Business Combinations" and IAS 36, "Impairment of Assets" early. The Company
is currently assessing the impact this standard may have on its financial
statements.
37
<PAGE>
BUSINESS
General
The Company is a multinational provider of pay-television services and
pay-television technology. By leveraging its management and industry expertise,
the Company plans to expand beyond its current services to become a recognized
worldwide provider of a full array of pay-media content and services over a
variety of electronic platforms, including pay-television, Internet and
interactive television. From their significant experience in providing
pay-television services, the Company's management have developed a
comprehensive understanding of pay-media and other subscriber-based businesses,
particularly in the areas of subscriber, content and platform management.
Through its strategic application of these core competencies and its proven
business model, the Company has grown to become the leading provider of
pay-television services in each of its markets. By continuing to leverage these
abilities, the Company plans to expand its pay-television services into new
regions and provide new services and products, such as those relating to the
Internet and interactive television services.
From its origins as the leading provider of pay-television services in
South Africa, the Company has grown, through its subsidiaries and joint
ventures, to provide terrestrial analog, digital satellite and other
pay-television services to over 1.9 million households in Africa, the
Mediterranean and Asia. The Company's Mindport technology division provides
pay-media companies worldwide with proprietary software and hardware solutions
for subscriber management, conditional access and other pay-television related
services. Mindport is also a leading provider of interactive television
operating systems through OpenTV.
Pay-television
The Company operates its pay-television businesses in three major regions:
Africa, the Mediterranean and Asia. In each region, the Company has implemented
a strategy that emphasizes being the leading supplier of pay-television
services, obtaining exclusive programming, continually improving its customer
care and offering new services and technology, such as interactive television.
Through the application of its core competencies, the Company has developed the
leading pay-television service in each of its operating regions. These
businesses were generally started as single-channel analog services, which
provide the market presence and subscriber base for the Company to launch
multi-channel digital and interactive services. The Company currently provides
analog service in each of these regions and provides digital service in Africa
and Asia. The Company is prepared to provide digital service in the
Mediterranean upon enactment of certain legislation and receipt of a license
thereunder.
The following table sets forth the services offered and subscriber numbers
for the Company's pay-television subsidiaries and joint ventures by region and
service:
<TABLE>
<CAPTION>
Subscribers
Launch as of Dec. 30,
Date Service 1998
------------------- ------------------------------------ ---------------
<S> <C> <C> <C>
Africa
South Africa .................. 1986 M-Net (analog) 839,819
1995 DStv (digital) 249,884
Sub-Saharan Africa ............ 1991 M-Net (analog) 58,236
1996 DStv (digital) 77,901
Egypt and Middle East ......... various Subscriber management(1) 81,435
Mediterranean
Cyprus ........................ 1993/1997 LTV/Alfa (analog) 34,567
Greece ........................ 1994/1996/1997 FilmNet/SuperSport/K-T.V. (analog) 309,692
1999(2) Nova (digital) N/A
Asia
Thailand ...................... 1989 UBC MMDS(3) (analog) 9,770
1995 UBC Cable (analog) 147,410
1995 UBC Satellite (digital) 144,198
</TABLE>
- ----------------
(1) Pay-television platforms operated by third parties.
(2) Expected. See "--Pay-television--Mediterranean."
(3) Phase-out expected in 1999.
38
<PAGE>
The Company believes that two of the reasons it is the leading
pay-television operator in each of the markets it serves are its exclusive,
high quality content and its early introduction of emerging technologies. In
most of its markets, the Company has exclusive pay-television rights to
transmit premium movies, major sporting events and popular children's
programming. The Company believes that access to this programming gives it the
content necessary to attract and retain subscribers and grow its pay-media
services. The Company believes that its core competency in technology, drawn in
large part from Mindport, is an important component of its business and a key
strategic advantage.
Since beginning operations in 1986, the Company has experienced
significant growth in the number of its subscribers, revenue per subscriber and
total pay-television revenue. As of September 30, 1998, the Company's
consolidated pay-television operations (excluding Asia and the Middle East,
which are not consolidated) had approximately 1.54 million subscribers, as
compared to 1.47 million, 1.36 million and 1.14 million subscribers as of March
31, 1998, 1997 and 1996, respectively. Also, the average revenue generated by
these pay-television subscribers per month was approximately $22.16 during the
six-months ended September 30, 1998 compared to approximately $23.19, $21.10
and $18.63 during the years ended March 31, 1998, 1997 and 1996, respectively.
For the six-months ended September 30, 1998, the Company's consolidated
pay-television operations generated subscriber revenues of $205.1 million
compared to $404.5 million, $315.5 million and $233.3 million for the years
ended March 31, 1998, 1997 and 1996, respectively.
Technology
The Company's technology division, Mindport, provides a comprehensive
package of technology products and support services to pay-media operators
worldwide. Mindport seeks to capitalize upon the pay-media industry's evolution
from analog to digital and then to interactive and Internet services. This
adoption of new technologies has generated the need for increasingly complex,
integrated and scalable software and hardware that Mindport provides. In
addition, by taking advantage of the Company's experience in operating
pay-media businesses, Mindport has been able to improve its products and offer
highly advanced and complete solutions to third-party platform operators.
Mindport's customers include some of the leading international pay-media
companies, such as EchoStar, BSkyB, Canal+, Galaxy Latin America, TPS and
DirecTV Japan, as well as the Company's African and Mediterranean
pay-television businesses. The Company also recently signed an agreement to
provide pay-television technology to CBSat, a subsidiary of China Central
Television, which is preparing to distribute their digital television signals
to rural areas in the People's Republic of China.
The Mindport product line includes subscriber management systems,
conditional access systems, interactive television operating software, content
management systems, set-top box design and specification and consulting
services. The Company believes its subscriber management system, marketed under
the IBS brandname, provides the critical scalability and system adaptability
necessary to meet the growing needs of pay-television operators, Internet
service providers and data broadcasters worldwide. Irdeto Access, Mindport's
conditional access unit, provides encryption and decoding systems to
pay-television operators. OpenTV develops and sells operating systems for
interactive television, the first generation of which is running on several
pay-television platforms.
Internet
The Company believes that the Internet business is complementary to its
existing businesses and a natural extension of its core competencies of
subscriber, content and platform management. By leveraging its subscriber-based
pay-media expertise, the Company plans to offer a range of Internet services,
including Internet access, content aggregation and subscriber management, both
within certain of its current pay-television markets and in new markets. The
Company's first investment in the Internet business occurred with its
acquisition, development and ultimate spin-off of M-Web, the leading Internet
service provider in South Africa, which is now a publicly-listed affiliate of
the Company.
Objectives and Strategy
The Company seeks to strengthen its current position as a worldwide
provider of pay-television services and related technologies and to become a
recognized multinational provider of a full array of content and pay-media
services over a variety of platforms, including Internet and interactive
television. In addition, the Company seeks to become a leader in the supply of
pay-media technology and customer care products and services. Specifically, the
Company is pursuing the following three objectives:
o Build Out Current Markets. In each of its existing markets, the Company
plans to fully develop its pay-television business by enhancing its
platforms to offer a full compliment of services including analog, digital,
39
<PAGE>
interactive and Internet services. The Company also plans to further grow
its subscriber base by achieving higher levels of penetration within its
current addressable markets as well as taking advantage of favorable
demographic trends.
o Expand Into New Markets. The Company seeks to take advantage of its
management expertise and experience by expanding into new markets,
particularly emerging pay-media markets. Being an early entrant into these
markets helps the Company secure transmission frequencies and exclusive
programming and build strong relationships with subscribers and local
affiliates. This expansion is likely to be accomplished through
investments in and acquisitions of existing businesses, including
pay-television systems and Internet service providers.
o Develop Leading Technology Company. The Company intends to build Mindport
into a leading technology company that develops and sells software and
designs hardware that support pay-media businesses worldwide. Mindport
will continue to benefit from the Company's experience as a pay-media
operator and build its technology base through internal research and
development and strategic acquisitions.
In pursuing these objectives and drawing on its core competencies, the
Company intends to implement the following strategies:
o Provide Exclusive, High Quality Content. In most markets in which the
Company operates its pay-television business, it has the exclusive rights
to provide popular sporting events and first-run motion pictures from the
major studios. In certain regions, the Company includes local free-to-air
networks on its digital platform, thereby creating a well-rounded channel
selection. The Company believes that providing exclusive, high quality
content is the key to establishing and growing its pay-media businesses
and intends to obtain such rights in its new markets and maintain such
rights in its existing markets.
o Provide Leading Edge Platforms. The Company consistently strives to
improve the quality of its pay-television services by taking advantage of
technological developments. In each of its operating regions, the Company
provides, or is planning to provide, digital service, which generally
features many more channels than its existing analog services, with
greater picture clarity and sound quality. The next major enhancement of
the Company's business will be the introduction of interactive services.
The Company is already offering an electronic programming guide that is
currently accessible by all digital subscribers in South Africa, Sub-
Saharan Africa and Thailand and expects to begin implementing in most of
its regions other interactive services such as pull-down menus in mid
1999, and some time thereafter, web browsing, e-mail, gaming, home
shopping and home banking. The Company believes that these enhanced
services will provide it with significant new sources of revenue and
generally higher margins from its current customer base and will attract
new subscribers.
o Provide High Quality Service. The Company views its business as primarily
a service business and, accordingly, places great emphasis on providing
high quality customer service. The Company believes this helps build
customer loyalty and reduce churn. The Company seeks to achieve high
quality customer service by operating walk-in service centers and
utilizing computer systems equipped with Mindport's advanced IBS
subscriber management software, which allows customer service
representatives to quickly address subscriber concerns.
Pay-television
Overview
The Company, through its subsidiaries and joint ventures, provides
pay-television and related services to over 1.9 million households in Africa,
the Mediterranean and Asia. The Company's services are primarily provided
through wireless technology, mainly terrestrial analog and digital satellite
transmission, with certain subscribers in Thailand receiving programming
through coaxial cable employing a fiber optic backbone.
The Company believes that providing unique, high quality programming,
utilizing the most advanced technology, including interactive services and
providing superior customer service are the keys to establishing and growing a
successful pay-television business. The Company seeks in each of its regions to
provide an array of programming, including movies, sports and children's
programming, with elements that appeal to different family members. In
addition, on both its movie and children's channels, the Company frequently
provides local programming such as local series and shows dubbed into the local
language. In most of its markets, the Company or an affiliate operates channels
with exclusive rights to premier movies (including programming from such
studios as Disney, Columbia Tristar/Sony, Warner Brothers, Fox, MCA/Universal,
MGM, Paramount and DreamWorks).
40
<PAGE>
In several regions, the Company or an affiliate provides a sports channel,
SuperSport, that has exclusive rights to show popular sports in that region.
The Company has also developed a proprietary channel, K-T.V., that televises
exclusive children's programming. On the Company's digital platforms, these
primary channels are supplemented by major international channels and/or the
local market television networks. The Company believes that such a
comprehensive package attracts new subscribers, enhances subscriber loyalty and
helps to reduce churn. The Company also believes that, as long as it maintains
a leading position in each of its markets, it will be in a strong position to
continue to acquire programming rights on favorable terms.
The Company uses the latest available technologies and was one of the
first pay-television companies in the world to provide digital satellite
service, which it now provides or plans to provide in each of its operating
regions. Following the successful introduction of digital services, the Company
is currently introducing interactive services on its digital platforms. Today,
such interactive services include electronic program guides. In the future, the
Company anticipates introducing enhanced services in its major markets, such as
web-browsing, pull-down menus, e-mail, gaming, home shopping and home banking,
which have the potential for generating significant additional revenue and
generally higher margins. The Company believes that its Mindport division gives
it great support and insight into the latest developments and enhancements of
pay-media technologies.
The Company believes its business is primarily a service business and
accordingly places great emphasis on customer care. The Company is installing
Mindport's proprietary customer care and billing system, IBS, throughout its
pay-television regions. IBS provides advanced billing capabilities for
pay-television operators and allows customer specific information to be
accessed and manipulated quickly by customer service representatives. The
Company believes IBS will result in greater customer satisfaction and reduced
churn. In many of its regions, the Company operates advanced call centers that
also serve to increase customer satisfaction. For example, the Company's call
center in South Africa has an average response time of 61 seconds and 67
seconds for its analog and digital service, respectively, and a low call
abandonment rate. These operations ensure that the Company is perceived as a
customer friendly organization.
The following table shows the growth of subscribers in each of the
Company's markets:
<TABLE>
<CAPTION>
Mar. 31,
Dec. 30, Sep. 30, -----------------------------------
1998 1998 1998 1997 1996 CAGR(1)
---------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Subscribers (thousands):
Africa
South Africa ............................. 1,090 1,086 1,054 1,008 943 5.4%
Sub-Saharan Africa ....................... 136 127 109 104 73 25.3
Egypt .................................... 25 22 18 13 9 47.0
Middle East .............................. 56 47 27 15 -- --
----- ----- ----- ---
Total Africa ............................ 1,307 1,282 1,208 1,140 1,025 9.2
----- ----- ----- ----- ----- ----
Mediterranean
Greece ................................... 310 277 254 203 101 50.5
Cyprus ................................... 35 33 31 26 11 49.9
----- ----- ----- ----- -----
Total Mediterranean ..................... 344 310 285 230 112 50.5
----- ----- ----- ----- ----- ----
Asia
Thailand ................................. 301 289 313 253 130 35.6
----- ----- ----- ----- -----
Total subscribers ........................ 1,953 1,881 1,806 1,623 1,268 17.0
===== ===== ===== ===== =====
Average monthly revenue per subscriber (2). * $ 22.74 $ 24.65 $ 21.10 $ 18.63 8.3
</TABLE>
- ----------------
* Financial data not available.
(1) Compounded annual growth rate calculated from March 31, 1996 until
December 30, 1998, except average monthly revenue per subscriber, which
is calculated from March 31, 1996 until September 30, 1998.
(2) Excluding the Company's Asian and Middle East operations because such
revenues are not consolidated on the Company's income statements. Total
subscribers from consolidated operations were 1.545 million, 1.466
million, 1.355 million and 1.137 million as of September 30, 1998 and
March 31, 1998, 1997 and 1996, respectively.
41
<PAGE>
Marketing
Throughout its operations, the Company conducts market research on an
ongoing basis to ensure that it continues to offer its subscribers a lineup of
attractive programming. The Company provides a bouquet of programming that is
designed to be attractive to different members of a household. The Company
markets its analog services as premium offerings with broad market appeal and
positions its digital platforms as upscale services with greater choice. The
Company believes that segmenting its product line in this way helps it to
maximize the size of its addressable market, while also encouraging analog
subscribers to upgrade to the higher-end digital service.
Africa
The Company offers terrestrial analog and digital satellite pay-television
services in Africa through its wholly owned subsidiary, MultiChoice Africa,
which has operations in both South Africa and other sub-Saharan African nations
besides South Africa ("Sub-Saharan Africa").
South Africa
In South Africa, the Company's analog service transmits the M-Net
channels, which feature exclusive premium movies, exclusive sports and other
programming. The analog service began in 1986 and is transmitted over two
frequencies. The Company's digital satellite service, which commenced in 1995
under the brand name DStv, features 48 video channels and 49 audio channels. As
of December 30, 1998, MultiChoice Africa had 839,819 subscribers to its analog
service and 249,884 subscribers to its digital service in South Africa.
Opportunity. South Africa is Africa's largest economy, with a population
of over 40 million people, and is Africa's third largest television market with
over 4.1 million color TV households in 1998. MultiChoice Africa's
pay-television services had a market penetration of approximately 26% of
potential households. The Company believes that South Africa has been and will
remain a favorable market for the provision of its services. A substantial
portion of television households have incomes that give them the disposable
income to purchase the Company's services. The Company believes that the number
of television households will continue to grow as the efforts to provide
economic empowerment to previously disadvantaged groups begin to take effect
and as interactive services become available on the Company's digital platform.
The Company also believes that there is potential for growth in
MultiChoice Africa's business due to a number of additional factors: (i)
nationwide coverage provided by a digital platform that reaches new customers
who are not able to receive the Company's analog transmissions; (ii) a
significantly enhanced bouquet that provides broader appeal to households who
do not currently subscribe to the dual-channel analog service; and (iii)
renewed promotions that have proven successful in the past to drive subscriber
growth. For example, the Company is planning to repeat its successful
promotions in which the price of the equipment for digital service is reduced.
Products. MultiChoice Africa's analog service transmits the M-Net
channels, which provide a combination of first run movies, sporting events and
children's programming along with some original and imported series. These
channels are provided to MultiChoice Africa by M-Net Ltd., an affiliate of the
Company, and are transmitted over two terrestrial frequencies. MultiChoice
Africa transmits its analog signal 24 hours each day, including two hours of
unencrypted transmission. The Company's digital service is also transmitted 24
hours each day and offers a significant increase in the number of specialized
channels that provide movies, sports, general entertainment, children's
programming, local stations and international news, etc. The following chart
details the channels available on the DStv platform.
42
<PAGE>
<TABLE>
<CAPTION>
Type of Type of
Programming Channel Programming Channel
- --------------- -------------------------------- -------------- ---------------------------
<S> <C> <C> <C>
Movies The Movie Magic Channel News BBC World
Hallmark Entertainment Network CNN International
TNT Classic Movies CNBC
Sky News
Bloomberg Television
SABC Africa
Summit TV
- --------------- -------------------------------- -------------- ---------------------------
Sports SuperSport Infotainment Discovery Channel
SuperSport 2 Travel Channel
SuperSport International -------------- ---------------------------
ESPN Kids K-T.V. Channel
SuperTrack Cartoon Network
- --------------- -------------------------------- -------------- ---------------------------
General M-Net Channel Music VH1
Entertainment The Series Channel MTV Europe
The Soap Channel BET on Jazz International
Carlton Select Channel O Sound Television
Carlton Food
Canal Horizon
Channel Africa
Sci-Fi Channel
BBC Prime -------------- ---------------------------
National Geographic Audio DMX (40 channels)
Teletuks BBC World Service 1
Shoma Education BBC World Service 2
Zee TV BBC World Service 3
Parliamentary Service* VOA--Voice of America
RTPi* WRN--World Radio Network
ART Africa* Trans World Radio
CCTV-4* 702 Talk Radio
RAI International* Radio Africa Austral
ERT SAT* Classic FM
Rhema Network*
TV5*
NBC (Namibia)*
SABC 1,2,3*
</TABLE>
* = subscription not required to receive channel.
The Company believes that the programming it receives from affiliates
provides it with a significant advantage over other forms of broadcast
entertainment and helps build and retain its subscriber base. M-Net Ltd., which
provides the M-Net and Movie Magic digital channels, has the exclusive rights to
the South African pay-television broadcast of movies from all of the eight major
Hollywood movie studios, including Disney, Columbia Tristar/Sony, Warner
Brothers, Fox, MCA/Universal, Paramount, MGM and DreamWorks. The contracts allow
M-Net Ltd. to select from all films produced by a given studio each year up to a
maximum number and to broadcast these movies at least a year in advance of their
free-to-air television premiere. Typically M-Net Ltd. is entitled to show a
movie 10 to 15 times during its twelve-month pay-television window.
Similarly, SSIH, which provides sports programming for the M-Net channel
and the SuperSport channels for MultiChoice Africa's digital platform, has
obtained the exclusive rights to broadcast the South African cricket and rugby
leagues along with major international cricket and rugby events, two of the most
popular sports in South Africa. In addition, SSIH has the exclusive rights to
broadcast, among others, the English, Italian, German and
43
<PAGE>
French soccer leagues, all four major professional golf tournaments as well as
the United States and European PGA Tours and three of the four major
professional tennis tournaments.
MultiChoice Africa has signed ten-year channel agreements with both M-Net
Ltd. and SSIH. Payments under these contracts are calculated on a per
subscriber basis and are subject to annual price escalations. See "Certain
Transactions--Channel Distribution Agreements".
The Company is now beginning to offer interactive television services on
DStv. These services currently consist of electronic programming guides that
allow all digital subscribers to access detailed information about available
programming. The Company intends to begin implementing other interactive
services such as pull-down menus in mid 1999, and some time thereafter, gaming,
home shopping and home banking. In providing these services, the Company will
use software platforms developed and provided by OpenTV, part of the Company's
Mindport division. The Company believes interactive television will become a
substantial new phase in its business development and has the potential to
provide the Company with significant new sources of revenue at higher margins
and to fuel subscriber growth.
Marketing and Subscriber Management. The Company will continue to market
its analog service as a premium offer with broad market appeal and position
DStv as an upscale service with greater choice. By targeting the digital and
analog services at different market segments, the Company hopes to spur total
subscriber growth. The Company also believes that DStv will be attractive to
rural residents, who often have poor reception of terrestrial signals. The
Company expects that the majority of growth in its digital subscriber base will
come from customers who upgrade from analog with additional growth from new,
rural subscribers currently unable to receive the analog service. The Company
expects its analog subscriber numbers to generally remain stable as new
subscribers from the growing middle class replace subscribers who migrate to
DStv. The Company believes that approximately 60% of the analog subscribers who
have terminated service have migrated to digital.
The Company transmits its analog service unencrypted for two hours every
day. It uses these transmissions as a promotional vehicle to increase
subscriber numbers, as a mechanism to fulfill public service obligations and as
cross-promotion for its DStv services. The Company believes that these
unencrypted transmissions have been instrumental in achieving its subscriber
growth and establishing a strong brand identity.
The Company services its subscriber base through its customer care and
billing centers in Johannesburg, Durban and Cape Town. Each customer center
uses Mindport's IBS subscriber management system. These centers provide
customers with local walk-in and telephone service and also act as a mutual
back up in times of heavy call volume. The Company also conducts telemarketing
from these centers in order to solicit new subscriptions.
Pricing and Billing. The following table sets forth certain pricing
information for the Company's South African businesses:
<TABLE>
<CAPTION>
Subscribers
(thousands) Equipment Price(1)
---------------------------- ------------------------------------------
Monthly Monthly
Dec. 30, Mar. 31, Subscription Price Purchase Lease(2)
---------- --------------- ------------------ ---------------------- -----------------
1998 1998 1997 ZAR $ ZAR $ ZAR $
---------- ------ ------ ----- ---------- -------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Analog 839 896 934 136 21.97 799 129.08 28 4.52
Digital 249 158 74 233 37.64 2,999 484.49 59 9.53
</TABLE>
- ----------------
(1) Excludes price of satellite receiver in the case of digital service.
(2) The amount of monthly payment under optional installment purchasing plans
for equipment, which are typically five years in length and require a
deposit of ZAR250 ($40.39).
MultiChoice Africa bills its subscribers monthly, in advance, in South
African rand. Subscribers who fail to pay their bill by the beginning of any
given month are automatically disconnected and may be charged a fee for
reconnection. During the 12 months ended September 30, 1998, MultiChoice Africa
experienced an average monthly net churn (as described below) of approximately
1.6% on its analog subscriber base and less than 0.1% on its digital subscriber
base. To date, the Company has not experienced significant customer
disconnections as a result of increases in the price of its services. Net churn
is the percentage of customers who terminate their subscription in a given
period net of former customers who reconnect in that period.
44
<PAGE>
From time to time, MultiChoice Africa runs promotions during which it
subsidizes the purchase price of set-top boxes, and these promotions have been
successful in increasing the numbers of subscribers.
Competition. MultiChoice Africa currently competes directly with free
television broadcasters in South Africa and indirectly with sporting events,
motion picture theaters, the Internet and other forms of entertainment. There
are currently three free-to-air broadcast channels in South Africa, SABC1,
SABC2 and SABC3, which are each government owned. A fourth free-to-air
television channel, e.tv, in which Time Warner holds a minority interest,
recently began broadcasting. The Company's digital and analog platforms are the
only pay-television services provided in South Africa.
The Company believes that its pay-television services are differentiated
from the competition by their high quality, exclusive programming, including
first run movies and sporting events. This programming promotes subscriber
growth and retention and increases the Company's appeal to more sophisticated,
higher-income viewers. In addition, DStv offers a greater choice of programming
than its competitors; its offering of 42 distinct video channels is several
times more than all of the free-to-air television channels in South Africa
combined.
Transmission. The transmission of MultiChoice Africa's analog and digital
services is conducted by Orbicom, a company that is owned 80.0% by MIH Holdings
and 20.0% by the Company. These services are provided to MultiChoice Africa at
cost. The analog service is sent to transmission towers either terrestrially
over fiber optic cables or microwave links or via satellite. The towers
transmit the signal to homes which receive it over an antenna and decrypt it
using a set-top box. Those who receive the digital satellite signal do so by
means of a 90cm dish, which receives the signal from the Panamsat 4 Satellite
situated over the east coast of Africa. The Company leases 9 Ku-band
transponders on Panamsat 4. Uplink facilities are provided by Orbicom.
MultiChoice Africa utilizes the Irdeto Access encryption and decoder technology
provided by its Mindport division for both its analog and digital platforms.
Sub-Saharan Africa
The Company offers terrestrial analog and digital satellite pay-television
services to Sub-Saharan Africa through MultiChoice Africa and various joint
ventures and agents. The Company's analog service transmits a customized M-Net
channel, which features exclusive movies and sports and other programming to
eight African nations through joint ventures. Its digital service features 30
video channels, including the customized M-Net channel and many major
international networks, transmitted via C-band satellite to approximately 40
countries in Sub-Saharan Africa. As of December 30, 1998, MultiChoice Africa
and its joint ventures had 58,236 Sub-Saharan African subscribers to its
terrestrial analog service and 77,901 Sub-Saharan African subscribers to its
DStv digital satellite service. The following table provides information about
the primary Sub-Saharan African nations in which the Company conducts business:
<TABLE>
<CAPTION>
Total TV Analog Business Analog
Population Households Analog Digital Total Total Ownership Start
Market (millions) (thousands) Subs(1) Subs(1) Subs Penetration Interest(2) Date
- ---------- ------------ ------------- --------- --------- -------- ------------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nigeria 111.3 10,000 9,884 8,514 18,398 0.2% 91% 1994
Tanzania 29.1 466 1,218 2,688 3,906 0.8 100 1997
Kenya 30.0 823 4,810 5,614 10,424 1.3 51 1995
Uganda 19.2 200 2,584 1,752 4,336 2.2 75 1995
Ghana 17.1 274 5,044 1,364 6,408 2.3 50 1993
Zimbabwe 12.7 342 246 15,791 16,037 4.7 N/A N/A
Angola 11.2 571 2 4,226 4,228 0.7 N/A N/A
Malawi 9.5 * 1,136 3,559 4,695 N/A N/A N/A
Zambia 9.2 589 6,746 3,517 10,263 1.7 51 1995
Namibia 2.0 109 24,481 5,199 29,680 27.2 49 1992
Botswana 1.5 35 1,447 6,199 7,646 21.8 50 1993
</TABLE>
- ----------------
(1) As of September 30, 1998.
(2) Ownership of digital is 100%.
* Insufficient data.
Opportunity. Although the current number of subscribers in Sub-Saharan
Africa is a small portion of the Company's overall base and recent political
and economic instability in the region could delay the realization of
45
<PAGE>
the market's full potential, the Company expects significant percentage
subscriber growth in this market to the extent economic demographics improve.
In addition, the Company expects the continuing rollout of its digital service
and promotions, including set-top box subsidies, to further drive subscriber
growth.
Products. The Company's Sub-Saharan African businesses transmit an analog
service that includes the M-Net channel to eight major African nations and a
digital platform that provides 30 video and 6 audio channels to all of
Sub-Saharan Africa. The Company offers many of the same premium channels in
Sub-Saharan Africa as in South Africa, including those broadcasting exclusive
premium films and popular sports. The Company varies the timing of certain
programs on its digital platform between east and west Africa to account for
time zone differences.
Interactive services in the form of an electronic programming guide are
currently available to all subscribers on the digital platform. The Company
intends to further offer gaming, home shopping and home banking sometime in the
next several years.
Marketing and Subscriber Management. Similar to the position in South
Africa, the Company believes that by targeting its digital and analog services
to different economic demographics the subscriber base will increase and
subscribers who are initially attracted to the analog service will, in time,
migrate to the digital service.
The Company actively markets its services in the region through local
affiliates and agents. Its efforts are focused on the major cities in each of
the countries it serves because the Company believes that these major
metropolitan areas contain the households with the greatest ability to afford
its services. In addition, the Company believes that given the size of the
urban population and color television penetration, there is significant
opportunity to increase the subscriber base in these areas.
Pricing and Billing. The following table sets forth certain pricing
information for the Company's Sub-Saharan African businesses:
<TABLE>
<CAPTION>
Subscribers
(thousands)
----------------------------
Dec. 30, Mar. 31,
---------- --------------- Monthly Equipment
1998 1998 1997 Subscription(1) Purchase(1)(2)
---------- ------ ------ ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Analog .......... 58 60 75 $30 $150
Digital ......... 77 49 29 50 700
</TABLE>
- ----------------
(1) Represents the average price across all of the Company's Sub-Saharan
African Businesses.
(2) Includes price of satellite receiver in the case of digital service.
In each Sub-Saharan African nation, the Company generally bills its
customers in U.S. dollars or dollar equivalents. Generally, subscribers who
fail to pay their bills by the beginning of any given month are automatically
disconnected and may be charged a fee for reconnection. During the 12 months
ended September 30, 1998, the Company's Sub-Saharan African operations
experienced an average monthly net churn of approximately 3.2% on its analog
subscriber base and approximately 1.1% on its digital subscriber base. To date,
the Company has not experienced significant customer disconnections as a result
of increases in the price of its services. From time to time, the Company runs
promotions during which it subsidizes the purchase price of set-top boxes, and
these promotions have been successful in increasing the number of subscribers.
Competition. The Company is the leading provider of pay-television
services in Sub-Saharan Africa. In the countries in which it broadcasts,
however, there are numerous public and private free-to-air television stations,
as well as small, localized pay-television operations. The Company believes
that its high quality, exclusive programming distributed terrestrially and on
DStv appeals to the broader African market. In addition, the wider choice of
programming available on DStv serves to differentiate it from other
broadcasters.
Transmission. The Company delivers analog services terrestrially to
Sub-Saharan Africa by transmitting its programming signal by satellite to local
receiving stations in nine countries. These stations are generally owned in
partnership with a local partner or franchisee in each country. These stations
relay the signal to a broadcast tower that transmits it as a standard encrypted
television signal. As that signal is received by a customer, a decoder in a
standard set-top box decrypts the signal and provides it to the customer's
television.
The Company's digital service is transmitted DTH on a C-band satellite
transponder. Customers receive these signals on a dish mounted on or near their
homes. The signal is then descrambled and decompressed for viewing, using a
conditional access system, set-top box and smart cards designed by Mindport.
46
<PAGE>
Egypt and the Middle East
The Company provides customer service, subscriber management and customer
billing services to third-party pay-television broadcasters in Egypt and other
Middle-Eastern nations. The Company provides these services for the Showtime
and Firstnet digital satellite platforms. In Egypt, the Company also provides
these services to CNE for its terrestrial analog service. As of December 30,
1998, there were 81,435 subscribers in these countries.
Under its arrangements with Arab Radio & TV and Gulf DTH, the Company
collects revenues from their subscribers. The Company then takes these
subscriber revenues and remits a percentage to the broadcasters and keeps the
remainder as compensation for its services, which include operating customer
service centers, managing the subscriber base and conducting billing and
collection.
Mediterranean
Greece and Cyprus
The Company offers terrestrial analog pay-television services in Greece
and Cyprus through its subsidiary, NetMed. In Greece, the Company's analog
service provides three channels operating on two frequencies that offer a broad
array of entertainment, including exclusive first-run movies, sports and
children's programming. In Cyprus, the Company's analog service offers two
third-party channels that feature a similar programming lineup. NetMed began
broadcasting its analog service in 1994 and expects to begin offering digital
satellite service in 1999, subject to the receipt of a license from the Greek
government. As of December 30, 1998, NetMed had 309,692 subscribers in Greece
and 34,567 subscribers in Cyprus.
Opportunity. Greece has a population of approximately 10.5 million people
and approximately 3.2 million television households, giving NetMed's
pay-television services a market penetration of approximately 9% of television
households. The market penetration for pay-television in Greece is much lower
than the average of 38% for cable and satellite penetration in the European
Union ("EU") countries. Furthermore, in 1998, average daily viewing time in
Greece was 225 minutes, compared to an average of 191 minutes in the EU as a
whole. The Company believes that the potential market growth in Greece arises
from the large Greek appetite for television and its comparatively low rates of
market penetration. The Company also believes that the launch of NetMed's
digital satellite service, Nova, will be a significant source of new
subscribers. Nova is ready to be launched upon NetMed's receipt of a license
under a recently enacted broadcasting law.
Products. NetMed's Greek analog service consists of three channels,
FilmNet, SuperSport and K-T.V., transmitted over two analog frequencies.
FilmNet provides a combination of exclusive, first-run movies, along with some
original and imported series. SuperSport features exclusive sporting events,
including Greek league soccer and basketball, the two most popular sports in
Greece. K-T.V. offers a wide range of exclusive children's programming.
Customers have the option of subscribing to FilmNet, SuperSport or to both
services. Customers who subscribe to both also receive K-T.V. as a bonus
channel, which is currently the only way to receive K-T.V. Each of these
channels is produced by NetMed Hellas, a 96% owned subsidiary of NetMed B.V.
In Cyprus, the Company's analog platform broadcasts the LTV and Alfa
channels. LTV is produced by Lumiere, a Cypriot media company that is NetMed
B.V.'s joint venture partner in MultiChoice Cyprus. Alfa is produced by Alfa
TV, a Cypriot company. Each channel shows a variety of programming, including
exclusive films and sports. Most of the programming on each channel is
purchased from NetMed Hellas.
The digital service, Nova, is anticipated to include 19 video and five
audio channels, including film, sports and children's channels provided by
NetMed Hellas, supplemented by popular international channels and several of
the national Greek free-to-air networks. The Company's digital service has been
fully built and tested, and the Company has already established all agreements
necessary for its operation. The Company anticipates receiving a license for
digital broadcasting in 1999, although there can be no assurance that will be
the case. See "Risk Factors--Risks Associated with Growth Strategies--Greek
Operations" and "Regulation--Greece". At that time, the Company also intends to
begin offering some interactive television services on its digital platform.
The Company believes that its ability to attract and retain subscribers in
Greece and Cyprus depends on the ability of NetMed Hellas to retain its rights
to exclusive programming. NetMed Hellas has the exclusive pay-television
broadcast rights to movies from six of the eight major Hollywood movie studios,
including Columbia Tristar/Sony, Warner Brothers, Fox, MCA/Universal, Paramount
and DreamWorks and is currently negotiating with
47
<PAGE>
the two other studios for similar rights. The contracts allow NetMed Hellas to
select a specified number of films from all films produced by a given studio
each year and to broadcast these movies at least a year in advance of their
free-to-air television premiere. Typically NetMed Hellas is entitled to show a
movie 10 to 15 times during its twelve-month pay-television window. Under the
contracts, NetMed Hellas makes payments on a per subscriber basis.
NetMed Hellas also holds the exclusive rights to broadcast Greek league
soccer and Greek league basketball, the two most popular sports in the country.
Under NetMed Hellas' contract with the Greek soccer federation, NetMed
currently broadcasts three live matches each week and then sells the matches
for delayed rebroadcast on free-to-air television. NetMed Hellas has a contract
with the Greek basketball league pursuant to which NetMed will televise two
live matches and two delayed matches each week.
Marketing and Subscriber Management. The Company believes its analog
service is attractive due to its comparatively clean frequencies and
uncluttered channels. When the Company is able to provide digital service,
NetMed will continue to market its analog service as a premium offer with broad
market appeal and position Nova as an upscale service with greater choice.
Initially, the Company expects the majority of its digital growth to come from
subscribers that upgrade from the analog service. The Company also expects to
achieve subscriber growth due to the expanded territorial coverage of the
digital platform. With its digital service, the Company will be able to reach
100% of Greek households, as compared to 70% with its analog system.
The broadcast television business in Greece tends to be seasonal, with a
significant decrease in viewership occurring in the summer, when Greeks
traditionally enjoy outdoor activities and travel and when the soccer and
basketball seasons have ended. In line with this trend, the Company has
experienced subscriber churn in the summer, but the Company is aggressively
implementing new programs designed to promote year-long subscriptions. For
example, the Company is pursuing programs that apply a discount to the price of
a set-top box in conjunction with a subscription over a consecutive number of
months that runs through the summer.
NetMed provides customer service through customer care and billing centers
in Athens and Salonica. These centers utilize Mindport's IBS subscriber
management system.
Pricing and Billing. The following table sets forth certain pricing
information for the Company's Mediterranean businesses:
<TABLE>
<CAPTION>
Monthly
Subscribers (thousands) Subscription
------------------------------- --------------------------
Dec. 30, Mar. 31,
----------- -------------------
1998 1998 1997 GRD $
----------- --------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Greece
Analog .......... 310 254 203 10,900(3) 37.06
Digital ......... N/A N/A N/A 14,900(4) 50.65
Cyprus
Analog .......... 35 31 26 10,172(5) 34.58
<CAPTION>
Equipment(1)
------------------------------------------------------
Monthly
Total Lease(2)
---------------------------- -------------------------
GRD $ GRD $
---------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Greece
Analog .......... 55,000 186.98 N/A --
Digital ......... 200,000(4) 679.93 6,000(4) 20.40
Cyprus
Analog .......... 66,169 224.95 N/A --
</TABLE>
- ----------------
(1) Includes price of satellite receiver in the case of digital service.
(2) The estimated amount of monthly payment under optional, three-year
installment purchasing plans for equipment.
(3) Price for both FilmNet and SuperSport as of January 1, 1999. Separately,
FilmNet costs GRD7,300 ($24.82) and SuperSport costs GRD8,900 ($30.26).
(4) Current estimates upon launch of digital service.
(5) Price for both LTV and Alfa together. Separately, each costs GRD8,439
($28.69).
NetMed bills its subscribers monthly in Greek drachmae. Subscribers are
billed in advance and those who fail to pay their bill by the end of the month
of service are disconnected. During the 12 months ended September 30, 1998,
NetMed experienced a monthly net churn of approximately 1.3% on its total
subscriber base. Net churn is heaviest in the summer months of May, June, and
July, which averaged approximately 6.9% in 1998. In September 1998, monthly net
churn was approximately negative 6.6% versus negative 3.2% in September 1997.
Negative net churn occurs when the number of former subscribers who reconnect
exceeds the number of subscribers who drop off in a given period. To date, the
Company has not experienced significant customer disconnections as a result of
increases in the price of its services.
48
<PAGE>
Competition. NetMed competes directly with free-to-air broadcast channels
in Greece and Cyprus and indirectly with sporting events, motion picture
theaters, the Internet and other forms of entertainment. There are currently
numerous free-to-air channels in Greece and Cyprus, including national Greek
networks (such as Mega, Antenna, Skai and Star) and four national Cypriot
networks (Cyprus Broadcasting Corp., Sigma, O Logos TV and Antenna). The
Company believes its analog service is attractive due to its comparatively
clean frequencies and uncluttered channels. When launched, NetMed's digital
satellite service will have clear signal coverage throughout Greece and Cyprus,
which is difficult to replicate using terrestrial broadcasts due to the
mountainous terrain and remote islands found there. Although the new Greek
media law allows multiple licenses to be granted for pay-television platforms,
the Company is not aware of any other entity that independently intends to
apply for such a license.
Transmission. NetMed transmits its analog service through a network of 56
terrestrial transmission sites across Greece. Its network currently covers
approximately 70% of the Greek population. NetMed owns and operates 13 of the
56 sites, including the two major transmission sites in Athens and Salonica,
which together cover approximately 60% of the population. NetMed distributes
its signal to the regional transmission sites over the Eutelsat's Hot Bird 2
satellite.
The remaining regional transmission sites are owned and operated on the
Company's behalf by local business partners, who often also own distribution
outlets where NetMed's set-top boxes are sold. In return, the local business
partners receive 6% of analog subscription revenues in their reception area,
and upon the launch of digital it is expected that they will receive some
incremental compensation.
The terrestrial analog network in Cyprus is owned by Lumiere, the
Company's minority partner in MultiChoice Cyprus, and Alfa TV. The network
consists of transmission sites, which together provide coverage of 77% of
Cypriot television households. Additional sites are being established to
increase coverage.
The digital satellite service will be transmitted off Eutelsat's Hot Bird
2 and Hot Bird 3 satellites to 60cm dishes mounted on homes. Both the
terrestrial analog and digital satellite transmission systems utilize backup
systems, including redundant routing to the point of uplink and, in the case of
analog, backup broadcast towers.
In encrypting and decoding its signal, NetMed uses conditional access
technology licensed from Mindport.
Asia
The Company conducts its Asian development operations out of its office in
Hong Kong. Its first investment in this region is its joint venture interest in
UBC, the leading pay-television provider in Thailand. Through a series of
transactions beginning in 1997, the Company now owns 27.8% of UBC and holds an
option to purchase an additional 3.3%. The agreements governing this joint
venture grant the Company certain management rights, including the right to
appoint the Chief Operating Officer. The Company views the UBC venture as a
model for possible future ventures in Asian countries and plans to draw upon
its experiences in Thailand in structuring its other investments in the region.
Thailand
The Company offers digital satellite and analog pay-television services in
Thailand through the UBC Group. The UBC Group was formed from UBC's acquisition
in February 16, 1998 of Telecom Asia's interest in UBC Cable, a leading
provider of cable television services in Thailand. This acquisition combined
the two largest pay-television companies in Thailand. The Company believes that
the UBC Group has been able to derive significant benefits from this
acquisition, including a more coordinated and focused marketing strategy and
the ability to streamline its workforce.
In 1997, the Company was invited to acquire an equity interest in UBC in
order to provide UBC with its pay-television management expertise. After making
its initial investment, the Company placed certain of its employees in key
management positions. As a result of these appointments, the Company was able
to refocus UBC in order to bring it in line with the Company's operating
philosophy. The Company took the lead role in repositioning UBC for long-term
growth through the acquisition of UBC Cable by UBC. The Company also led the
coordination of the cable and digital bouquets, the implementation of a new
pricing plan and the introduction of a new billing plan. The Company believes
the long-term effect of these changes will be to increase subscriber growth and
UBC's revenues and profitability.
As of December 30, 1998, the UBC Group had 301,378 total subscribers,
including 147,410 cable subscribers, 144,198 digital satellite subscribers, and
9,770 MMDS subscribers. The UBC Group began its MMDS service in 1989, its cable
service in 1995 and its digital satellite service in 1995.
49
<PAGE>
Opportunity. Thailand has a population of approximately 61.1 million
people, with approximately 14.6 million television households. The Company
believes that Thailand represents an excellent opportunity for subscriber
growth, given the low pay-television penetration in Thailand, which is
approximately 2% of television households. That figure is less than most other
countries in the region, including those with similar or lower levels of
economic development than Thailand.
Given the comparatively low level of market penetration in Thailand, the
Company believes that the recently adopted coordinated marketing plan between
its cable and digital satellite services should result in increased subscriber
growth. UBC's digital satellite service is potentially receivable by all 14.6
million television households in the country. UBC Cable's service, which has
147,410 subscribers, passes more than 800,000 homes in Bangkok.
Products. The UBC Group's digital satellite and cable services each
provide the same 35 channels, including proprietary channels showing movies and
sports, major international channels and six major free-to-air networks, in
addition to seven educational channels. The bouquets were coordinated in order
to reduce churn between services as subscribers abandoned one system for
another. The Company believes this unified approach and leading market position
has been responsible for a significant decline in its international channel
costs. The satellite service is offered on two tiers, and the cable service is
offered on three tiers.
The UBC Group plans to persuade existing digital subscribers whose homes
are cable accessible to switch to cable. The Company believes it can accomplish
this as the programming on each service is now congruent. This will allow the
Company to use that household's digital equipment for new subscribers
elsewhere.
Six of the channels shown on the UBC Group's pay-television systems are
produced by its 99.9% owned subsidiary, Cineplex. The channels include UBC
Movies and UBC Asian Movies, which show first run and repeat films, UBC Kids,
UBC Series, UBC News and SuperSport 1 and 2. Cineplex does not currently have
the same exclusive rights to first run movies as are enjoyed by other MIH
operating companies, but shows programming to which HBO, Cinemax and other
movie channels do not have exclusive access. Its SuperSport channels show
programming tailored for Thai audiences, including favorite local sports such
as takraw and badminton, along with exclusive major international events, such
as English Premier League Soccer. The UBC Group also broadcasts major
international and local free-to-air channels. Most programming on the UBC
Group's pay-television systems carry the original soundtrack along with a
dubbed Thai soundtrack or Thai subtitling, with such dubbing and subtitling
generally being carried out by the UBC Group. The chart below details the
channels provided and the tiering structure for both the cable and satellite
bouquets:
50
<PAGE>
<TABLE>
<CAPTION>
Type of Type of
Programming Channel Programming Channel
- --------------- ------------------------ -------------- ------------------------------
<S> <C> <C> <C>
Movies HBO -- G News UBC News -- S
Cinemax -- G CNN -- G
Star Movies -- G BBC -- G
Hallmark -- G CNBC -- G
UBC Asian Movies -- S -------------- ------------------------------
TNT Classic Movies -- G Kids Cartoon Network -- G
UBC Movies -- G* UBC Kids -- S*
- --------------- ------------------------ -------------- ------------------------------
Sports ESPN -- G Education DLT/ETV (seven channels) -- B
Star Sports -- G -------------- ------------------------------
SuperSport 1 -- G Music MTV -- G
SuperSport 2 -- G CH[V] Thai -- S
- --------------- ------------------------ -------------- ------------------------------
General UBC Series -- S Foreign TV5 (French) -- G
Entertainment Jet TV (Thai) -- G NHK (Japanese) -- A
Jet TV (Japanese) -- A -------------- ------------------------------
CCTV -- G Terrestrial Channel 3 -- B
Mosaic -- B Broadcasters Channel 5 -- B
AXN -- G Channel 7 -- B
Discovery -- G Channel 9 -- B
Animal Planet -- G Channel 11 -- B
Fashion TV -- G ITV -- B
</TABLE>
- ----------------
B = Basic package (also included in silver and gold packages)
S = Silver package, cable (also included in gold package, cable and digital)
G = Gold package, cable and digital
A = A la carte
* = Occupies same physical channel
UBC currently offers interactive services in the form of an electronic
programming guide on its digital platform. In the future, UBC intends to offer
web browsing, pull-down menus, e-mail, home shopping and home banking, but has
not set a definite date for the launch of those services. In providing these
services, UBC will use software platforms developed and provided by OpenTV, a
part of the Company's Mindport division. The Company believes interactive
television will be a substantial new phase in UBC's business development and
has the potential to provide UBC with significant new sources of revenue at
higher margins and fuel subscriber growth.
Marketing and Subscriber Management. UBC markets its service as a premium
offer with broad market appeal. UBC is in the process of phasing out its analog
MMDS system due to widespread piracy of its signal. UBC will retain its rights
to the MMDS frequencies and is examining the feasibility of establishing a
digital MMDS service.
UBC provides customer service through customer care and billing centers in
four cities, including Bangkok. These centers use Mindport's IBS subscriber
management system.
51
<PAGE>
Pricing and Billing. The following table sets forth certain pricing
information for the Company's Thai business:
<TABLE>
<CAPTION>
Number of Subscribers(1) Monthly Subscription Price Equipment
------------------------ ----------------------------------- -------------------------------------
Dec. 30, Mar. 31, Silver Package Gold Package Purchase(2) Monthly Rental
---------- ------------- ----------------- ----------------- -------------------- ----------------
1998 1998 1997 Baht $ Baht $ Baht $ Baht $
---------- ------ ------ ------ ---------- ------ ---------- -------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cable .......... 147 154 119 400 10.68 890 23.75 4,000 106.75 100 2.67
Digital ........ 144 116 59 N/A 890 23.75 10,500 280.22 160 4.27
MMDS(3) ........ 10 43 76 N/A N/A N/A N/A
</TABLE>
- ----------------
(1) Subscribers in thousands.
(2) Includes installation fee, connection fee and refundable set-top box
deposit.
(3) Phase-out expected in 1999.
On March 19, 1999, MCOT approved UBC's new basic package consisting of ten
paid and six free-to-air channels priced at Baht 790 ($21.08) per month. MCOT
also approved UBC's planned increase in the price of its gold package to Baht
1,090 ($29.09) per month, an increase of 22.5% from the current package price
of Baht 890 ($23.75) per month. The Company expects to introduce the new basic
package on May 1, 1999, with the gold package price increase taking effect on
April 5, 1999 for new subscribers.
For the 12 months ended September 30, 1998, the UBC Group's average
monthly net churn was approximately 2.0% on its digital system and
approximately 4.0% on its MMDS system. The higher net churn for MMDS is
consistent with UBC's effort to phase out its analog MMDS system. The average
monthly net churn for the UBC Group's cable system was approximately 3.6% for
the 6 months ending October 31, 1998 (net churn for the months prior to this
period are unavailable). The Company believes that the coordination of the
programming packages for cable and digital will reduce the amount of churn
caused by subscribers switching between those platforms. To date, the UBC Group
has not experienced significant customer disconnections as a result of
increases in the price of its services.
Consistent with the policies of other MIH companies, the UBC Group has
instituted a strict policy of terminating the service of subscribers once they
fall 30 days in arrears. This policy has helped reduce the average arrearage to
nine days from 180. In the second half of 1999, the UBC Group plans to switch
to advance billing, which is used in the other MIH operating companies.
The UBC Group does not require its subscribers to purchase their set-top
boxes but rather retains ownership of the equipment. The cost of the equipment
is built into the connection fee and monthly charge. The Company believes that
this strategy has a positive effect upon subscriber growth by minimizing the
entry cost of subscription to the UBC's services.
Competition. The Thai television industry consists primarily of several
national free-to-air television stations and the Company's pay-television
operations. Previously, another pay-television service had been operated by
Thai Sky, but it discontinued operations in 1997. The Thai regulatory authority
granted pay-television licenses to two other companies in 1996, but those
companies have not launched, or announced an intention to launch, pay-television
services. There are also several small, provincial cable systems, generally
averaging fewer than 1,500 subscribers. The UBC Group competes directly with
the national free-to-air television stations and, in the case of the digital
service, local cable groups in Thailand and indirectly with sporting events,
motion picture theaters, the Internet and other forms of entertainment. The
Company believes that UBC's unique programming, including exclusive first run
movies and sporting events, gives it a distinct advantage over its free-to-air
television competitors. The national free television stations are uplinked to
the same satellite used by UBC's service and consequently form part of the
bouquet available to the Company's subscribers. The Company believes that this
arrangement enhances its appeal to current subscribers and assists in growing
its subscriber base.
Transmission. UBC's digital satellite service is transmitted on a Ku-band
signal through the Thaicom 3 satellite, owned by Shinawatra Satellite Public
Company Limited. The satellite uplink facilities at Lad Lum Koa are owned and
operated by CS Communications Limited. UBC utilizes digital compression
technology that facilitates multiple channel transmission through a single
channel's bandwidth. Subscribers receive their signal on a 60-90 cm dish and
unscramble and decompress the signal with a set-top box utilizing Irdeto
Access' conditional access system and smart card technology from Mindport. The
set-top box, smart cards and conditional access equipment are owned by SSV (a
96% owned subsidiary of UBC) and leased to the UBC Group.
52
<PAGE>
UBC Cable's transmission is delivered on hybrid coaxial fiber optic cable
lines and over a dropwire into homes that utilize a set-top box to access the
signal. The cable network is owned by Asia Multimedia Company Limited ("AMM"),
a subsidiary of Telecom Asia, and leased to UBC Cable pursuant to an agreement
that expires in 2019. As part of its services to UBC Cable, AMM supplies and
installs a dropwire to link its network to subscriber homes and installs and
maintains the set-top boxes.
UBC's cable system features redundancy at the head-end. The satellite
system features route and fiber redundancy in the feed to the uplink stations.
The uplink stations themselves will be fully redundant by 1999.
Technology
Overview
The Company's technology division, Mindport, provides a comprehensive
package of technology products and support services to pay-media operators
worldwide. These products and services include IBS subscriber management
systems, Irdeto conditional access systems and the OpenTV operating system for
interactive television, along with others. Mindport's products are designed to
be flexible, configurable and scalable, allowing them to be used by a variety
of different customers and to be integrated in systems using the products of
Mindport's competitors. Mindport's diverse and well integrated product line
also allows it to act as a single source for fulfilling a customer's pay-media
technology needs, particularly in the growing market for interactive
television. The Company believes that Mindport will be able to capitalize on
the anticipated growth in interactive platforms and the anticipated convergence
of television, telephony and the Internet in order for it to expand its
customer base.
The following table lists certain of Mindport's major customers and the
products they use:
<TABLE>
<CAPTION>
Irdeto
Customer Market IBS Access OpenTV
- -------------------------------------- ------------------- ------ -------- -------
<S> <C> <C> <C> <C>
MultiChoice(1) ....................... South Africa [check] [check] [check]
Sub-Saharan Africa [check] [check] [check]
Greece [check] [check] Future
Middle East [check] [check]
UBC(1) ............................... Thailand [check] [check] Future
Canal+ ............................... Europe(2) [check] [check]
EchoStar ............................. United States Future
CBSat ................................ China Trial Trial Trial
Stream ............................... Italy [check] [check]
Galaxy Latin America ................. Latin America(2) [check]
DirecTV .............................. Japan [check]
Optus ................................ Australia [check] [check]
BSkyB ................................ UK [check]
TPS .................................. France [check]
TDK .................................. Denmark [check]
----- ----- -----
Total Subscribers (000's)(3) ......... 3,142 4,180 2,000
</TABLE>
- ----------------
(1) All transactions between Mindport and MIH Limited's other subsidiaries
and affiliates are conducted on an arms-length basis.
(2) Certain countries only.
(3) As of December 31, 1998.
Mindport's ability to provide a "one-stop-shop" for pay media technology
needs is valuable to new interactive platform providers who can speed their
time to market by utilizing Mindport technology. A good example of this is the
Company's recent agreement to provide conditional access systems, subscriber
management systems and the OpenTV operating system to CBSat, the first provider
of trial digital satellite services in the People's Republic of China. CBSat's
system is being deployed in small numbers on a test basis in 1999, with a
possible broader rollout thereafter.
IBS
Mindport's IBS software provides pay-media operators with a broad range of
subscriber management services and products that combine customer care, billing
and logistics functionality in one integrated system. IBS supports all types of
subscriber-based businesses, including pay-television operators, Internet
service providers and data
53
<PAGE>
broadcasters over a wide range of delivery platforms. Mindport's IBS system is
a flexible, configurable and highly scalable product, that can service
pay-media operations of vastly different sizes.
Mindport IBS has historically generated revenues by charging up-front
license fees and monthly customer service and support fees. Recently, Mindport
has begun to collect from certain customers license revenues and support fees
scaled to the customers' subscriber numbers, paid on a monthly basis. Mindport
currently provides IBS to 25 customers, including certain platforms of Canal+,
DirecTV Japan and many of the Company's operating entities. IBS's competition
in its current and planned future markets includes approximately 40 companies
worldwide, including Wiztec and CableData, who focus on pay-television, and
Saville, LHS Group, CSG and Amdocs, who focus primarily on telephony operators.
The Company believes that the demand for subscriber management services
will increase as operators seek to provide more advanced technology to their
customers. IBS is able to support changes and accommodate new platforms,
including analog, digital and interactive systems. In addition, IBS is a highly
scalable software package, as demonstrated in testing by major U.S. hardware
and software producers who verified its scalability to several million
subscribers.
Today, IBS is a leading subscriber management software package for
pay-television. The Company plans to continually redefine the IBS architecture
to improve on its configurability, flexibility and scalability. The Company
also plans to take advantage of the system's flexibility to penetrate new
markets for IBS, such as Internet service, cable, data broadcasting and
telephony providers. In addition, the Company also plans to introduce a
scaled-down IBS for the Internet market that can run on a laptop and a product
capable of tracking interactive television applications, especially interactive
commerce transactions.
Irdeto Access
Irdeto Access provides digital and analog conditional access systems to 13
customers operating in over 20 countries. These systems enable pay-television
operators to encrypt and decrypt their broadcast signals and thus control
subscriber access to programs, services and events.
The Company believes that its digital conditional access system's
flexibility, compatibility with multiple equipment vendors, ease-of-use and
sophisticated security features make it attractive to pay-television operators
worldwide. The system's open architecture allows pay-television operators to
incorporate as few or as many features as they require and adjust these
features as their needs change. Irdeto Access offers M-Crypt, a system
specifically for pay-media providers with fewer than 100,000 subscribers.
M-Crypt allows these operators to reduce their investment in computing
equipment and third-party software licenses and is easily upgradable if the
operator's subscriber base were to grow past a certain size. Mindport also
produces an analog conditional access system that is also based upon a modular
and flexible design. This allows the Company to tap into price sensitive
markets that will not be considering digital services for some years to come.
Irdeto Access licenses its technology to various manufacturers to produce
its conditional access systems and generates revenues by charging an up-front
license fee along with a fee for each conditional access unit sold. The major
users of Mindport's conditional access systems include Stream, Telepiu, Canal+
and certain of the Company's operating entities. As of December 31, 1998,
Mindport had supplied over 1.3 million digital and over 2.9 million analog
conditional access units.
The principal products competing with Irdeto Access include MediaGuard,
ViaAccess, NDS and NagraVision. The Company believes that a customer's primary
consideration in choosing among conditional access systems are system security
and dependability and that Irdeto Access enjoys a solid reputation for both of
these qualities.
Mindport's strategy for Irdeto Access encompasses four main goals: (i)
reduce the cost of ownership for both digital and analog conditional access
systems; (ii) develop the next generation conditional access products; (iii)
implement an analog sales operation in new markets; and (iv) develop an MPEG-2
encryption product for the Internet. The Company has a team of engineers
dedicated to conditional access design and development who are responsible for
developing new products, increasing the functionality of existing products and
reducing costs through increased chip functionality. Mindport's management
believes that further price reductions may be achieved by cutting production
costs, shifting production to locales with lower manufacturing costs and
reducing royalty costs by re-examining certain partnerships and business
relationships dealing with developing conditional access technology. The
Company recently acquired TV/COM International Inc., a San Diego based company
that holds intellectual property licensed to Irdeto for use in its conditional
access systems.
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OpenTV
OpenTV is a leading provider of operating system software for digital
set-top boxes used in both satellite and cable television systems. Several
digital satellite operators, including TPS in France, EchoStar in the United
States, BSkyB in the United Kingdom and CBSat in China, are using or have
entered into agreements to use the OpenTV software system. TPS is presently
OpenTV's largest customer with over 700,000 set-top boxes deployed as of
December 31, 1998. TPS has used OpenTV software to gain market share in France
by deploying interactive television applications and services that attract and
retain subscribers. Using OpenTV's development tools, TPS designs its own
virtual channels, including an electronic programming guide and interactive
weather service. It also recently ran a successful interactive advertising spot
for Renault.
OpenTV's operating system software manages all of the basic functionality
of the digital set-top box and enables it to run interactive applications. The
OpenTV operating system is extremely flexible and is currently being used with
a variety of decoders. In addition, OpenTV provides pay-media operators with
easy-to-use software tools such as its Software Development Kit and Open
Author, which permit the operators themselves to design their own interactive
services. The open architecture of OpenTV's operating system software means
that it can be used with any conditional access system and can support a number
of different head-end systems. Another feature of the OpenTV operating system
is its ability to manage and handle several interactive applications
simultaneously.
OpenTV derives its revenue from a licensing fee per set-top box,
maintenance and support fees, licenses of proprietary software tools supporting
the OpenTV system and consulting fees. As of December 31, 1998, the OpenTV
operating system had been installed in approximately 2.0 million set-top boxes.
At present, OpenTV's competitors include MediaHighway, Enhanced TV, Jini,
Power TV, NCI and WebTV. In the future, other software companies may decide to
compete directly with OpenTV in the digital interactive television software
market. OpenTV believes that its future competitors must overcome OpenTV's
first to-market advantage and the significant head start that it enjoys in
developing interactive television software. In addition, applications developed
with OpenTV software function at the head-end level and are independent of the
set-top box, thereby providing two principal advantages. First, any
improvements or enhancements can be downloaded over the digital signal received
by the set-top box, making the dissemination of upgrades simple and
inexpensive. Second, applications based upon the OpenTV operating system enjoy
protection against decoder obsolescence since the software is used with
different set-top box technologies. To date, OpenTV's customers have developed
interactive applications using OpenTV's software development tools, or they
have contracted with OpenTV to develop applications on a consulting basis.
OpenTV is now developing a suite of interactive applications that it will
market to customers on a licensing or revenue sharing basis.
The present strategy for OpenTV is to become the leading operating system
for interactive applications on digital media platforms worldwide, complete the
development and introduction of applications such as home banking and home
shopping and to enhance its products and services for greater exploitation of
the Internet.
Other Products
Media Commerce Technologies. Mindport is currently developing software in
three application areas as part of its plan to develop the tools, technologies
and supporting structures that will enable pay-television operators to provide
comprehensive interactive broadcast services. The first consists of
applications for interactive television, such as extended electronic program
guides, virtual channels and program enhancement. The second is fulfilment
services, which use Internet commerce technologies that have been adapted for
the broadcast platform. The third application area, infrastructure
technologies, provides the common communications infrastructure for media
commerce.
CLASS. Mindport's Contracts, Library and Scheduling System (CLASS) enables
digital pay-television operators to manage contracts, control their program
libraries, manage license tracking and utilize multiple-language electronic
program guides.
Consulting. Mindport Solutions is a new division intended to capitalize on
the expertise within the Mindport group to offer consultancy services and
turnkey solutions to new pay-television operators. This division was launched
with the award of a system integration contract for the DTH platform of Stream,
the Italian pay-television service owned by Telecom Italia.
55
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Properties
The Company has major corporate offices in Hoofddorp, The Netherlands,
Johannesburg, South Africa and Athens, Greece. The following table summarizes
certain information regarding the Company's principal facilities as of November
1998:
<TABLE>
<CAPTION>
Description/Use Location Size Owned or Leased
- ---------------------------- ---------------------------- ------------ ----------------
<S> <C> <C> <C>
Corporate offices .......... Hoofddorp, the Netherlands 6,772 m2 leased
Corporate offices .......... Johannesburg, South Africa 20,400 m2* leased
Corporate offices .......... Durban, South Africa 2,672 m2 leased
Corporate offices .......... Cape Town, South Africa 3,219 m2 leased
Corporate offices .......... Athens, Greece 8,126 m2* leased
</TABLE>
- ----------------
* = multiple locations
Employees
At December 31, 1998, the Company had 3,352 full-time employees. None of
the Company's full-time employees are unionized. The Company believes its labor
relations are satisfactory.
Intellectual Property
The Company relies on a combination of patents, licensing arrangements,
trade names, trademarks and proprietary technology to protect its intellectual
property rights. The Company owns, or has been assigned or licensed the rights
to, several patents and has several patent applications in various
jurisdictions relating to its proprietary technology. In addition, the Company
currently has numerous trademarks (pending and registered) in countries where
it conducts business. Some of the Company's major trademarks include the names
and logos of Irdeto, Mindport, OpenTV, DStv and MultiChoice.
The Company may file additional patent and trademark applications in the
future, although there can be no assurance that the Company will be successful
in obtaining patents or trademark registrations based upon such applications.
The Company intends to vigorously protect its intellectual property rights. It
may be possible, however, for a third party to copy or otherwise obtain and use
the Company's technology without authorization or to develop similar technology
independently. Furthermore, the laws of certain countries in which the Company
sells its products do not protect the Company's intellectual property rights to
the same extent as do the laws of the United States. See "Risk Factors--Risks
Associated with Intellectual Property".
Legal Proceedings
From time to time, the Company and its local partners in Greece have
experienced objections by local communities to the establishment or continued
presence of transmission sites in such communities. Such matters have generally
been resolved in the ordinary course. In addition, the Company is party to
routine litigation and proceedings in the ordinary course of business. The
Company is not aware of any current or pending litigation which it believes
would have a material adverse effect on the Company's results of operations or
financial condition.
One of NetMed's competitors has filed a suit against the Greek basketball
league and NetMed Hellas. The competitor asserts that the basketball agreement
between the Greek basketball league and NetMed Hellas was the product of an
unfair process and constitutes a restriction on competition and an abuse of
NetMed Hellas' dominant position in the Greek pay-television market. The
Company believes that NetMed Hellas' rights under the basketball agreement will
not be substantially affected by this action and that the claim for monetary
damages is without merit.
The South African Competition Board is currently investigating certain
business practices of MultiChoice Africa under South Africa's Maintenance and
Promotion of Competition Act. See "Regulation--South Africa".
Environmental Matters
Environmental laws vary significantly among the countries in which the
Company operates. Under certain environmental laws, a current or previous owner
of real property, and parties that generate or transport hazardous substances
that are disposed of on real property, may be liable for the costs of
investigating and remediating such substances on or under the property.
Environmental laws also may impose restrictions on the manner in which
56
<PAGE>
property may be used or businesses may be operated, and these restrictions may
require expenditures for compliance. In connection with the ownership or
operation of its facilities, the Company could be liable for such costs in the
future.
The Company is not aware of any material environmental claims pending or
threatened against it, and the Company does not believe it is subject to any
material environmental remediation obligations. However, no assurance can be
given that a material environmental claim or compliance obligation will not
arise in the future.
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REGULATION
South Africa
Overview. M-Net broadcasts its channels pursuant to a license acquired on
October 17, 1985 from the Minister of Posts and Telecommunications (the
"Minister"). In accordance with the prevailing law at the time, the Minister's
approval was given after the requisite consultation with the SABC, the
state-owned public service broadcaster.
The Independent Broadcasting Authority Act No. 153 of 1993 (the "IBA
Act"), which came into operation on March 31, 1994, established the Independent
Broadcasting Authority (the "IBA") as an independent regulator mandated to
regulate broadcasting in the public market subject to principles of
accountability and transparency. The regulation of broadcasting is now vested
in the hands of the council of the IBA.
The IBA Act vests in the council of the IBA all powers, functions and
duties in relation to the administration, management, planning and use of
broadcasting services' frequency bands (those frequencies assigned to
broadcasting by the International Telecommunications Union and adopted in South
Africa), including the power to issue licenses for broadcasting services. The
IBA Act prohibits the provision of broadcasting signal distribution or a
broadcasting service (utilizing the broadcasting frequencies) unless such
distribution or service is provided in accordance with a signal distribution or
broadcasting license issued by the IBA. The latter licenses may be granted for
public broadcasting services, private broadcasting services and community
broadcasting services.
The IBA Act contains provisions which recognize existing licenses under
previously applicable laws, such as the license previously issued to M-Net
Ltd., which license has been amended by the IBA after a public consultation
process. The license imposes certain local content requirements, advertising
limitations and a license fee equal to 2% of revenues derived from the two
analog channels. In addition, Orbicom has received a downlink license and a
broadcasting signal distribution license from the IBA. The latter permits
Orbicom to provide M-Net Ltd. with terrestrial analog distribution services in
South Africa.
The Telecommunications Act No. 103 of 1996 provides that all
telecommunications and radio frequencies other than broadcasting and
broadcasting frequencies should be regulated by the South African
Telecommunications Regulatory Authority ("SATRA"). In addition, SATRA
recognizes the uplink license and MMDS license which were issued to Orbicom
prior to the establishment of SATRA. The MMDS license authorizes the use of
frequencies and terrestrial stations for analog distribution. The uplink
license authorizes the distribution of television, sound and/or associated data
via satellite for direct reception or terrestrial re-transmission, provided
that such distribution is directly related to a broadcasting service. In
addition, Orbicom has received a value added network services licence and, on
February 19, 1999, received a further uplink license from SATRA.
Future Developments. On June 4, 1998, the Department of Communications
issued a White Paper on broadcasting policy. It confirmed that a new
broadcasting policy would seek to establish a 3-tier governance system for the
broadcasting industry, namely policy formulation and development by the
government, licensing and regulation by the IBA and service provision by the
broadcasters and signal distributors. The White Paper made, inter alia, the
following recommendations:
o the imposition of specific broadcasting license conditions on
private broadcasters which would acknowledge the different services
offered by satellite services, pay services and free-to-air services
and which would impose obligations commensurate to the nature of the
particular broadcasting business;
o the adoption of a more comprehensive definition of broadcasting and
broadcasting services than that contained in the IBA Act in line
with international practices and technological developments; and
o the merger into a single body of the broadcasting and
telecommunications regulatory functions.
In view of the increasing difficulty in differentiating between radio
frequency spectrums used for telecommunications and those used for broadcasting
and in order to prevent duplication specifically in the technical skills and
facilities areas, the government has decided to merge the IBA and SATRA into a
single regulatory authority. It was envisaged in the White Paper that the new
regulatory body would enjoy an independent statutory framework.
On August 14, 1998, a new Broadcasting Bill was published. This Bill,
which has not yet been enacted, essentially seeks to put into law the most
important findings and recommendations of the White Paper. In particular, it:
o repeals the Broadcasting Act and provides a charter for the SABC;
o clarifies the Minister's powers with regard to policy formulation
and the IBA's powers in respect of the regulation and licensing of
the broadcasting system;
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o establishes the Frequency Spectrum Directorate in the Department of
Communications; and
o creates new classes of broadcasting licenses in line with the
proposals in the White Paper.
MultiChoice Africa does not itself presently require a license from the
regulatory authorities for its DStv service. The Company's affiliates (M-Net
Ltd. and Orbicom) hold the necessary broadcasting signal distribution and
uplink licenses. It is, however, likely that the enactment of the Broadcasting
Bill will affect MultiChoice Africa's position, and that a form of license will
be required for the DStv service within the new regulatory framework.
Investigation. The South African Competition Board is currently
investigating whether certain business practices of MultiChoice Africa
constitute a restrictive practice under South Africa's Maintenance and
Promotion of Competition Act. The business practices being investigated are (i)
the refusal by MultiChoice Africa to do business with DSAT Select (Pty) Limited
("DSAT") which markets a bundled product consisting of hardware, software and a
digital signal, (ii) MultiChoice Africa's pricing and distribution policy in
respect of digital decoders, (iii) alleged cross-subsidization between
MultiChoice Africa and its own rental outlets with regards to signal and/or
decoders and/or (iv) alleged differential treatment of subscribers who have
obtained their digital subscriptions through DSAT when compared with other
subscribers. The Company believes that the resolution of this investigation
would not have a material adverse effect on the Company's business, as it
believes the investigation is primarily related to its decoder rental business.
However, there can be no assurance that this will be the case.
Greece
General. The regulatory framework governing the establishment and
operation of free-to-air television stations in Greece is provided by Law
2328/95 on the "Legal Status of Private Television and Local Radio, Regulation
of Several Issues related to the Radio Television Market and Other Provisions"
(the "Free-to-Air Law"). The Greek government recently enacted a new law (Law
2644/98 on "The provision of pay television and radio services and other
provisions") that regulates pay television (via satellite, terrestrial relays
or cable) by the use of analog or digital methods of transmission (the
"Pay-Television Law"). Prior to the enactment of the Pay-Television Law,
pay-television was regulated by the Free-to-Air Law, some provisions of which
survive, as described below.
The Free-to-Air Law. Before the enactment of the Pay-Television Law, the
Free-to-Air Law granted Greek Radio Television SA ("ERT"), the state-owned
broadcasting entity, the exclusive right to broadcast encrypted television
signals in Greece. ERT was permitted to further assign such rights to third
parties. Based on this legislation, NetMed Hellas entered into an agreement
with ERT on October 15, 1994, pursuant to which NetMed Hellas' encrypted
service is transmitted on a frequency allocated by ERT. This agreement has been
approved by a joint decision of the Minister of Press and Mass Media and the
Minister of Finance and ratified by Law 2328/95.
The October 1994 agreement was extended and supplemented by a further
agreement dated December 29, 1995 which relates to the transmission of a second
encrypted service on a frequency allocated by ERT. This further agreement was
also approved by joint ministerial decision.
These agreements require NetMed Hellas to pay certain fees to ERT equal to
6.5% of subscription fees payable by subscribers who subscribe to only one
service and 5.0% of subscription fees payable by subscribers who subscribe to
both services. NetMed Hellas is required to provide a bank guarantee in an
amount of GRD 1 billion each year to secure these payments.
So long as the cooperation agreements with ERT are in force, regulations
concerning the share capital composition of free to air television are not
applicable to NetMed Hellas, which is subject to the terms of such agreements
with ERT. The regulations with ERT ensure that NetMed BV and NetMed Hellas (or
any other company which has the control of the group of companies to which
NetMed Hellas belongs) shall be liable towards ERT for the fulfillment of the
obligations of NetMed Hellas in accordance with the cooperation agreement.
Additionally, ERT's approval is required for the transfer of the majority of
the shares to NetMed Hellas and the transfer of less shares than the majority
requires ERT to be notified. ERT has also the right to be provided with
detailed information if the new shareholders or the new share capital are
directly entered into NetMed Hellas. These regulations are in effect for the
entire term of the agreement with ERT.
Pay-Television Law. Under the new Pay-Television Law, the rights to
provide pay-television through terrestrial, satellite or cable broadcast can be
secured either by obtaining a license directly from the Greek government or by
signing of a cooperation agreement with any holder of a license. Accordingly,
the existing agreement between NetMed Hellas and ERT is sufficient to secure
terrestrial broadcast rights for the Company.
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<PAGE>
Upon the expiration of that agreement in October 1999, NetMed Hellas could
either cooperate with a license holder or seek a license directly. Under the
new Pay-Television Law, no single shareholder of a company having a terrestrial
license may hold more than 40% of the capital stock of such company.
With regard to digital, an application for the issue of a license for the
provision of pay services via satellite has been submitted by MultiChoice
Hellas, and the application is being studied by the National Radio and
Television Council.
EU Regulation. The EU Broadcasting Without Frontiers Directive (the
"Directive") of October 3, 1989 established the basic principles for the
regulation of broadcasting activity in the EU. In essence, it provides that
each EU broadcasting service should be regulated by the authorities of one
member state (the "home member state") and that certain minimum standards
should be required by each member state of all broadcasting services that
state's authorities regulate.
The Directive currently requires member states to ensure "where
practicable and by appropriate means" that the broadcasters reserve "a majority
proportion of their transmission time" for programs produced in Europe. In
applying this rule, broadcast time for news, games, advertisements, sports
events, infomercials, and teletext services is excluded. The Directive
recognizes that member states are to move progressively towards requiring their
broadcasters to devote a majority of relevant transmission time to programs
produced in Europe, having regard to the broadcaster's informational,
educational, cultural and entertainment responsibilities to the viewing public.
Thailand
Since September 1992, television broadcasting in Thailand has fallen under
the control of the National Broadcasting Commission of the Prime Minister's
office. Private investors are not allowed to own television stations. The Thai
Television Co. Ltd. was established by the Public Relations Department of
Thailand (the "PRD") and other government agencies as a state enterprise to
operate Thailand's first television station. Following enactment of the Thai
Radio and Television Broadcasting Act of BE 2498 (AD 1955) (the "RTBA"),
television broadcasting commenced on June 24, 1955. In 1977, MCOT was
established to operate mass media businesses on behalf of the government. The
Thai Television Co. Ltd. was then dissolved, and its assets and operations were
transferred to MCOT. As a consequence of developments in technology, the RTBA
was amended in 1987 to allow television broadcasts to be made to the public
through cable and electronic means.
Since January 13, 1994, pursuant to certain ministerial regulations dated
October 13, 1993, companies in the private sector have had the right to apply,
in the case of Bangkok transmissions, to the PRD and, in the case of
transmissions outside Bangkok, to the PRD or the Regional Public Relations
Centre, for a license to supply cable television. Those applications for
licenses are considered by a committee appointed by the Prime Minister. Such
licenses, on the basis of the regulations, permit the supply of television
through fibre optic or electric cable, but not through other means, including
wireless transmission, such as microwave signal as currently utilized by UBC.
At present, there are two major government bodies which regulate and
monitor media companies and their activities, MCOT and the PRD. The PRD is a
regulatory body controlled by the Prime Minister's office. It has a similar
scope of responsibilities to MCOT and is responsible for monitoring terrestrial
stations and issuing licenses for new commercial free-to-air and satellite
stations. The PRD also runs Channel 11, which is the only state education
television station in Thailand.
Both MCOT and the PRD have wide regulatory powers. Since their scope of
responsibilities overlap significantly, many companies apply for licenses to
broadcast from both entities. At present, UBC and UBC Cable require and have
obtained a license from the PRD to utilize certain frequencies and concessions
from MCOT to operate pay-television businesses.
On April 17, 1989, MCOT and UBC entered a joint venture agreement for the
provision of subscription television service which was subsequently amended on
May 19, 1994 and April 17, 1998 (together, the "UBC Concession"). UBC is
permitted to operate subscription television on behalf of MCOT until September
30, 2014. UBC is entitled to provide subscription television pursuant to the
UBC Concession to the whole of Thailand, using satellite to provide a
direct-to-home service to the whole of Thailand, cable in the provincial areas,
MMDS as permitted by the Post and Telegraph Department and by satellite to hubs
in provincial areas and then through local cable networks to subscribers. In
exchange, UBC pays MCOT 6.5% of the gross revenue derived from the operation of
the subscription television business in each year during the period of the UBC
Concession as consideration for the agreement, subject to a minimum amount per
annum.
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Subscription fees or other subscriber charges and the form of contracts
with subscribers must be submitted to MCOT for prior clearance.
On November 12, 1993, MCOT and Telecom Asia entered into a memorandum of
agreement for a joint venture for the provision of cable television services.
Pursuant to its terms, Telecom Asia agreed to set up a public company to
operate a cable television business. On June 6, 1994, MCOT and UBC Cable
entered into a contract for the joint operation of subscription television
services (the "UBC Cable Concession"). The Company is permitted to operate
subscription television on behalf of MCOT until December 31, 2019. UBC Cable is
entitled to provide subscription television pursuant to the UBC Cable
Concession in Bangkok and elsewhere. UBC Cable pays MCOT 6.5% of the gross
revenue derived from the operation of the subscription television business in
each year during the period of the concession as consideration for the
agreement, subject to a minimum amount per annum.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information as of September 30,
1998 with respect to persons who are expected to serve as directors or
executive officers and other key personnel of the Issuer upon consummation of
the Offerings:
<TABLE>
<CAPTION>
Name Age Positions with the Issuer
- ----------------------------------- ----- -----------------------------------------------
<S> <C> <C>
Theunissen Vosloo ................. 61 Chairman of the Board of Directors
Jacobus D.T. Stofberg . ........... 47 Chief Executive Officer and Director
Jacobus P. Bekker ................. 45 Director
Vaughan G. Bray ................... 63 Director
Johannes H. W. Hawinkels .......... 47 Chief Executive Officer--MIH Asia and Director
Stephen G. Oldfield ............... 44 Chief Executive Officer--Mindport and Director
Stephan J.Z. Pacak ................ 43 Director
Lesley R. Penfold ................. 35 Chief Financial Officer and Director
Allan M. Rosenzweig ............... 43 Group Director--Corporate Finance and Director
Sheryl A. Raine ................... 40 Chief Executive Officer--NetMed
J. James Volkwyn .................. 40 Chief Executive Officer--MultiChoice Africa
</TABLE>
Messrs. Vosloo, Stofberg, Bekker, Bray, Hawinkels, Oldfield, Pacak,
Penfold and Rosenzweig are referred to herein as the "named directors and
officers".
Pursuant to the Memorandum and Articles of the Issuer, the Board of
Directors will be classified into three classes of directors at its next annual
meeting of stockholders. The terms of the classes of directors will expire at
the annual meetings of stockholders to be held in 2000, 2001 and 2002,
respectively. Thereafter, the classes will be elected to staggered three-year
terms. See "Description of Capital Stock--Certain Anti-Takeover Matters--
Classified Board of Directors".
Theunissen Vosloo has been the Chairman of the Board of Directors of the
Issuer since August 1993. Mr. Vosloo is also currently the non-executive
Chairman of the Board of Directors of Naspers and holds a variety of other
chairmanships among the Naspers group of companies. In 1984, he assumed the
position of managing director at Naspers and then served as the executive
chairman from September 1992 until September 1997. Mr. Vosloo is also Chairman
of the Board of Directors of MIH Holdings and M-Net Ltd.
Jacobus D.T. Stofberg has been the Chief Executive Officer and a director
of the Issuer since September 1998. Mr. Stofberg has been the managing director
of MIH Holdings since September 1997 and, as one of the original members of the
MIH Holdings management team, has also held a variety of positions within the
MIH Holdings group of companies, including that of Chief Operating Officer
since 1985. Mr. Stofberg currently serves as a director of M-Net Ltd., M-Cell,
M-Web and SSIH. Before joining the Issuer in September 1998, Mr. Stofberg was a
director of NetHold, the Issuer's previous joint venture, and held a variety of
directorships within the NetHold group of companies. In addition, Mr. Stofberg
has previously served as a director of MultiChoice Africa and NetMed.
Jacobus P. Bekker has been a director of the Issuer since September 1998.
Mr. Bekker and Mr. Stofberg founded MIH Holdings in 1985 and has held a variety
of positions within the MIH Holdings group of companies since that time. Mr.
Bekker was CEO of MIH Holdings until 1997, when he became the managing director
of Naspers. He is also currently the Chairman of the Board of Directors of
M-Web, and a director of MIH Holdings, SSIH, M-Net Ltd., MTN and M-Cell. Mr.
Bekker is also a director of a number of South African print media companies
and served as a director of NetHold from September 1995 to April 1997.
Vaughan G. Bray has been a director of the Issuer since August 1993. Mr.
Bray joined Johnnic in 1960, specializing in investment and finance, and was
appointed to the position of Finance Director in 1984. Since 1995, he has also
been the Chief Executive Officer of Johnnic. In addition, Mr. Bray is a
director of MIH Holdings, M-Net Ltd. and M-Cell and the Chairman of the Board
of Directors of Omni Media Corporation Limited.
Johannes H. W. Hawinkels has been the Chief Executive Officer of MIH Asia
Limited and a director of the Issuer since July 1997 and September 1998,
respectively. Mr. Hawinkels has held a variety of positions within the MIH
Holdings group of companies since 1993. Mr. Hawinkels also currently serves as
a director of certain of the Issuer's joint ventures in the Middle East and
Egypt. In addition, Mr. Hawinkels was the Chief Executive Officer
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of MultiChoice Africa from August 1993 to August 1997. Mr. Hawinkels has also
previously served as a director of MultiChoice Africa. Mr. Hawinkels was
previously a director of a leisure company involved in film distribution and
exhibition, fast food franchising, sports goods retail and wholesale and film
production.
Stephen G. Oldfield has been the Chief Executive Officer of Mindport and
director of the Issuer since September 1997 and September 1998, respectively.
Mr. Oldfield has held a variety of positions within the MIH Holdings group of
companies since 1986. Mr. Oldfield has been a director of both NetMed and
OpenTV since April 1998. Mr. Oldfield was also Chief Executive Officer of
NetMed from 1994 to 1997.
Stephan J.Z. Pacak has been a director of the Issuer since March 1996. Mr.
Pacak was the Chief Financial Officer of MIH Holdings from November 1993 to
January 1998 and has held a variety of executive positions within the MIH
Holdings group of companies. In addition to being a director of MIH Holdings,
Mr. Pacak is also a director of Naspers, M-Net Ltd., M-Web, SSIH and a number
of South African print media companies and is the chief executive officer of
M-Cell. Mr. Pacak also previously served as a director of MultiChoice Africa.
Lesley R. Penfold has been the Chief Financial Officer and a director of
the Issuer since March 1998. Mr. Penfold has been the Chief Financial Officer
and an alternate director of MIH Holdings since January 1998 and February 1998,
respectively. Mr. Penfold also currently serves as a director of NetMed,
MultiChoice Africa, M-Web and M-Net Ltd. and SSIH as an alternate. Mr. Penfold
worked in the corporate finance departments of Investec Bank Ltd. and Standard
Merchant Bank Limited from May 1994 to January 1998 and from May 1993 to May
1994, respectively. From 1981 to 1993, Mr. Penfold held a number of positions
at Deloitte & Touche in the corporate finance and audit departments.
Allan M. Rosenzweig has been the Group Director--Corporate Finance of the
Issuer since February 1996 and a director of the Issuer since October 1997. Mr.
Rosenzweig currently serves as a director of M-Web, Mindport and OpenTV. Before
joining the Issuer in 1996, Mr. Rosenzweig was the Director of Corporate
Finance of NetHold. In addition, Mr. Rosenzweig was previously the managing
director of Intertax (Pty) Ltd., an international tax consultancy firm. He also
serves on the boards of other publicly quoted companies like United Services
Technologies Limited and Brait S.A.
Sheryl A. Raine has been the Chief Executive Officer of NetMed since
October 1997. Ms. Raine has also been a director of NetMed since March 1998. In
addition, Ms. Raine previously served as the director of channels of M-Net Ltd.
from 1991 to 1995 and as the managing director of NetHold Electronic Media from
November 1995 until April 1997.
J. James Volkwyn has been the Chief Executive Officer of MultiChoice
Africa since September 1997. Mr. Volkwyn also currently serves as a director of
MultiChoice Africa and MultiChoice Middle East. Mr. Volkwyn was the chief
operations officer (excluding South African operations) and finance manager of
MultiChoice Africa from January 1996 to September 1997, and finance manager of
MultiChoice Africa from January 1993 to December 1995.
The business address of the Company's directors and officers is the
Company's registered office: Abbot Building, Mount Street, Tortola, Road Town,
British Virgin Islands.
Board Committees
The Issuer's Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee, which comprises Messrs. Bekker and
Pacak, establishes salaries, incentives and other forms of compensation for
executive officers and administers incentive compensation and benefit plans
provided for employees. The Audit Committee, which comprises Messrs. Bekker,
Bray and Pacak, reviews the Issuer's audit policies and oversees the engagement
of the Issuer's independent auditors.
Compensation of Directors and Officers
The aggregate salary compensation to be paid by the Issuer and its
subsidiaries to the named directors and officers as a group during the fiscal
year ending March 31, 1999 will be approximately $1,600,000. The maximum
aggregate bonus compensation to be paid by the Issuer and its subsidiaries to
the named directors and officers as a group during the fiscal year ending March
31, 1999 will be approximately $900,000.
The aggregate amount to be set aside by the Issuer and its subsidiaries to
provide pension, retirement and similar benefits to the named directors and
officers as a group during the fiscal year ending March 31, 1999 will be
approximately $280,000.
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<PAGE>
Options to Purchase Securities
On September 11, 1998, the Compensation Committee of the Board of
Directors determined it would award options to purchase 950,140 of the Issuer's
Class A Ordinary Shares (after giving effect to stock splits) to directors and
members of management under the MIH Limited Share Scheme. On April 1, 1999, the
Company will grant these options. The exercise price of the options will be
$10.57, which represents the estimated fair value of the shares on September
11, 1998, the date of the Compensation Committee's determination.
Share Scheme
Pursuant to the Deed constituting the MIH Limited Share Trust (the
"Deed"), dated March 22, 1999, the Issuer has established the MIH Limited Share
Scheme (the "Share Scheme") and appointed trustees (the "Trustees") to
administer the Share Scheme. The Share Scheme is intended to provide an
incentive to the Company's employees, by giving them an opportunity to acquire
Class A Ordinary Shares of the Issuer, to remain in the Company's employment
and to promote the Company's continued growth. The following summary does not
purport to be complete and is subject to, and qualified in its entirety by, the
Deed, which has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part and is incorporated herein by reference.
The Issuer may allocate to the MIH Limited Share Trust (the "Trust") a
number of Class A Ordinary Shares which represent, in aggregate, no more than
10% of the total number of Ordinary Shares. Class A Ordinary Shares which are
allotted to the Trust for the purpose of the Share Scheme become "Scheme
Shares" and an amount equal to the total consideration payable in respect of
the Scheme Shares is advanced to the Trust by the Issuer as an interest free
loan.
Under the Share Scheme, the Trustees may offer or grant options in respect
of Scheme Shares to selected employees at a price set by the Trustees. The
employees are selected and the number of shares are determined by the Trustees
after consultation with the Compensation Committee. The aggregate number of
Scheme Shares which can be made available to any one employee under the Share
Scheme is not permitted to exceed approximately 1% of total number of Ordinary
Shares issued and outstanding.
Each offer sets forth the terms on which it may be accepted. The time
period for acceptance is usually within 14 days from the date of the offer, and
the maximum period which may be allowed for the payment of the purchase price
is 5 years and 105 days from the effective date of the offer. Under the Share
Scheme, the purchase price is payable in three equal installments which may not
be paid before the third, fourth and fifth anniversaries, respectively, of the
date on which the offer was made. The Trustees may, however, in their
discretion allow earlier payment dates.
Similarly, each option sets out the terms on which it may be exercised.
The maximum period which may be allowed for the exercise of an option is 5
years and 105 days from the date the option was granted. However, options are
generally exercisable immediately on (or within a short period after) the date
on which they were granted. The implementation of the resulting contract (being
the payment of the purchase price against delivery) takes place in three phases
which may not be effected before the third, fourth and fifth anniversaries,
respectively, of the grant date. The Trustees may, however, in their discretion
allow earlier implementation.
Accordingly, unless the Trustees permit otherwise, Scheme Shares are only
transferred to employees in three equal tranches on the third, fourth and fifth
anniversaries of the date of the offer or grant of the option, as the case may
be.
The directors of the Issuer may amend the provisions of the Share Scheme;
however, any amendments which would adversely affect an employee's rights under
any offers which have been made or options which have been granted, would
require the consent of the affected employee.
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CERTAIN TRANSACTIONS
Channel Distribution Arrangements
Pursuant to channel distribution agreements (the "M-Net Channel
Distribution Agreements") between MultiChoice Africa and M-Net Ltd., the
Company has the right to distribute by analog and digital distribution systems,
and to license the reception by terrestrial analog and digital satellite
distribution systems of, the M-Net channels. M-Net Ltd. provides the M-Net and
Movie Magic channels and has the exclusive rights to the South African and
Sub-Saharan pay-television broadcast of movies from major movie studios,
including Disney, Warner Brothers, Columbia Tristar/Sony, Fox, MCA/Universal,
Paramount, MGM and DreamWorks. The M-Net Channel Distribution Agreements expire
in 2005 (digital) and 2002 (analog). Pursuant to the M-Net Channel Distribution
Agreements, MultiChoice Africa pays M-Net Ltd. fees based on subscriber
numbers. During the fiscal year ended March 31, 1998, these amounts totaled
approximately ZAR 500 million ($80.8 million) .
The Company, through the M-Net Channel Distribution Agreements, also has
the right to distribute the sports channels which are produced by SSIH. SSIH
has obtained the exclusive rights to broadcast the South African cricket and
rugby leagues along with major international cricket and rugby events, two of
the most popular sports in South Africa. Pursuant to the M-Net Channel
Distribution Agreements, MultiChoice Africa pays SSIH fees based on subscriber
numbers. During the fiscal year ended March 31, 1998 these amounts totaled
approximately ZAR 200 million ($32.3 million).
Transmission Arrangements
The Company, through certain of its subsidiaries and joint ventures, has
various arrangements (the "Orbicom Arrangements") with Orbicom, pursuant to
which MIH Limited's subsidiaries receive certain rights and services, including
transponder leasing (C-band and Ku-band capacity), terrestrial and satellite
signal distribution, maintenance of transmitter networks and backhaul and
uplink services. The Orbicom Arrangements expire at various times. Pursuant to
the Orbicom Arrangements, the Company pays Orbicom fixed monthly fees for
leasing arrangements and variable fees for maintenance services. During the
fiscal year ended March 31, 1998, these amounts totaled approximately $23.7
million.
The M-Net Channel Distribution Agreements and the Orbicom Arrangements
were negotiated on an arms-length basis and, the Company believes, on terms no
less favorable than the Company could have received from independent third
parties.
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<PAGE>
SECURITY OWNERSHIP
The table below sets forth, after giving effect to the Offerings and the
Thomson Conversion, certain information with respect to the ownership of each
class of voting securities of the Issuer by (i) each person who is known by the
Company to be the owner of more than 5% of any class or series of voting
securities of the Issuer and (ii) all directors and executive officers as a
group. See "Risk Factors--Control by Principal Shareholder".
<TABLE>
<CAPTION>
Identity of
Person or Group Class A Ordinary Shares Class B Ordinary Shares
- ------------------------------------------ ------------------------------- ------------------------------
Number Percent of Class Number Percent of Class
------------ ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
MIH (BVI) Limited ........................ 0 0% 30,787,319 100%
Johnnic (IOM) Limited .................... 4,194,459 22.7 0 0
SuperSport International Holdings Limited 3,253,222 17.6 0 0
Thomson Consumer Electronics, Inc.(1) .... 2,733,861 14.8 0 0
Directors and officers as a group(2) ..... 0 0 0 0
</TABLE>
- ----------------
(1) Assuming an initial public offering price of $17.00 per share.
(2) Excludes options to purchase Class A Ordinary Shares. See
"Management--Options to Purchase Securities."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following summary of certain provisions of the Issuer's capital stock
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Memorandum and Articles, which are included
as exhibits to the Registration Statement of which this Prospectus is a part,
and by the provisions of applicable British Virgin Islands law.
The Memorandum and Articles authorize the issuance of up to (i)
103,468,878 Class A Ordinary Shares, (ii) 55,920,509 Class B Ordinary Shares
and (iii) 8,388,916 Preference Shares (the "Preferred Stock" and, together with
the Class A and Class B Ordinary Shares, the "Capital Stock").
Application has been made to list the Class A Ordinary Shares offered
herewith on the Nasdaq and on the Amsterdam Stock Exchange under the symbol
"MIHL". The transfer agent and registrar for the Class A Ordinary Shares is
First Chicago Trust Company of New York, and the paying agent in the
Netherlands is MeesPierson N.V.
The Issuer intends to apply to The Depository Trust Company ("DTC"),
Euroclear and Cedel Bank S.A. ("Cedel") for acceptance of the Class A Ordinary
Shares in their respective book-entry settlement systems. Initial settlement of
the Class A Ordinary Shares will take place on the closing date through DTC,
Euroclear and Cedel in accordance with their respective customary settlement
procedures for equity securities. Each person owning a beneficial interest in
Class A Ordinary Shares held through DTC, Euroclear or Cedel, as the case may
be, must rely on the procedures thereof and on institutions that have accounts
therewith to exercise any rights of a holder of Class A Ordinary Shares.
Persons wishing to obtain certificates of their Class A Ordinary Shares must
make arrangements with DTC, Euroclear or Cedel, respectively.
MIH Limited was incorporated on July 26, 1991 in the British Virgin
Islands under IBC No. 47572. Its founding statutes do not prescribe any time
period for its existence.
Trading through ASAS
Trading in Class A Ordinary Shares on the Amsterdam Stock Exchange will
take place through the Amsterdam Security Account System ("ASAS"), developed to
enable the listing on the Amsterdam Stock Exchange of registered shares of
non-Dutch companies. Under ASAS, the owner of Class A Ordinary Shares is
Nominee Amsterdam Stock Exchange N.V. ("Nominee"), a wholly-owned subsidiary of
the Amsterdam Stock Exchange, which acts exclusively as a depositary company.
Nominee maintains accounts on behalf of ASAS participants. The number of Class
A Ordinary Shares that each participant is entitled to is booked to the
participant's account, but Nominee will only credit the accounts of ASAS
participants when the Class A Ordinary Shares are deposited in its name or on
its behalf with a custodian. ASAS participants have a claim against Nominee for
delivery of Class A Ordinary Shares credited to their account. Class A Ordinary
Shares to which an investor is entitled are credited to that investor's account
with an ASAS participant, and that investor will have a claim for delivery
against the participant. Transfers of Class A Ordinary Shares are effected
through book-entries.
Payments by the Issuer in respect of Class A Ordinary Shares in ASAS are
made through that system. Shareholder notices are not sent directly to
investors holding Class A Ordinary Shares through ASAS. Instead, notices will
be published in the Daily Official List (Officiele Prijscourant) of the
Amsterdam Stock Exchange and in at least one Netherlands newspaper, indicating,
when applicable, where shareholders can obtain copies of any documents referred
to in the notice.
The above is only a summary of ASAS. Investors should consult their
professional advisors if they require more information or if they have any
questions about ASAS.
Class A Ordinary Shares and Class B Ordinary Shares
Voting. The holders of the Class A Ordinary Shares and the Class B
Ordinary Shares (collectively the "Ordinary Shares") will generally be entitled
to vote as a single class on all matters upon which holders of Ordinary Shares
have a right to vote, subject to the requirements of any applicable laws. Each
Class A Ordinary Share entitles its holder to one vote, and each Class B
Ordinary Share entitles its holder to three votes. Unless otherwise required by
law, and so long as their rights would not be adversely affected, the holders
of the Class A Ordinary Shares and the Class B Ordinary Shares will not be
entitled to vote on any amendment to the Memorandum and Articles that relates
solely to the terms of one or more outstanding series of Preferred Stock.
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<PAGE>
Dividends and Other Distributions. Subject to the preferential and other
dividend rights of any outstanding series of Preferred Stock, the holders of
the Class A Ordinary Shares and the Class B Ordinary Shares will be entitled to
equal dividends per share when, as and if declared by the Board of Directors,
except that all dividends payable in Ordinary Shares will be paid in the form
of Class A Ordinary Shares to holders of Class A Ordinary Shares and in the
form of Class B Ordinary Shares to holders of Class B Ordinary Shares. Neither
the Class A Ordinary Shares nor the Class B Ordinary Shares may be split,
divided or combined unless the other class is proportionally split, divided or
combined.
According to the Articles, all dividends that remain unclaimed for a
period of three years after their declaration may be forfeited by the Board of
Directors for the benefit of the Company.
In the event of a liquidation or winding up of the Issuer, the holders of
the Class A Ordinary Shares and the Class B Ordinary Shares will be treated
equally on a per share basis and will be entitled to receive all of the
remaining assets of the Issuer following distribution of the preferential
and/or other amounts to be distributed to the holders of Preferred Stock.
Issuance of Class B Ordinary Shares, Options, Rights or Warrants. Subject
to certain provisions regarding dividends and other distributions described
above, the Issuer will not be entitled to issue additional shares of Class B
Ordinary Shares or issue options, rights or warrants to subscribe for
additional shares of Class B Ordinary Shares, except that the Issuer may make a
pro rata offer to all holders of Ordinary Shares of rights to purchase
additional shares of the class of Ordinary Shares held by them. The Class A
Ordinary Shares and the Class B Ordinary Shares will be treated equally with
respect to any offer by the Issuer to holders of Ordinary Shares of options,
rights or warrants to subscribe for any other Capital Stock of the Issuer.
Merger. In the event of a merger, the holders of the Class A Ordinary
Shares and the Class B Ordinary Shares will be entitled to receive the same per
share consideration, if any, except that if such consideration includes voting
securities (or the right to acquire voting securities or securities
exchangeable for or convertible into voting securities), the Issuer may (but is
not required to) provide for the holders of Class B Ordinary Shares to receive
voting securities (or rights to acquire voting securities) entitling them to
three times the number of votes per share as the voting securities (or rights
to acquire voting securities) being received by holders of the Class A Ordinary
Shares.
Conversion of Class B Ordinary Shares. Each Class B Ordinary Share will be
convertible at any time, at the option of the holder thereof, into a Class A
Ordinary Share on a share-for-share basis. Each Class B Ordinary Share shall
automatically convert into a Class A Ordinary Share on a share-for-share basis
(i) upon transfer of a Class B Ordinary Share to a person or entity which is
not an Initial Holder or a Permitted Transferee (as defined below); (ii) on the
date on which the number of shares of Class B Ordinary Shares then outstanding
is less than 10% of the then outstanding Ordinary Shares (without regard to
voting rights); (iii) at any time when the Board of Directors and the holders
of a majority of the outstanding Class B Ordinary Shares approve the conversion
of all of the Class B Ordinary Shares into Class A Ordinary Shares; and (iv) if
the Board of Directors, in its sole discretion, elects to effect a conversion
after a determination that there has been a material adverse change in the
liquidity, marketability or market value of the Class A Ordinary Shares,
considered in the aggregate, due to (x) the exclusion of the Class A Ordinary
Shares from trading on a national securities exchange or the exclusion of the
Class A Ordinary Shares from quotation on the Nasdaq or any other similar
market quotation system then in use; or (y) requirements under any applicable
law, in each of cases (x) and (y), as a result of the existence of the Class B
Ordinary Shares.
In the event of a transaction where the Class A Ordinary Shares are
converted into or exchanged for one or more other securities, cash or other
property (a "Class A Conversion Event"), a holder of Class B Ordinary Shares
thereafter will be entitled to receive, upon the conversion of such Class B
Ordinary Shares, the amount of such securities, cash and other property that
such holder would have received if the conversion of such Class B Ordinary
Shares had occurred immediately prior to the record date or effective date, as
the case may be, of the Class A Conversion Event.
"Affiliate" means, in relation to any specified person or entity, any
other person or entity which directly or indirectly controls, is controlled by
or is under common control with, such specified person or entity.
"Initial Holders" means the original beneficial owners of the Class B
Ordinary Shares.
"Permitted Transferee" means any Affiliate of an Initial Holder.
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<PAGE>
Preemptive Rights. The holders of Ordinary Shares will not have any
preemptive rights with respect to any outstanding or newly issued capital stock
of the Issuer.
Preferred Stock
Pursuant to the Memorandum and Articles, the Issuer may issue shares of
Preferred Stock in one or more series.
The Board of Directors has the authority, without any vote or action by
the shareholders, to create one or more series of Preferred Stock up to the
limit of the Issuer's authorized but unissued shares of Preferred Stock and to
fix the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series and the
relative, participating, optional or other rights (if any), and any
qualifications, preferences, limitations or restrictions thereof, including,
without limitation, the dividend rate (and whether dividends are cumulative),
conversion rights, rights and terms of redemption (including sinking fund
provisions), and redemption price and liquidation preferences, and to increase
or decrease the number of shares of any series subsequent to the issue of
shares of that series, but not below the number of shares of such series then
outstanding. Upon the completion of the Offerings, there will be no shares of
Preferred Stock outstanding. See "--Certain Anti-Takeover Matters--Blank Check
Preferred Stock".
Limitation of Liability
The Articles provide that, to the fullest extent permitted by British
Virgin Islands law or any other applicable laws, directors of the Issuer will
not be personally liable to the Issuer or its shareholders for any acts or
omissions in the performance of their duties. Such limitation of liability does
not affect the availability of equitable remedies such as injunctive relief or
rescission. These provisions will not limit the liability of directors under
United States federal securities laws.
Certain Anti-Takeover Matters
Memorandum and Articles Provisions. The Memorandum and Articles include a
number of provisions that may have the effect of encouraging persons
considering unsolicited tender offers or other unilateral takeover proposals to
negotiate with the Board of Directors rather than pursue non-negotiated
takeover attempts. These provisions include a dual class voting stock, a
classified Board of Directors, the inability of shareholders to act by written
consent, the inability of the shareholders to call a special meeting of the
shareholders, an advance notice requirement for director nominations and other
actions to be taken at annual meetings of shareholders, the requirements for
approval by 66-2/3% of the shareholder votes to amend certain provisions of the
Memorandum and Articles, removal of a director only for cause and the
availability of authorized but unissued blank check Preferred Stock.
Dual Class Voting Stock. The Class B Ordinary Shares are entitled to three
votes per share and Class A Ordinary Shares are entitled to one vote per share.
Therefore, after the Offerings and the Thomson Conversion, the Class B Ordinary
Shares will represent 83.3% of the voting power of all Ordinary Shares even
though they represent 62.5% of the economic interests thereof. Since MIH
Holdings, though MIH (BVI) Limited, owns all of the Class B Ordinary Shares, it
currently has effective control over any proposals to acquire the Issuer,
rendering futile any attempts to pursue unsolicited tender offers or takeover
attempts without negotiation with MIH Holdings.
Classified Board of Directors. The Articles establish a classified Board
of Directors. The Board of Directors is divided into three classes of
approximately equal size with terms expiring in 2000 (Class I), 2001 (Class II)
and 2002 (Class III). Thereafter, subject to the right of holders of any series
of Preferred Stock to elect directors, shareholders will elect one class
constituting approximately one-third of the Board for a three-year term at each
annual meeting of shareholders. See "Management." As a result, at least two
annual meetings of shareholders will be required for the shareholders to change
a majority of the Board of Directors. The classification of directors will
effectively make it more difficult to change the composition of the Board of
Directors.
No Shareholder Action by Written Consent; Special Meetings Callable Only
by Board. The Articles prohibit shareholders from taking action by written
consent in lieu of an annual or special meeting, and, thus, shareholders may
take action only at an annual or special meeting called in accordance with the
Articles. The Articles provide that special meetings of shareholders may only
be called by the direction of the Board of Directors pursuant to a resolution
adopted by the Board of Directors or by the chief executive officer of the
Company. These provisions could have the effect of delaying consideration of a
shareholder proposal until the next annual meeting. The
69
<PAGE>
provisions would also prevent the holders of a majority of the voting power of
the Ordinary Shares of the Issuer entitled to vote from unilaterally using the
written consent procedure to take shareholder action.
Advance Notice Requirement. The Articles set forth advance notice
procedures with regard to shareholder proposals relating to the nomination of
candidates for election as directors or new business to be presented at
meetings of shareholders. These procedures provide that notice of such
shareholder proposals must be timely given in writing to the Secretary of the
Issuer prior to the meeting at which the action is to be taken. Generally, to
be timely, notice must be received at the principal executive offices of the
Issuer not less than 30 days nor more than 60 days prior to the meeting. The
advance notice requirement does not give the Board of Directors any power to
approve or disapprove shareholder director nominations or proposals but may
have the effect of precluding the consideration of certain business at a
meeting if the proper notice procedures are not followed.
Amendment of Memorandum and Articles. The Memorandum requires the
affirmative vote of at least 66-2/3% of the voting power of all outstanding
shares of Capital Stock entitled to vote to amend or repeal certain provisions
of the Memorandum and Articles, including those described in this section under
"Certain Anti-Takeover Matters", or to approve any merger of the Issuer which
would have the effect of making changes in the Memorandum or Articles which
would have required such affirmative vote if effected directly as an amendment.
This requirement will render more difficult the dilution of the anti-takeover
effects of the Memorandum and Articles.
Removal of Directors Only for Cause. The Articles permit shareholders to
remove directors only for cause and only by the affirmative vote of the holders
of a majority of the voting power of the Ordinary Shares. This provision may
restrict the ability of a third party to remove incumbent directors and
simultaneously gain control of the Board of Directors by filling the vacancies
created by removal with its own nominees.
Blank Check Preferred Stock. The Memorandum provides for authorized shares
of Preferred Stock, none of which has been issued. The existence of authorized
but unissued Preferred Stock may enable the Board of Directors to render more
difficult or discourage an attempt to obtain control of the Issuer by means of
a merger, tender offer, proxy contest or otherwise. For example, if in the due
exercise of its fiduciary obligations, the Board of Directors were to determine
that a takeover proposal is not in the Issuer's best interests, the Board of
Directors could cause shares of Preferred Stock to be issued without
shareholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquirer or
insurgent shareholder or shareholder group. In this regard, the Memorandum
grants the Board of Directors broad power to establish the rights and
preferences of authorized and unissued Preferred Stock. The issuance of shares
of Preferred Stock pursuant to the Board of Directors' authority described
above could decrease the amount of earnings and assets available for
distribution to holders of Ordinary Shares and adversely affect the enjoyment
of rights of such holders, including voting rights in the event a particular
series of Preferred Stock is given a disproportionately large number of votes
per share, and may have the effect of delaying, deferring or preventing a
change in control of the Issuer that may be favored by certain shareholders.
Authorized and Issued Share Capital
The following table sets forth historical information about the Issuer's
authorized and issued share capital. Significant changes (including the
division of Ordinary Shares into Class A and Class B Ordinary Shares) were made
to the share capital of the Company between March 31, 1998 and the date of this
Prospectus.
<TABLE>
<CAPTION>
Mar. 31, Mar. 31, Mar. 31,
1998 1997 1996
----------------------- ----------------------- ------------------------
Authorized Issued Authorized Issued Authorized Issued
------------ -------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Non-Voting Ordinary Shares
$1.00 par value 10 10 10 10 10 10
Voting Ordinary Shares
$1.00 par value 49,990 22,789 49,990 22,789 49,990 22,789
</TABLE>
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings and the Thomson Conversion, the Issuer
will have 18,481,542 Class A Ordinary Shares outstanding (19,726,542 Class A
Ordinary Shares if the Underwriters' over-allotment options are exercised in
full) and 30,787,319 Class B Ordinary Shares outstanding. Of these shares, the
8,300,000 Class A Ordinary Shares sold by the Issuer in the Offerings
(9,545,000 Class A Ordinary Shares if the Underwriters' over-allotment options
are exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless held by an "affiliate" of the
Issuer (as that term is defined under the Securities Act and the regulations
promulgated thereunder). The remaining 10,181,542 Class A Ordinary Shares
outstanding (the "Unregistered Shares"), including those issued in the Thomson
Conversion, were issued or sold without registration under the Securities Act
in reliance on Regulation S and may not be resold except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom, including the exemptions provided by Regulation S and Rule 144.
Unregistered Shares held by non-affiliates of the Issuer other than
Thomson (7,447,681 shares) generally can be resold in the United States or to
U.S. persons without registration under the Securities Act at any time, subject
only to the laws of any other applicable jurisdictions. Unregistered Shares
held by affiliates of the Issuer (30,787,319 shares) generally can be resold in
the United States or to U.S. persons beginning 90 days after the date of this
prospectus without registration under the Securities Act, subject only to the
volume and manner of sale requirements of Rule 144 and the laws of any other
applicable jurisdictions.
Unregistered shares held by Thomson (estimated to be 2,733,861 shares
based on an offering price of $17.00 per share) generally can be resold in the
United States without registration under the Securities Act beginning one year
after the date of this prospectus, subject to the volume and manner of sale
restrictions of Rule 144 and the rules of any other applicable jurisdictions,
and beginning two years after the date of this prospectus, may be sold freely,
subject only to the laws of any other applicable jurisdiction.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell within any three-month period
a number of shares that does not exceed the greater of (i) 1% of the then
outstanding Class A Ordinary Shares or (ii) the average weekly trading volume
of the outstanding Class A Ordinary Shares during the four calendar weeks
preceding such sale.
Except for the issuance by the Issuer of options under the Stock Option
Plan, the Issuer and its directors, executive officers and existing
shareholders have agreed not to, directly or indirectly, (i) sell, grant any
option to purchase or otherwise transfer or dispose of any Ordinary Shares or
securities convertible into or exchangeable or exercisable for Ordinary Shares
or file a registration statement under the Securities Act with respect to the
same or (ii) enter into any swap or other agreement or transaction that
transfers, in whole or in part, the economic consequence of ownership of the
Ordinary Shares (each a "disposal"), without the prior written consent of
Merrill Lynch for a period of 180 days after the date of this prospectus.
MIH (BVI) Limited, SSIH, Johnnic and Thomson have agreed not to, directly
or indirectly, dispose of any Ordinary Shares without the consent of Merrill
Lynch for a period of 180 days after the date of this prospectus. Furthermore,
these parties have agreed to substantial restrictions on their ability to
dispose of shares during the period between 180 days and one year after the
date of this prospectus.
In addition, MIH (BVI) Limited, SSIH and Johnnic, constituting all of the
shareholders of the Issuer that individually hold more than 5% of the Ordinary
Shares outstanding, have agreed (in accordance with the rules for admission to
listing on the Amsterdam Stock Exchange of issuers with less than three
financial years' net profit) that they will not, for a maximum period of three
years after the date of such admission, dispose of Ordinary Shares that total,
in the aggregate, more than 50% (as long as not more than one of the financial
years of the Issuer has closed with a net profit) or more than 75% (if and when
two financial years of the Issues have closed with a net profit) of the number
of Ordinary Shares currently outstanding for a maximum period of three years
after the date of admission of the Ordinary Shares to listing on the Amsterdam
Stock Exchange, except (i) to each other or to professional investors, provided
they agree to be bound by the same restrictions on the disposal of the Ordinary
Shares being transferred as the transferor, and (ii) on certain conditions, by
a registered public offering occurring at least one year after the date of
admission of the Ordinary Shares to listing on the Amsterdam Stock Exchange.
The directors of the Issuer (to whom the above rules would apply if they held
shares in the Issuer as of the date of this prospectus) have not entered into
similar undertakings as described above, since none of them, directly or
71
<PAGE>
indirectly, holds or has any ownership interest in or control over the disposal
of Ordinary Shares currently outstanding.
Options to purchase 950,140 Class A Ordinary Shares are outstanding under
the Share Scheme. All such shares are immediately exercisable, subject to
deferred delivery from three to five years after issuance of the option. An
additional 2,049,860 shares will remain available for future option grants
under the Share Scheme. The Company intends to file a registration statement
under the Securities Act after consummation of the Offerings to register for
resale under the Securities Act all of the 3,000,000 Class A Ordinary Shares
issued or reserved for issuance under the Share Scheme. Such registration
statement will become effective automatically upon filing. Shares issued under
the Share Scheme after the registration statement is filed may thereafter be
sold in the open market, subject, in the case of the various holders, to the
Rule 144 volume limitations or prospectus delivery requirements applicable to
affiliates and any transfer restrictions imposed on the date of grant or
otherwise.
Prior to the Offerings, there has been no public market for the Class A
Ordinary Shares. No predictions can be made of the effect, if any, that future
sales of Ordinary Shares, options to acquire Ordinary Shares or the
availability of shares for future sale will have on the market price prevailing
from time to time. Sales of substantial amounts of Ordinary Shares in the
public market, or the perception that such sales may occur, could have a
material adverse effect on the market price of the Class A Ordinary Shares. See
"Risk Factors--Shares Eligible for Future Sale", "--Immediate and Substantial
Dilution" and "--No Prior Public Market; Possible Volatility of Stock Price".
72
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the material U.S. federal income tax
consequences to a shareholder of owning and disposing of Ordinary Shares. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations promulgated thereunder, administrative rulings
and judicial decisions currently in effect, all of which are subject to change,
possibly with retroactive effect. The discussion assumes that shareholders hold
their Ordinary Shares as capital assets within the meaning of Section 1221 of
the Code. Further, the discussion does not address all aspects of U.S. federal
income taxation that may be relevant to a particular shareholder in light of
his or her personal investment circumstances or to shareholders subject to
special treatment under U.S. federal income tax laws such as insurance
companies, tax-exempt organizations, dealers in securities or foreign currency,
banks, thrifts, persons that hold their Ordinary Shares as part of a straddle,
a hedge against currency risk, a constructive sale or conversion transaction or
other integrated investment, persons that have a functional currency other than
the U.S. dollar, investors in pass-through entities, shareholders who acquired
their Ordinary Shares through the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan, holders of options and
performance share units granted under any MIH Limited benefit plan or persons
that own, directly or indirectly, at least 10% of the total combined voting
power of MIH Limited. Furthermore, this discussion does not consider the
potential effects of any state, local or foreign tax laws.
MIH Limited has not requested a ruling from the Internal Revenue Service
(the "IRS") with respect to any of the U.S. federal income tax consequences of
owning and disposing of Ordinary Shares and, as a result, there can be no
assurance that the IRS will not disagree with or challenge any of the
conclusions set forth herein.
For purposes of this discussion: (a) "U.S. Holder" means (i) a citizen or
resident of the United States, (ii) a corporation or other entity taxable as a
corporation created or organized under the laws of the United States or any
political subdivision thereof or therein, (iii) an estate the income of which
is includible in gross income for U.S. federal income tax purposes regardless
of its source, (iv) a trust if a court within the U.S. is able to exercise
primary supervision over the trust's administration and one or more U.S.
persons have the authority to control all its substantial decisions or (v) a
person whose worldwide income and gain is otherwise subject to U.S. federal
income taxation on a net income basis, and (b) "Non-U.S. Holder" means any
person that (i) is not a U.S. Holder, (ii) is not engaged in the active conduct
of a trade or business within the United States, and (iii) is not present in
the United States for 183 days or more during any taxable year.
U.S. Holders of Ordinary Shares
Distributions. Distributions by MIH Limited to a U.S. Holder of Ordinary
Shares will be taxable to such U.S. Holder as ordinary dividend income for U.S.
federal income tax purposes to the extent of MIH Limited's current and
accumulated earnings and profits, without reduction for any British Virgin
Islands income tax, if any, withheld from such distributions. Any British
Virgin Islands income tax so withheld may be credited, subject to certain
limitations, against the U.S. Holder's U.S. federal income tax liability or, if
the U.S. Holder so elects, may be deducted in computing the U.S. Holder's
taxable income for U.S. federal income tax purposes. Distributions in excess of
MIH Limited's current and accumulated earnings and profits will be treated as a
return of capital to the extent of the U.S. Holder's adjusted tax basis in his
or her Ordinary Shares, and thereafter as gain from the sale or exchange of
Ordinary Shares. Generally, dividends paid on shares of a foreign corporation
will not be eligible for the dividends received deduction provided to
corporations receiving dividends from certain U.S. corporations.
Dispositions. Generally, a U.S. Holder will recognize gain or loss upon
the sale or other taxable disposition of Ordinary Shares equal to the
difference, if any, between (i) the amount of cash plus the fair market value
of any property received, and (ii) the shareholder's adjusted tax basis in his
or her Ordinary Shares. Such gain or loss will constitute capital gain or loss
and will constitute long term capital gain or loss if the holder's holding
period is greater than 12 months as of the date of the sale or other taxable
disposition. For non-corporate holders, any such long-term capital gain
generally will be subject to tax at a maximum rate of 20%. The deductibility of
capital losses is subject to limitations.
Other Considerations. MIH Limited believes that it has not been and does
not expect to become a "passive foreign investment company" (a "PFIC"), a
"foreign personal holding company" (a "FPHC") or a "controlled foreign
corporation" (a "CFC").
If more than 50% of the voting power or value of MIH Limited stock were
owned (actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of MIH Limited
73
<PAGE>
stock ("10% Shareholders"), then MIH Limited would become a CFC and each 10%
Shareholder would be required to include in its taxable income as a
constructive dividend an amount equal to its share of certain undistributed
income of MIH Limited. If more than 50% of the voting power or value of MIH
Limited stock were owned (actually or constructively) by five or fewer
individuals who are citizens or residents of the United States and 60% or more
of MIH Limited's gross income (regardless of source) consisted of certain
interest, dividend or other enumerated types of income, MIH Limited would be a
FPHC. If MIH Limited were a FPHC, then each U.S. Holder (regardless of the
amount of MIH Limited stock owned by such U.S. Holder) would be required to
include in its taxable income as a constructive dividend its pro rata share of
MIH Limited's undistributed income of specified types.
If 75% or more of MIH Limited's annual gross income has ever consisted of,
or ever consists of, "passive" income or if 50% or more of the average value of
MIH Limited's assets in any year has ever consisted of, or ever consists of,
assets that produce, or are held for the production of, such "passive" income,
then MIH Limited would be or would become a PFIC. For these purposes, MIH
Limited will be treated as owning an allocable portion of the assets of, and
earning an allocable portion of the income of, any company of which MIH Limited
owns 25% or more of the stock (by value). MIH Limited believes that it has not
been and does not expect to become a PFIC.
If MIH Limited were to be or become a PFIC, then a U.S. Holder would be
required to pay an interest charge together with tax calculated at maximum tax
rates on certain "excess distributions" (defined to include gain on the sale of
stock) unless such U.S. Holder made an election either to (i) include in his or
her taxable income certain undistributed amounts of MIH Limited's income or
(ii) mark to market his or her Ordinary Shares at the end of each taxable year
as set forth in Section 1296 of the Code.
U.S. Holders of Ordinary Shares are urged to consult their own tax
advisers regarding the potential application of the rules described above to
their particular tax situations.
Non-U.S. Holders of Ordinary Shares
Distributions. Distributions by MIH Limited to a Non-U.S. Holder of
Ordinary Shares generally will not be subject to U.S. federal income tax,
including withholding tax, unless 25% or more of the gross income of MIH
Limited (from all sources for the three-year period ending with the taxable
year preceding the declaration of the dividend (the "Testing Period")) was
effectively connected with the conduct of a trade or business in the United
States by MIH Limited. MIH Limited does not anticipate that 25% or more of its
gross income will be effectively connected with its conduct of a trade or
business in the United States, and accordingly, MIH Limited anticipates that
dividends paid to Non-U.S. Holders will not be subject to withholding of U.S.
federal income tax.
Dispositions. Gain realized on a Non-U.S. Holder's sale or other taxable
disposition of Ordinary Shares generally will not be subject to U.S. federal
income tax, including withholding tax, unless (i) the gain is effectively
connected with such Non-U.S. Holder's conduct of a trade or business within the
United States, or (ii) in the case of a Non-U.S. Holder that is an individual,
the shareholder has been present in the United States for 183 days or more
during the taxable year of the sale or other taxable disposition and certain
other conditions are satisfied.
74
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a U.S. purchase agreement
(the "U.S. Purchase Agreement") among the Issuer and each of the underwriters
named below (the "U.S. Underwriters") and concurrently with the sale of Class A
Ordinary Shares to the International Managers (as defined below), the Issuer
has agreed to sell to each of the U.S. Underwriters, and each of the U.S.
Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Donaldson, Lufkin & Jenrette Securities Corporation are
acting as representatives (the "U.S. Representatives"), has severally agreed to
purchase from the Issuer, the number of Class A Ordinary Shares set forth
opposite its name below.
<TABLE>
<CAPTION>
Number
of Class A
U.S. Underwriters Ordinary Shares
----------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .........................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
---------
Total ...................................................... 4,150,000
=========
</TABLE>
The Issuer has also entered into an international purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International,
DLJ Securities International and MeesPierson N.V. are acting as representatives
(the "International Representatives," and together with the U.S.
Representatives, the "Representatives"). Subject to the terms and conditions
set forth in the International Purchase Agreement, and concurrently with the
sale of 4,150,000 Class A Ordinary Shares to the U.S. Underwriters pursuant to
the U.S. Purchase Agreement, the Issuer has agreed to sell to the International
Managers, and the International Managers severally have agreed to purchase, an
aggregate of 4,150,000 Class A Ordinary Shares. The public offering price per
Class A Ordinary Share and the underwriting discount per Class A Ordinary Share
are identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers, respectively have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all the Class A
Ordinary Shares offered in the U.S. Offering and the International Offering,
respectively, if any are purchased.
The Class A Ordinary Shares are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. In the
event of default by an Underwriter, the Purchase Agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting Underwriters
may be increased or the Purchase Agreement may be terminated. The sale of Class
A Ordinary Shares to the U.S. Underwriters is conditioned upon the sale of
shares of Class A Ordinary Shares to the International Managers, and vice
versa.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell Class A
Ordinary Shares to each other for purposes of resale at the public offering
price set forth on the cover page of this Prospectus, less an amount not
greater than the selling concession. Under the terms of the Intersyndicate
Agreement, the U.S.
75
<PAGE>
Underwriters and any dealer to whom they sell Class A Ordinary Shares will not
sell or offer to sell Class A Ordinary Shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, and the International Managers and any
dealer to whom they sell Class A Ordinary Shares will not sell or offer to sell
Class A Ordinary Shares to U.S. persons or Canadian persons or to persons they
believe intend to resell to U.S. persons or Canadian persons, except, in each
case, for transactions pursuant to the Intersyndicate Agreement. Any U.S.
Underwriters and International Managers who purchase from each other for the
purpose of resale will be deemed an "underwriter" under the Securities Act.
The U.S. Representatives have advised the Issuer that the U.S.
Underwriters propose initially to offer the Class A Ordinary Shares to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per Class A Ordinary Share. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per Class A Ordinary
Share on sales to certain other dealers. After the Offerings, the public
offering price, concession and discount may be changed.
The Issuer, its directors, executive officers and shareholders have
agreed, subject to certain exceptions, not to directly or indirectly (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Ordinary Shares or any
securities convertible into or exchangeable or exercisable for any Ordinary
Shares or request the filing of any registration statement under the Securities
Act, with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of Ordinary
Shares, whether any such swap transaction is to be settled by delivery of the
Ordinary Shares or other securities, in cash or otherwise without the prior
written consent of Merrill Lynch, on behalf of the Underwriters, for a period
of 180 days after the date of this Prospectus. Each of MIH (BVI) Limited, SSIH,
Johnnic and Thomson have also agreed to substantial restrictions on their
ability to dispose of shares during the period between 180 days and one year
after the date of this Prospectus.
The Issuer has granted an option to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
622,500 additional Class A Ordinary Shares at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discount. The
U.S. Underwriters may exercise this option only to cover over-allotments, if
any, made on the sale of the Class A Ordinary Shares offered hereby. To the
extent that the U.S. Underwriters exercise this option, each U.S. Underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional Class A Ordinary Shares proportionate to such U.S. Underwriter's
initial amount reflected in the foregoing table. The Issuer has also granted an
option to the International Managers, exercisable for 30 days after the date of
this Prospectus, to purchase up to an additional 622,500 Class A Ordinary
Shares to cover over-allotments, if any, on terms similar to those granted to
U.S. Underwriters.
The Issuer has agreed to indemnify the several U.S. Underwriters and the
International Managers against certain liabilities, including liabilities under
the Securities Act or to contribute to payments the Underwriters may be
required to make in respect thereof.
Until the distribution of the Class A Ordinary Shares is completed, rules
of the Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase the
Class A Ordinary Shares. As an exception to these rules, the Representatives
are permitted to engage in certain transactions that stabilize the price of the
Class A Ordinary Shares. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Class A Ordinary
Shares.
If the Underwriters create a short position in the Class A Ordinary Shares
in connection with the Offerings, (i.e., if they sell more Class A Ordinary
Shares than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Class A Ordinary
Shares in the open market. The U.S. Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase Class A Ordinary Shares in the open market to reduce
the Underwriters' short position or to stabilize the price of the Class A
Ordinary Shares, they may reclaim the amount
76
<PAGE>
of the selling concession from the Underwriters and selling group members who
sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
Neither the Issuer nor any of the Underwriters makes any representation or
prediction, however, as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Class A Ordinary
Shares. In addition, neither the Issuer nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transaction or
that such transactions, once commenced, will not be discontinued without
notice.
The Class A Ordinary Shares have been approved for listing on the Nasdaq,
and application has been made to list the Class A Ordinary Shares on the
Amsterdam Stock Exchange, under the symbol "MIHL".
Certain of the Underwriters have been engaged from time to time, and may
in the future be engaged, to perform financial advisory and other investment
banking services to the Issuer and its affiliates. In connection with rendering
such services in the past, such Underwriters have received customary
compensation, including reimbursement of related expenses.
Under Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), when more than 10% of the net proceeds
of a public offering of equity securities is to be paid to members of the NASD
or affiliates thereof, the price at which the equity securities are distributed
to the public must be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. Portions of the proceeds
from the Offerings will be paid to MeesPierson N.V. in repayment of a
short-term loan facility and to Merrill Lynch International in payment of an
advisory fee in respect of the purchase of OpenTV shares from Thomson. It is
possible that such payments will together exceed 10% of the net proceeds from
the Offerings. Affiliates of MeesPierson N.V. and Merrill Lynch International
are NASD members. Therefore, in compliance with Rule 2710(c)(8), if applicable,
Donaldson, Lufkin & Jenrette Securities Corporation will assume the
responsibilities of acting as a qualified independent underwriter in pricing
the Offerings and conducting due diligence. As compensation for its services as
qualified independent underwriter, Donaldson, Lufkin & Jenrette Securities
Corporation would be paid a fee of $5,000 by the Company.
The Underwriters do not intend to confirm sales of Class A Ordinary Shares
offered hereby to any accounts over which they exercise discretionary
authority.
Prior to the Offerings, there has been no public market for the Class A
Ordinary Shares. The initial public offering price for the Class A Ordinary
Shares will be determined through negotiations between the Issuer and the
Representatives. Among the factors to be considered in determining the initial
public offering price, in addition to prevailing market conditions, are the
financial and operating history and condition of the Company, an assessment of
the Company's business and financial prospects, the Company's management, the
prospects for the industry in which the Company operates and the recent market
prices of securities of companies in industries similar to that of the Company.
The initial public offering price set forth on the cover page of this
Prospectus should not, however, be considered as an indication of the actual
value of the Class A Ordinary Shares. Such price is subject to change as a
result of market conditions and other factors. There can be no assurance that
an active trading market will develop for the Class A Ordinary Shares or that
the Class A Ordinary Shares will trade in the public market subsequent to the
Offerings made hereby at or above the initial public offering price.
77
<PAGE>
LEGAL MATTERS
The validity of the Class A Ordinary Shares offered hereby will be passed
upon by Harney Westwood & Riegels, the British Virgin Islands. Certain United
States legal matters will be passed upon for the Company by Cravath, Swaine &
Moore, New York, New York. Matters relating to Dutch tax law have been passed
upon for the Company by Loyens & Volkmaars, Amsterdam, the Netherlands. Certain
United States legal matters will be passed upon for the Underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New
York, New York.
INDEPENDENT ACCOUNTANTS
The Consolidated Financial Statements of the Company as of March 31, 1998
and 1997 and for each of the three years in the period ended March 31, 1998,
and the Combined Financial Statements of the Acquired MIH Businesses as of
March 31, 1997 and 1996 and for the years then ended appearing in this
Prospectus, have been audited by Coopers & Lybrand, independent accountants, as
set forth in their report thereon appearing elsewhere herein.
With respect to the unaudited interim financial information as of
September 30, 1998 and for the six months ended September 30, 1998 and 1997,
contained herein, PricewaterhouseCoopers, Inc., independent accountants, have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report included herein states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such financial information should be
restricted in light of the limited nature of the review procedures applied. The
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and
11 of the Securities Act.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
MIH Limited and Subsidiaries Unaudited Interim
Condensed Consolidated Financial Statements
Report of Independent Accountants ................................................ F-2
Condensed Consolidated Balance Sheets as of September 30, 1998 and March 31, 1998 F-3
Condensed Consolidated Statements of Operations for the periods ended
September 30, 1998 and 1997 ..................................................... F-4
Condensed Consolidated Statements of Cash Flow for the periods ended
September 30, 1998 and 1997 ..................................................... F-5
Notes to the Condensed Consolidated Financial Statements ......................... F-6
MIH Limited and Subsidiaries
Consolidated Financial Statements
Report of Independent Accountants ................................................ F-11
Consolidated Balance Sheets as of March 31, 1998 and 1997 ........................ F-12
Consolidated Statements of Operations for the years ended March 31, 1998,
1997 and 1996 ................................................................... F-13
Consolidated Statements of Cash Flow for the years ended March 31, 1998,
1997 and 1996 ................................................................... F-14
Consolidated Statement of Changes in Shareholders' Equity for the years
ended March 31, 1998, 1997 and 1996 ............................................. F-15
Notes to the Consolidated Financial Statements ................................... F-16
Acquired MIH Businesses (Predecessor to MIH Limited)
Combined Financial Statements
Report of Independent Accountants ................................................ F-44
Combined Balance Sheets as of March 31, 1997 and 1996 ............................ F-45
Combined Statements of Operations for the years ended March 31,
1997 and 1996 ................................................................... F-46
Combined Statements of Cash Flow for the years ended March 31,
1997 and 1996 ................................................................... F-47
Combined Statement of Changes in Net Deficit for the years ended
March 31, 1997 and 1996 ......................................................... F-48
Notes to the Combined Financial Statements ....................................... F-49
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the directors and shareholders of
MIH Limited
We have performed a limited review of the accompanying condensed consolidated
balance sheet of MIH Limited and subsidiaries as of September 30, 1998 and the
related condensed consolidated statements of operations and cash flow for the
six-month periods ended September 30, 1998 and 1997. These financial statements
are the responsibility of MIH Limited's management.
We conducted our limited review in accordance with standards promulgated by the
South African Institute of Chartered Accountants, which are substantially the
same as those followed in the United States of America. A limited review
consists primarily of applying analytical review procedures to financial data
and making enquiries of persons responsible for accounting and financial
matters. It is substantially less in scope than an audit of financial
statements carried out in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we are not able to express
any audit opinion on these financial statements.
Based on our limited review, we are not aware of any material modifications
that should be made to the accompanying financial statements for them to be in
conformity with International Accounting Standards.
Johannesburg, Republic of South Africa PricewaterhouseCoopers, Inc.
November 30, 1998 (except with respect Chartered Accountants (SA)
to Note 9, as to which the date is Registered Accountants and Auditors
March 23, 1999)
F-2
<PAGE>
MIH Limited and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 1998 and March 31, 1998
(in thousands of US dollars)
<TABLE>
<CAPTION>
(Unaudited)
---------------
September 30, March 31,
1998 1998
--------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ...................................... $ 87,473 $ 153,412
Accounts receivable, net ....................................... 44,925 36,999
Other receivables .............................................. 36,569 29,444
Program and film rights ........................................ 52,578 22,543
Amounts owing by related parties ............................... 12,024 14,784
Inventories, net ............................................... 26,473 18,283
---------- ----------
Total current assets ......................................... 260,042 275,465
---------- ----------
Non-Current Assets
Tangible fixed assets, net ..................................... 97,947 114,248
Intangible assets, net ......................................... 194,298 163,611
Long-term investments .......................................... 84,760 77,020
Program and film rights ........................................ 63,756 15,711
---------- ----------
Total non-current assets ..................................... 440,761 370,590
---------- ----------
TOTAL ASSETS ................................................. $ 700,803 $ 646,055
========== ==========
LIABILITIES
Current liabilities
Bank overdrafts ................................................ $ 10,263 $ 16,399
Current portion of long-term debt and short-term loans ......... 51,173 36,369
Current portion of program and film rights ..................... 35,875 6,431
Accounts payable ............................................... 50,516 73,291
Accrued expenses and other current liabilities ................. 133,440 121,902
Amounts owing to related parties ............................... -- 4,857
Provisions ..................................................... 18,439 50,563
---------- ----------
Total current liabilities .................................... 299,706 309,812
---------- ----------
Non-Current Liabilities
Long-term debt ................................................. 85,250 54,787
Program and film rights ........................................ 60,509 24,608
Deferred taxation .............................................. -- 3,275
---------- ----------
Total non-current liabilities ................................ 145,759 82,670
---------- ----------
TOTAL LIABILITIES ............................................ 445,465 392,482
---------- ----------
Commitments and contingencies ................................... -- --
SHAREHOLDERS' EQUITY
Share capital
Class A Ordinary Shares no par value:
Authorized: September 30 and March 31, 1998: 103,468,878
Issued: September 30 and March 31, 1998: 7,447,681 ............. 113,986 113,986
Class B Ordinary Shares no par value:
Authorized: September 30 and March 31, 1998: 55,920,509
Issued: September 30 and March 31, 1998: 30,787,319 ............ 475,566 475,566
Accumulated loss ................................................ (314,281) (313,547)
Foreign currency translation adjustment ......................... (19,933) (22,432)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ................................... 255,338 253,573
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 700,803 $ 646,055
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
MIH Limited and Subsidiaries
Condensed Consolidated Statements of Operations
for the six-month periods ended September 30, 1998 and 1997
(in thousands of US dollars, except per share and share amounts)
<TABLE>
<CAPTION>
(Unaudited)
Six month period ended
September 30,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net revenues .................................. $ 286,269 $ 235,501
Operating expenses:
Cost of providing services ................... (188,674) (147,254)
Selling, general and administrative .......... (77,924) (79,127)
Depreciation and amortization ................ (24,976) (28,058)
---------- ----------
Total operating expenses ...................... (291,574) 254,439
---------- ----------
Operating loss ................................ (5,305) (18,938)
Financial results, net ....................... (8,771) (559)
Equity results in joint ventures ............. (13,665) (2,936)
Equity results in associates ................. (524) (1,268)
Profit on sale of joint venture .............. 31,093 --
---------- ----------
Profit/(loss) before taxation ................ 2,828 (23,701)
Income taxation .............................. (3,562) (3,563)
---------- ----------
Loss after taxation .......................... (734) (27,264)
Minority interest ............................ -- 828
---------- ----------
Loss from continuing operations .............. (734) (26,436)
Loss from discontinued operations ............ -- (3,936)
---------- ----------
Net Loss .................................. $ (734) $ (30,372)
========== ==========
Per share amounts:
Loss from continuing operations
Basic and diluted ............................ $ (0.02) $ (0.69)
Net loss
Basic and diluted ............................ $ (0.02) $ (0.79)
Shares used to compute loss per share ......... 38,235,000 38,235,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
MIH Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flow
for the six-month periods ended September 30, 1998 and 1997
(in thousands of US dollars)
<TABLE>
<CAPTION>
(Unaudited)
Six month period ended
September 30,
----------------------------
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Operating loss ....................................................... $ (5,305) $ (18,938)
Adjustments for:
Depreciation and amortization ....................................... 24,976 28,058
Amortization of program and film rights ............................. 14,501 10,675
Taxation paid ....................................................... (4,607) (7,784)
Increase in receivables ............................................. (8,089) (2,889)
Payments for program and film rights ................................ (12,845) (18,328)
Net increase/(decrease) in amounts owing by related parties ......... 8,784 (9,387)
Decrease in amounts owing to related parties ........................ (3,192) --
Increase in inventories ............................................. (6,274) (8,436)
Decrease in payables ................................................ (34,925) (8,568)
Utilised in discontinued operations ................................. -- (3,936)
--------- ---------
Net cash used in operating activities (26,976) (39,533)
--------- ---------
Cash flows from investing activities
Purchase of tangible fixed assets .................................... (1,830) (10,153)
Proceeds on sale of tangible fixed assets ............................ 28 1,434
Proceeds on disposal of Canal+ shares ................................ -- 49,806
Acquisition of subsidiaries, net of cash acquired .................... -- (14,168)
Investment in OpenTV ................................................. (6,400) (1,758)
Investment in UBC .................................................... (62,164) (22,338)
Net increase in other investments .................................... (3,223) (15,005)
--------- ---------
Net cash used in investing activities .............................. (73,589) (12,182)
--------- ---------
Cash flows from financing activities
Finance income/(costs) ............................................... 1,120 (5,403)
Funds raised from outside shareholders ............................... -- 828
Proceeds on transfer of M-Net/SSIH shares ............................ 22,243 --
Long-term debt raised ................................................ 20,339 72,362
Capital leases repaid ................................................ (17,295) (6,707)
Bank overdrafts repaid ............................................... (7,854) (8,373)
--------- ---------
Net cash from financing activities ................................. 18,553 52,707
--------- ---------
Net (decrease)/increase in cash and cash equivalents ................. (82,012) 992
Cash and cash equivalents at beginning of the period ................. 153,412 60,773
Translation adjustment on cash and cash equivalents .................. 16,073 (3,349)
--------- ---------
Cash and cash equivalents at end of the period ....................... $ 87,473 $ 58,416
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
MIH Limited and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
1. Nature of operations
MIH Limited ("MIH") was incorporated on July 26, 1991 under the laws of
the British Virgin Islands. The principal activities of MIH and its operating
subsidiaries (collectively the "Company") are the provision of pay-television
and subscriber management services ("pay-television services") and the
development and sale of pay-television technology. These activities are
conducted through subsidiaries, joint ventures and investments primarily in
Africa, Greece, Cyprus, the Middle East, the Netherlands, Thailand and the
United States of America.
2. Basis of presentation
The condensed consolidated balance sheet of MIH as of September 30, 1998
and the condensed consolidated statements of operations and cash flow for the
six-months ended September 30, 1998 and 1997 are unaudited. For the purpose of
these interim consolidated financial statements, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The March 31, 1998 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. These unaudited statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended March 31, 1998.
In the opinion of the management of MIH, all adjustments (consisting only
of normal recurring adjustments) necessary for fair presentation of the
financial statements have been included therein. The results of interim periods
are not necessarily indicative of the results for the entire year.
3. Significant acquisitions and divestitures
On April 4, 1998 the Company transferred 28 million of its shares in
Electronic Media Network Holdings Limited/ SuperSport International Holdings
Limited (M-Net/SSIH) into a trust (the "Trust"), with the objective to increase
share ownership in M-Net/SSIH amongst certain South Africans, for consideration
of $22.2 million. The Trust financed 90% of the consideration through bank
borrowings. Under certain circumstances, the Company may be required to assume
the obligation for the bank borrowings at maturity on April 14, 2001 and
reacquire ownership of the M-Net/SSIH shares. The shares of M-Net/SSIH sold
have been pledged as collateral for such obligations. Under the terms of the
sale agreement the purchasers are entitled to vote the shares and the Company
is entitled to receive any dividend until 2001.
The Company recorded a liability of approximately $20.0 million related to
the bank borrowings. The cash consideration for the share transfer which has
not been financed by bank borrowings is accounted for as an option premium. The
$20.0 million liability accretes interest until the redemption date (April 14,
2001) at an interest rate of 12.55%. The option premium is amortized to income
over three years and the Company continues to account for a 19.8% equity method
investment in M-Net/SSIH.
In June 1998, the Company increased its shareholding in International
Broadcasting Corporation Public Company Limited ("UBC") from 17.3% to 26.1% for
a purchase consideration of $62.1 million, paid in cash. The excess of the
consideration of the Company's share of the fair value of the net assets
acquired, amounting to $65.1 million, was allocated to goodwill, and is
amortized over its estimated useful life of 5 years. Since the increase of its
shareholding, the Company has joint control over UBC and therefore accounts for
its investment in UBC using the equity method of accounting.
4. Program and film rights
Program and film rights increased primarily due to the purchase of
basketball and soccer rights in Greece and Cyprus.
F-6
<PAGE>
MIH Limited and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
5. Inventories
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31,
1998 1998
(thousands) (thousands)
--------------- ------------
<S> <C> <C>
Decoders and associated components ............................... $ 35,495 $ 28,689
Less: Provision for slow moving and obsolete inventories ......... (9,022) (10,406)
-------- ---------
$ 26,473 $ 18,283
======== =========
</TABLE>
6. Profit on sale of joint venture
At March 31, 1997 the Company deferred recognition of approximately $73.3
million of the gain arising on the sale of NetHold to Canal+, representing the
estimated probable liability for warranties of decoder technology and
guarantees of the number of subscribers and the potential reimbursement of
programming costs. During the year ended March 31, 1998 the Company paid
approximately $38.0 million for guarantees of number of subscribers. As no
further claims under the warranties were made prior to June 30, 1998, the
deadline for such claims, the Company reversed the remaining provisions to
profit on sale of joint venture during the six months ended September 30, 1998.
7. Long-term debt
The increase in long-term debt is attributable to an increase of $19
million in the Company's funds drawn under debt facilities, recognition of a
liability of $20 million in connection with the transfer of M-Net/SSIH shares
(see Note 3) and an increase in lease obligations by $6.1 million as a result
of new lease agreements entered into by the Company. Total lease obligations
amount to $73.3 million at September 30, 1998.
8. Segment and geographic information
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which disaggregates its
businesses by service/product and by geography. The Company's reportable
business segments are pay-television services and technology. The
pay-television business segment is conducted in Africa and the Middle East and
the Mediterranean. The technology business segment consists of Irdeto, based in
The Netherlands, and the Company's joint venture interest in OpenTV, based in
the United States. The Company's interests in OpenTV and the Middle East are
accounted for by the equity method and are, therefore, included in equity
results of joint ventures below.
Unaudited segment information for the six-month periods ended September
30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
September 1998 Pay-television services Technology
(in thousands) ------------------------------ ----------
Africa
& Mediter-
The Middle East ranean
----------------- ------------
<S> <C> <C> <C>
SALES
External sales ........................... $201,462 $ 61,419 $ 22,539
Inter-segment sales ...................... -- -- 8,754
-------- -------- --------
Total revenue ............................ $201,462 $ 61,419 $ 31,293
======== ======== ========
RESULTS
Operating (loss)/profit .................. $ (2,791) $ (5,802) $ 4,810
Depreciation and amortization (b) ........ 14,327 8,647 2,002
Amortization of program and film
rights .................................. -- 14,501 --
Equity results in joint ventures ......... (701) -- (1,537)
OTHER INFORMATION
Segment assets ........................... $395,644 $ 93,253 $179,027
<CAPTION>
September 1998
(in thousands)
Segmental Reconciling Consolidated
Total Corporate items Total
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
SALES
External sales ........................... $285,420 $ 849 $ -- $ 286,269
Inter-segment sales ...................... 8,754 -- (8,754) --
-------- -------- ----------- ---------
Total revenue ............................ $294,174 $ 849 $ (8,754) $ 286,269
======== ======== =========== =========
RESULTS
Operating (loss)/profit .................. $ (3,783) $ (1,522) $ -- $ (5,305)
Depreciation and amortization (b) ........ 24,976 -- -- 24,976
Amortization of program and film
rights .................................. 14,501 -- -- 14,501
Equity results in joint ventures ......... (2,238) -- (11,427)(c) (13,665)
OTHER INFORMATION
Segment assets ........................... $667,924 $758,468 $ (725,589)(a) $ 700,803
</TABLE>
F-7
<PAGE>
MIH Limited and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
8. Segment and geographic information --Continued
<TABLE>
<CAPTION>
September 1997 Pay-television services Technology
(in thousands) ------------------------------ -----------
Africa
& Mediter-
The Middle East ranean
----------------- ------------
<S> <C> <C> <C>
SALES
External sales .......................... $185,824 $ 49,677 $ --
Inter-segment sales ..................... -- -- --
-------- -------- ---------
Total revenue ........................... $185,824 $ 49,677 $ --
======== ======== =========
RESULTS
Operating loss .......................... $ (9,000) $ (6,977) --
Depreciation and amortization (b) ....... 19,693 8,365 --
Amortization of program and film
rights ................................. -- 10,675 --
Equity results in joint ventures ........ (48) -- (2,888)
<CAPTION>
September 1997
(in thousands)
Segmental Reconciling Consolidated
Total Corporate items Total
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
SALES
External sales .......................... $ 235,501 $ -- $ -- $ 235,501
Inter-segment sales ..................... -- -- $ -- --
--------- -------- ----- ----------
Total revenue ........................... $ 235,501 $ -- $ -- $ 235,501
========= ======== ===== ==========
RESULTS
Operating loss .......................... $ (15,977) $ (2,961) $ -- $ (18,938)
Depreciation and amortization (b) ....... 28,058 -- -- 28,058
Amortization of program and film
rights ................................. 10,675 -- -- 10,675
Equity results in joint ventures ........ (2,936) -- -- $ (2,936)
</TABLE>
(a) Represents adjustments to the assets and liabilities for the segments
relating to intergroup loans which eliminated on consolidation
(b) Excludes amortization of program and film rights included in cost of
providing services and amortization of goodwill on equity method
investments included in equity results in joint ventures.
(c) UBC, which is accounted for under the equity method beginning June
1998.
9. Subsequent events
During November 1998, the Company acquired a 100% interest in TV Com
International Inc. for $14.5 million, paid in cash.
On March 23, 1999, in anticipation of a public offering of securities by
the Company, shareholders authorized an amendment to the Company's Articles of
Association, whereby the Company's 22,789 ordinary shares with a par value of
$1 each converted into 7,447,681 Class A Ordinary Shares with no par value and
30,787,319 Class B Ordinary Shares with no par value. The two classes of shares
generally have the same rights, except that holders of Class B Ordinary Shares
are entitled to three votes per share and holders of Class A Ordinary Shares
are entitled to one vote per share. The conversion was accounted for as a stock
split, therefore, all shareholders' equity and share data in these financial
statements have been retroactively restated to reflect the conversion.
Shareholders authorized a total of 103,468,878 Class A Ordinary Shares,
55,920,509 Class B Ordinary Shares and 8,388,916 Preference Shares with no par
value.
On March 18, 1999 the Company increased its interest in OpenTV to 80.1%,
through the acquisition of a 44.5% share from Thomson Consumer Electronics,
Inc. ("Thomson") and agreement to dispose of a portion of that interest
representing 8.9% of OpenTV to a subsidiary of Sun Microsystems. The purchase
from Thomson was in exchange for a $46.2 million note bearing interest at 7%
annually. The note is convertible into Class A Ordinary Shares at the
completion of the anticipated public offering of Class A Ordinary Shares. The
number of shares received by Thomson will equal the amount of the note plus
accrued interest, divided by the offering price of Class A Ordinary Shares. The
disposition to the subsidiary of Sun Microsystems will be in exchange for
approximately $9.2 million in cash.
10. Differences between IAS and United States Generally Accepted Accounting
Principles
The Company's consolidated financial statements are prepared in accordance
with IAS, which differ in certain respects from accounting principles generally
accepted in the United States ("US GAAP").
The only significant difference which affects the Company's results and
shareholders' equity relates to the accounting for its investment in UBC. Under
IAS the investment in UBC is carried at cost through June, 1998. In June 1998,
the Company increased its shareholding in UBC to approximately 26.1% and, as a
result, has joint control over UBC. Under IAS, the Company thereafter uses the
equity method of accounting for UBC. US GAAP requires a retroactive adjustment
of financial statements for an investee that was previously accounted for on
other than the equity method when that investee becomes qualified for use of
the equity method. The adjustment therefore reflects the effect of applying the
equity method to the investment in UBC determined under US GAAP.
F-8
<PAGE>
MIH Limited and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
Reconciliation of net (loss)/profit (in thousands, except per share data):
<TABLE>
<CAPTION>
(Unaudited)
Six-month period ended
September 30,
------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Net profit/(loss) under IAS ........................ $ (734) $ (30,372)
US GAAP adjustments:
Equity accounting for UBC .......................... (5,193) (4,680)
----------- -----------
Net loss under US GAAP ............................. $ (5,927) $ (35,052)
=========== ===========
Weighted average common shares outstanding ......... 38,235,000 38,235,000
=========== ===========
Net loss per share under US GAAP ................... $ (0.16) $ (0.92)
=========== ===========
Net loss under US GAAP consists of:
Loss from continuing operations .................... $ (5,927) $ (31,116)
Discontinued operations ............................ -- (3,936)
----------- -----------
Net loss ........................................... $ (5,927) $ (35,052)
=========== ===========
Per share amounts:
Continuing operations ............................. $ (0.16) $ (0.81)
Discontinued operations ........................... -- (0.11)
----------- -----------
Net loss .......................................... $ (0.16) $ (0.92)
=========== ===========
</TABLE>
Reconciliation of shareholders' equity:
<TABLE>
<CAPTION>
(Unaudited)
September 30,
1998
--------------
<S> <C>
Total shareholders' equity under IAS ............................... $ 255,338
US GAAP adjustments:
Equity accounting for UBC .......................................... (29,930)
---------
Total shareholders' equity under US GAAP ........................... $ 225,408
=========
</TABLE>
11. Recently issued accounting standards
In February 1998, the IASC issued IAS 34, "Interim Financial Reporting".
IAS 34 will be effective for the Company's interim financial statements issued
after March 31, 1999. IAS 34 establishes guidelines for both presentation and
measurement for interim financial reporting, and defines the minimum content of
an interim financial report as a condensed balance sheet, condensed income
statement, condensed cash flow statement, condensed statement showing changes
in equity, and explanatory notes. An appendix to IAS 34 contains guidance for
applying the basic recognition and measurement principles to specific financial
statement items at interim dates. The Company believes that it has complied
with the main provisions of this standard and does not believe that this
standard will have a significant influence on the Company's financial
statements.
In September 1998, the IASC issued IAS 37, "Provisions, Contingent
Liabilities and Contingent Assets" IAS 37 will be effective for the Company's
financial statements for the year ending March 31, 2001. IAS 37 requires that
provisions should be recognized in the balance sheet when and only when an
enterprise has a present obligation as a result of past event; and it is
probable (i.e. more likely than not) that an outflow of resources embodying
economic benefits will be required to settle the obligation; and a reliable
estimate can be made of the amount of obligation. IAS 37 replaces part of IAS
10, "Contingencies and Events Occurring After the Balance Sheet Date". IAS 37
prohibits the recognition of contingent liabilities and contingent assets. An
enterprise should disclose a contingent liability, unless the possibility of an
outflow of resources embodying economic benefits is remote, and disclose a
contingent asset if an inflow of economic benefits is probable. The Company is
currently assessing the impact that this standard may have on its financial
statements.
F-9
<PAGE>
MIH Limited and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
11. Recently issued accounting standards --Continued
In October of 1998, the IASC published IAS 22 (revised 1998), "Business
Combinations", that includes limited revisions to the version of IAS 22
approved in 1993. IAS 22 (revised 1998) is effective for the Company's
financial statements for the year ending March 31, 2001. The main changes to
IAS 22 relate to the requirements for the amortization of goodwill, the
recognition of restructuring provisions at the date of acquisition and the
treatment of negative goodwill. The provisions of IAS 22 (revised 1998) would
apply prospectively.
In October of 1998, the IASC published IAS 38 "Intangible Assets".
Intangible assets should only be recognized when it is probable that future
economic benefits attributable to the asset will flow to the enterprise and the
cost of the asset can be reliably measured. Internally generated goodwill,
brand names, mastheads, publishing titles, customer lists and research costs
should not be recognized as intangible assets. After initial recognition at
cost, intangible assets can only be revalued to fair value if it can be
determined by reference to an active market. Intangible assets are required to
be amortized on a systematic basis over the best estimate of an asset's useful
life. There is a rebuttable presumption that the useful life will not exceed 20
years. The standard becomes effective for the Company's financial statements
for the year ending March 31, 2001, with earlier application encouraged. If the
Company chooses to adopt IAS 38 early, it must also apply IAS 22 (revised)
"Business Combinations" and
IAS 36 "Impairment of Assets" early. The Company is currently assessing the
impact this standard may have on its financial statements.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the directors and shareholders of
MIH Limited
We have audited the accompanying consolidated balance sheets of MIH Limited and
subsidiaries as of March 31, 1998 and 1997, and the related consolidated
statements of operations, cash flow and changes in shareholders' equity for
each of the three years in the period ended March 31, 1998. These consolidated
financial statements are the responsibility of MIH Limited's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the Republic of South Africa, which are substantially the same as
those followed in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MIH Limited and
subsidiaries as of March 31, 1998 and 1997, and the consolidated results of
their operations, cash flow and changes in shareholders' equity for each of the
three years in the period ended March 31, 1998, in conformity with
International Accounting Standards.
International Accounting Standards vary in certain significant respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of consolidated
results for each of the two years in the period ended March 31, 1998 and
shareholders' equity as of March 1998 and 1997 to the extent summarized in Note
29 to the consolidated financial statements.
Johannesburg, Republic of South Africa Coopers & Lybrand
June 15, 1998 (except with respect Chartered Accountants (SA)
to Note 28, as to which the date is Registered Accountants and Auditors
March 23, 1999)
F-11
<PAGE>
MIH Limited and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and 1997
(in thousands of US dollars)
<TABLE>
<CAPTION>
Notes 1998 1997
------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 153,412 $ 60,773
Accounts receivable, net ............................... 4 36,999 22,331
Other receivables ...................................... 5 29,444 21,292
Program and film rights ................................ 11 22,543 32,599
Amounts owing by related parties ....................... 20 14,784 --
Inventories, net ....................................... 6 18,283 12,781
---------- ----------
Total current assets ................................. 275,465 149,776
---------- ----------
Non-Current Assets
Tangible fixed assets, net ............................. 8 114,248 90,876
Intangible assets, net ................................. 9 163,611 207,870
Long-term investments .................................. 10 77,020 331,740
Program and film rights ................................ 11 15,711 22,874
---------- ----------
Total non-current assets ............................. 370,590 653,360
---------- ----------
TOTAL ASSETS ......................................... $ 646,055 $ 803,136
========== ==========
LIABILITIES
Current liabilities
Bank overdrafts ........................................ $ 16,399 $ 9,912
Current portion of long-term debt ...................... 14 36,369 15,476
Current portion of program and film rights ............. 14 6,431 7,251
Accounts payable ....................................... 73,291 42,540
Accrued expenses and other current liabilities ......... 12 121,902 136,127
Amounts owing to related parties ....................... 20 4,857 9,850
Provisions ............................................. 13 50,563 93,327
---------- ----------
Total current liabilities ............................ 309,812 314,483
---------- ----------
Non-Current Liabilities
Long-term debt ......................................... 14 54,787 60,610
Program and film rights ................................ 14 24,608 30,758
Deferred taxation ...................................... 15 3,275 --
---------- ----------
Total non-current liabilities ........................ 82,670 91,368
---------- ----------
TOTAL LIABILITIES .................................... 392,482 405,851
---------- ----------
Commitments and contingencies ........................... 22 -- --
SHAREHOLDERS' EQUITY
Share capital
Class A Ordinary Shares, no par value:
Authorized: 1998 and 1997: 103,468,828
Issued: 1998 and 1997: 7,447,681 ...................... 113,986 113,986
Class B Ordinary Shares, no par value:
Authorized: 1998 and 1997: 55,920,509
Issued: 1998 and 1997: 30,787,319 ..................... 475,566 471,198
Accumulated loss ........................................ (313,547) (197,928)
Foreign currency translation adjustment ................. (22,432) 10,029
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ........................... 253,573 397,285
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ................................ $ 646,055 $ 803,136
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
<PAGE>
MIH Limited and Subsidiaries
Consolidated Statements of Operations
for the years ended March 31, 1998, 1997 and 1996
(in thousands of US dollars, except per share and share amounts)
<TABLE>
<CAPTION>
Notes 1998 1997 1996
------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenues ............................................ 16 $ 501,492 $ -- $ --
Operating expenses:
Cost of providing services ............................. (308,996) -- --
Selling, general and administrative .................... (177,213) (899) (16)
Depreciation and amortization .......................... (58,010) -- --
----------- ----------- -----------
Total operating expenses ................................ (544,219) (899) (16)
----------- ----------- -----------
Operating loss .......................................... (42,727) (899) (16)
Financial results, net ................................. 17 (5,488) (107) --
Equity results in joint ventures
--Acquired MIH businesses .............................. (5,091) (16,150) (12,794)
--Non-acquired businesses .............................. -- (113,708) (72,891)
Equity results in associates ........................... (2,783) -- --
Profit on sale of joint venture ........................ -- 540,028 --
----------- ----------- -----------
(Loss)/profit before taxation .......................... (56,089) 409,164 (85,701)
Income taxation ........................................ 18 (7,570) -- --
----------- ----------- -----------
(Loss)/profit after taxation ........................... (63,659) 409,164 (85,701)
Minority interest ...................................... 3,793 -- --
----------- ----------- -----------
(Loss)/profit from continuing operations ............... (59,866) 409,164 (85,701)
Loss from discontinued operations ...................... 19 (3,936) -- --
----------- ----------- -----------
Net (loss)/profit ................................... $ (63,802) $ 409,164 $ (85,701)
=========== =========== ===========
Per share amounts:
(Loss)/profit from continuing operations
Basic and diluted ...................................... $ (1.57) $ 10.70 $ (2.24)
Net (loss)/profit
Basic and diluted ...................................... $ (1.67) $ 10.70 $ (2.24)
Shares used to compute (loss)/profit per share .......... 38,235,000 38,235,000 38,235,000
</TABLE>
F-13
<PAGE>
MIH Limited and Subsidiaries
Consolidated Statements of Cash Flow
for the years ended March 31, 1998, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
Note 1998 1997 1996
------ --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Operating loss .............................................. $ (42,727) $ (899) $ (16)
Adjustments for:
Depreciation and amortization .............................. 58,010 -- --
Amortization of program and film rights .................... 32,599 -- --
Taxation refunded .......................................... 2,849 -- --
Loss on sale of tangible fixed assets ...................... 1,653 -- --
(Increase)/decrease in receivables ......................... (9,553) 12,072 (12,723)
Payments for program and film rights ....................... (26,048) -- --
Net increase in amounts owing by related parties ........... (18,790) -- --
Increase in inventories .................................... (6,783) -- --
Increase/(decrease) in payables ............................ 17,941 (5,194) --
Utilised in discontinued operations ........................ (3,936) -- --
--------- --------- ---------
Net cash from/(used in) operating activities ............. 5,215 5,979 (12,739)
--------- --------- ---------
Cash flows from investing activities
Purchase of tangible fixed assets ........................... (31,664) -- --
Proceeds on sale of tangible fixed assets ................... 5,276 -- --
Dividends received from associates .......................... 1,539 -- --
Proceeds on disposal of Internet businesses ................. 21,546 -- --
Proceeds on disposal of Canal+ shares ....................... 261,536 -- --
Acquisition of subsidiaries, net of cash acquired ........... 27 (33,911) 54,045 --
Investment in OpenTV ........................................ (9,100) -- --
Investment in UBC ........................................... (45,797) (10,348) --
Net decrease in other investments ........................... 1,052 -- --
--------- --------- ---------
Net cash from investing activities ....................... 170,477 43,697 --
--------- --------- ---------
Cash flows from financing activities
Finance (costs)/income ...................................... (11,312) (107) 14,205
Funds raised from outside shareholders ...................... 3,793 -- --
Long-term debt repaid ....................................... (20,556) -- --
Capital leases repaid ....................................... (4,550) -- --
Dividends paid .............................................. (51,817) -- --
Bank overdrafts raised ...................................... 7,479 9,913 --
--------- --------- ---------
Net cash (used in)/from financing activities ............. (76,963) 9,806 14,205
--------- --------- ---------
Net increase in cash and cash equivalents ................... 98,729 59,482 1,466
Cash and cash equivalents at beginning of the year .......... 60,773 1,466 --
Translation adjustment on cash and cash equivalents ......... (6,090) (175) --
--------- --------- ---------
Cash and cash equivalents at end of the year ................ $ 153,412 $ 60,773 $ 1,466
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-14
<PAGE>
MIH Limited and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
for the years ended March 31, 1998, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
Foreign
Share capital currency
------------------------- Accumulated translation
Class A Class B loss adjustment Total
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
At March 31, 1995 ...................... $113,986 $471,198 $ (521,391) $ (3,315) $ 60,478
Net loss ............................... -- -- (85,701) -- (85,701)
Translation adjustment ................. -- -- -- (4,614) (4,614)
-------- -------- ---------- --------- ---------
At March 31, 1996 ...................... 113,986 471,198 (607,092) (7,929) (29,837)
Net profit ............................. -- -- 409,164 -- 409,164
Translation adjustment ................. -- -- -- 17,958 17,958
-------- -------- ---------- --------- ---------
At March 31, 1997 ...................... 113,986 471,198 (197,928) 10,029 397,285
Capital contribution (note 19) ......... -- 4,368 -- -- 4,368
Net loss ............................... -- -- (63,802) -- (63,802)
Dividend paid .......................... -- -- (51,817) -- (51,817)
Translation adjustment ................. -- -- -- (32,461) (32,461)
-------- -------- ---------- --------- ---------
At March 31, 1998 ...................... $113,986 $475,566 $ (313,547) $ (22,432) $ 253,573
======== ======== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-15
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements
1. Nature of operations
MIH Limited ("MIH") was incorporated on July 26, 1991 under the laws of
the British Virgin Islands. The principal activities of MIH and its operating
subsidiaries (collectively the "Company") are the provision of pay-television
and subscriber management services ("pay-television services") and the
development and sale of pay-television technology. These activities are
conducted through subsidiaries, joint ventures and investments primarily in
Africa, Greece, Cyprus, the Middle East, the Netherlands, Thailand and the
United States of America.
Until March 31, 1997 the Company's main activity was its 50% share in
Network Holdings S.A. ("NetHold"), a joint venture. The principal activities of
NetHold included pay-television operations in Africa, Greece, Cyprus, the
Middle East, the Benelux and Scandinavian countries and Italy (Note 3).
2. Principal accounting policies and reporting currency
The consolidated financial statements of the Company have been prepared in
accordance with International Accounting Standards ("IAS") issued by the
International Accounting Standards Committee. The financial statements have
been prepared on the historical cost basis.
The Company has adopted the US dollar as its reporting currency.
Notwithstanding the US dollar reporting currency, the Company measures
separately the transactions of each of its material operations using the
particular currency of the primary economic environment in which the operation
conducts its business (its functional currency).
The financial statements have been translated from functional currencies
to the reporting currency by translating assets and liabilities, both monetary
and non-monetary, and including goodwill and other intangible assets which
arise as a result of equity investments in entities, at the closing rate at
each balance sheet date. Income and expense items are translated at exchange
rates at the dates of the transactions or at average rates. All resulting
exchange differences are included in equity.
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(a) Basis of consolidation
The consolidated financial statements include the financial statements of
MIH and all majority owned (directly and indirectly) and controlled
subsidiaries. A company in which MIH holds directly or indirectly more than 50%
of the ordinary share capital and voting rights is classified as a subsidiary.
Newly acquired companies are consolidated from the effective date of
acquisition. Similarly, the result of a subsidiary divested during an
accounting period is included in the Company accounts only to the date of
disposal.
All inter-company transactions are eliminated as part of the consolidation
process and the interests of the minority shareholders in the consolidated
equity and in the consolidated results of the Company are shown separately in
the Consolidated Balance Sheet and Consolidated Statement of Operations. Where
the losses applicable to the minority shareholder in a consolidated subsidiary
exceed the minority interest in the subsidiary, the excess, and any further
losses applicable to the minority, are charged against the majority interest
except to the extent that the minority has a binding obligation to, and is able
to, make good the losses. If the subsidiary subsequently reports profits, the
majority's interest is allocated all such profits until the minority's share of
losses previously absorbed by the majority has been recovered.
Acquisitions of companies are accounted for using the purchase method. The
excess of the purchase price over the fair value of assets acquired less the
liabilities assumed of the acquired company, is allocated to identifiable
tangible and intangible assets and goodwill and amortized over future periods.
F-16
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Principal accounting policies and reporting currency--Continued
Companies in which the Company has joint control are accounted for using
the equity method with the Company's share of profits and losses included in
the Consolidated Statement of Operations. The Company's share of post
acquisition retained profits/losses is added to/deducted from the cost of the
joint venture investments in the Consolidated Balance Sheet.
Associated companies, over which the Company has significant influence,
are accounted for using the equity method with the Company's share of profits
and losses included in the Consolidated Statement of Operations. The Company's
share of post acquisition retained profits/losses is added to/deducted from the
cost of the associated company investments in the Consolidated Balance Sheet.
Other investments are stated at cost. When necessary a provision is made
on the basis of an evaluation of each individual investment for any diminution
in value which is considered to be of a permanent nature.
(b) Foreign currencies
Individual companies' transactions in currencies other than their
functional currency are recorded at the rate of exchange at the date of the
transaction or, if hedged forward, at the rate of exchange under the related
forward exchange contract. Assets and liabilities in currencies other than
their functional currency are translated at year-end rates. Any resulting
exchange differences are reflected in the Statement of Operations.
On consolidation, assets and liabilities of subsidiaries denominated in
foreign currencies are translated at year-end rates. Income and expense items
are translated using the annual weighted average rates of exchange or, where
known or determinable, at the rate on the date of the transaction for
significant items.
Adjustments from translation have been recorded in shareholders' equity
and are reflected in the Consolidated Statement of Operations only upon sale or
liquidation of the underlying investments.
(c) Cash and cash equivalents
Cash and cash equivalents represent cash and short-term highly liquid
investments with original maturities of three months or less.
(d) Trade accounts receivable
Trade accounts receivable are stated at estimated realizable values and an
allowance for doubtful accounts is provided for an amount considered by
management to be sufficient to meet probable future losses related to
uncollectable amounts.
(e) Inventories
Inventories, consisting primarily of decoders and associated components,
are stated at the lower of cost or net realizable value. Cost is generally
determined on the first-in first-out basis. Where necessary, provision is made
for obsolete, slow moving or defective inventories.
(f) Tangible fixed assets
Tangible fixed assets are stated at historical cost less accumulated
depreciation. Depreciation is charged on a straight-line basis over the
estimated useful lives of the respective assets, based on the following useful
lives:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Buildings ............................................... 50
Machinery, furniture and equipment ...................... 4-10
Transponders and transmitters ........................... 10
Decoders ................................................ 2
</TABLE>
Land is not depreciated. Improvements to leasehold properties are
amortized over the period of the respective leases.
F-17
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Principal accounting policies and reporting currency--Continued
Fully depreciated assets are retained in tangible fixed assets and
depreciation accounts until they are removed from service. In the case of
disposals, assets and related depreciation are removed from the accounts and
the net amount, less proceeds from disposal, is charged or credited to the
Statement of Operations.
(g) Intangible assets
Intangible assets are stated at historical cost less accumulated
amortization. Amortization of subscriber base is charged on a straight-line
basis over the period of expected benefit, which is five years. Goodwill is
amortized on a straight-line basis over five years.
(h) Leases
Assets held under capital lease agreements are treated as tangible fixed
assets and the present value of the related lease payments is recorded as a
liability. Costs for operating leases are charged to the Statement of
Operations in the year that they are incurred.
(i) Long-lived assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including goodwill and other intangible assets, when
events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such an asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the amount by
which the carrying value exceeds the fair market value of the long-lived asset.
Fair market value is determined primarily using anticipated cash flows
discounted at a rate commensurate with the risk involved. Long-lived assets to
be disposed of are recorded at fair market value, reduced by the estimated
costs to dispose of the asset.
(j) Program and film rights
Film rights are stated at acquisition cost less accumulated amortization.
Sport rights are written off upon showing the event and general entertainment
and films are amortized on a straight-line basis over the period of the license
or based on showings where the number of showings is limited. Amortization of
program and film rights is included in the cost of providing services.
(k) Taxation
Provision is made for all taxes payable in respect of taxable profits
earned in the year. The Company also provides at current rates for taxation on
all timing differences between income for financial reporting and fiscal
purposes under the liability method. No deferred taxation is provided for in
respect of timing differences that are anticipated to reverse within the
carry-forward period of tax losses.
(l) Minority interest
The interest of third parties in subsidiaries is accounted for on the
basis of their share in the underlying equity of the subsidiaries. Through
March 31, 1998, the Company has recorded losses of $8.4 million attributable to
minority interests.
(m) Revenue recognition
The Company generates revenue from subscription fees, decoder sales and
rentals, technology licensing, advertising and the performance of other
services, net of sales taxes and discounts. Subscription fees are earned over
the period of providing services. Decoder sales, technology licensing and other
services are recorded upon delivery of products and customer acceptance, if
any, or performance of services. Advertising revenues are recognized upon
showing over the period of the advertising contract.
(n) Pensions and other postretirement benefits
The Company has various postretirement and pension plans in accordance
with local conditions and practices in the countries in which it operates. The
plans are predominately defined contribution plans. Current contributions to
the pension funds operated for employees are charged to the Statement of
Operations as incurred.
F-18
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Principal accounting policies and reporting currency--Continued
(o) Research and development costs
Research and development costs are expensed in the financial period during
which they are incurred. Research and development costs for the years ended
March 31, 1998, 1997 and 1996 were not material.
(p) Discontinued operations
A discontinued operation results from the sale or abandonment of an
operation that represents a separate, major line of business of an enterprise
and of which the assets, net profits or losses and activities can be
distinguished physically, operationally and for functional reporting purposes.
The results of discontinued operations, net of tax, are separately disclosed.
(q) Dividends
Dividends proposed are payable when declared by the board of directors.
Dividends declared by MIH are payable in United States Dollars. Dividends
declared and received by MIH from its subsidiaries are primarily in South
African rand, Greek drachmae and Netherlands guilder.
(r) Financial instruments
The Company enters into foreign currency exchange contracts in order to
reduce the impact of certain foreign currency exchange rate fluctuations.
Firmly committed transactions and the related receivable and payable may be
hedged with forward exchange contracts. Any gains/losses are included in
accrued liabilities and are recognized in results when the transaction being
hedged is recognized.
(s) (Loss)/earnings per share
Net (loss)/earnings per share and (loss)/profit per share from continuing
operations is based on net (loss)/
earnings and the (loss)/profit from continuing operations divided by the
weighted average number of shares outstanding during each period.
(t) Segment reporting
The segmental reporting has been prepared based on the Company's method of
internal reporting, which disaggregates its business by service or product and
by geography.
3. Significant acquisitions and divestitures
Until March 31, 1997 the Company's main activity was its 50% share in
NetHold, a joint venture. The principal activities of NetHold included
pay-television operations in Africa, Greece, Cyprus, the Middle East, the
Benelux, Scandinavian countries and Italy. Additionally, NetHold held 100% of
the shares in Irdeto B.V.("Irdeto"), a pay-television technology company.
Effective March 31, 1997, the Company sold its interest in NetHold to Canal+ in
exchange for a 5% share in Canal+ and all of NetHold's pay-television
businesses in Africa, Greece, Cyprus and the Middle East. The transaction was
accounted for as a sale of the 50% interest in NetHold and a purchase of the
pay-television businesses transferred to the Company. Thereafter, the Company
acquired a 49% share in Irdeto for a consideration of $17.7 million paid for in
cash. The acquired businesses in Africa, Greece, Cyprus, the Middle East and
Irdeto are collectively referred to as the "Acquired MIH Businesses".
The Company recognized a gain of $540 million on the sale of its interest
in NetHold. The gain is equal to the excess of the fair value of consideration
received ($475 million) over the book value of the Company's interest in the
NetHold businesses sold ($159 million deficit) less deferral of a portion of
the gain related to warranties provided and direct costs of $94 million. The
fair value of the consideration received consisted of the Canal+ shares
F-19
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
3. Significant acquisitions and divestitures--Continued
($273 million) and 50% of the NetHold businesses in Africa, Greece, Cyprus and
the Middle East ($202 million). As a result of the transaction the Company
recorded intangible assets of $193 million, which has been allocated to
subscriber base ($55 million) and goodwill ($138 million).
During the 1998 financial year the Company sold its shares in Canal+ for a
total consideration of approximately $262 million, resulting in a gain of $3
million.
For the 1997 and 1996 fiscal years, the Company's results include equity
in the losses of the Acquired MIH Businesses, equity in the losses from the
NetHold businesses that were sold to Canal+ ("Non-acquired Businesses") and
profit on the sale of NetHold to Canal+, which are separately disclosed in the
Consolidated Statement of Operations.
During the 1998 fiscal year the Company acquired the entire issued share
capital of a number of Internet-related businesses in South Africa. For
financial statement purposes the acquisitions were accounted for as purchases
and, accordingly, the Internet related businesses' results are included in the
consolidated financial statements since the date of acquisition. The aggregate
purchase price was approximately $21.5 million, which was financed through
internal resources. The excess of the purchase price over the net liabilities
acquired (goodwill) approximated $17 million. Refer to Note 19 with respect to
the subsequent disposal of the Internet-related business.
In January 1998, the Company acquired the remaining 51% of the outstanding
share capital of Irdeto for an aggregate cash consideration of approximately
$11 million. For financial statement purposes the acquisition was accounted for
as a purchase, and accordingly, the related business's results are included in
the consolidated financial statements since the date of acquisition.
The Company also acquired a 44.5% interest in OpenTV, Inc. ("OpenTV") for
$15.5 million with effect from January 26, 1998 of which $6.4 million is due in
the ensuing financial year. The excess purchase price over the net liabilities
acquired of approximately $18.1 million has been allocated to goodwill and is
amortized over 5 years.
The Company invested an additional $17.7 million in International
Broadcasting Corporation Public Company Limited ("UBC"), a company listed on
the Stock Exchange of Thailand, during the year. As a result of the Company's
additional investment in UBC and following a merger between UBC and UTV Cable
Network Public Company, the Company's interest in the new merged entity
increased to 17.3%.
The following summarized unaudited pro forma financial information assumes
that the Acquired MIH Businesses were acquired as of April 1, 1996 and the
acquisition of Irdeto occurred on April 1, 1996 and 1997, respectively.
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------
1998 1997
Pro Forma Information (in thousands, except per share data) ------------- -----------
<S> <C> <C>
Net sales .................................................. $ 545,306 $494,596
Net loss ................................................... $ (73,843) $ (3,953)
Loss per share ............................................. $ (1.93) $ (0.10)
</TABLE>
Pro forma data do not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented and are not intended to be a projection of future results.
The following are the condensed consolidated NetHold balance sheets as of
March 31, 1997 and 1996 and statements of operations for the years ended March
31, 1997 and 1996.
F-20
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
3. Significant acquisitions and divestitures--Continued
These condensed consolidated balance sheets and statements of operations
are based on financial statements prepared under Netherlands GAAP. The NetHold
financial statements do not differ significantly from IAS, except for the
treatment of goodwill arising on the acquisition of a business, which is
directly written off against distributable reserves, and the recognition of a
debit balance of minority interest. Under IAS, goodwill would have been
capitalized and amortized over its estimated useful life and a minority
interest debit balance recognized only to the extent that the minority has a
binding obligation and is able to make good its share of losses. The impact of
these differences on the Company's financial statements was not material.
The condensed consolidated balance sheets were translated from Netherlands
guilders to US dollars using the prevailing year-end rates and the statements
of operations were translated using a weighted average exchange for the year.
The differences arising as a result of the difference between the weighted
average and year-end exchange rates have been recorded in shareholders'
deficit.
<TABLE>
<CAPTION>
March 31,
------------------------------
1997 1996
(thousands) (thousands)
NetHold --------------- ------------
<S> <C> <C>
Balance Sheets:
Cash and cash equivalents ............................ $ 66,313 $ 35,478
Accounts receivable, net ............................. 86,877 59,829
Prepayments and other ................................ 105,569 130,525
Inventories, net ..................................... 25,156 37,060
------------ ---------
Total current assets ................................ 283,915 262,892
------------ ---------
Property, plant and equipment ........................ 116,500 147,080
Intangible assets, net ............................... 10,377 15,364
Investments .......................................... 241,854 315,834
Other non-current assets ............................. 111,824 109,956
------------ ---------
Total non-current assets ............................ 480,555 588,234
------------ ---------
Total Assets ........................................ $ 764,470 $851,126
============ =========
Bank overdrafts ...................................... $ 4,586 $317,481
Accounts payable ..................................... 89,731 100,903
Accrued expenses ..................................... 246,642 262,341
Other current liabilities ............................ 105,783 98,726
------------ ---------
Total current liabilities ........................... 446,742 779,451
Long-term Liabilities ................................ 1,509,680 717,709
------------ ---------
Total Liabilities ................................... 1,956,422 1,497,160
------------ ---------
Minority interest .................................... (9,603) (5,419)
------------ ---------
Redeemable preferred shares .......................... 174,859 198,487
------------ ---------
Share capital ........................................ 133,276 151,286
Accumulated deficit .................................. (1,492,302) (991,223)
Translation reserve .................................. 1,818 835
------------ ---------
Shareholders' deficit ............................... (1,357,208) (839,102)
------------ ---------
Total Liabilities and Shareholders' Deficit ......... $ 764,470 $851,126
============ =========
</TABLE>
F-21
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
3. Significant acquisitions and divestitures--Continued
<TABLE>
<CAPTION>
March 31,
------------------------------
1997 1996
(thousands) (thousands)
NetHold ------------- --------------
<S> <C> <C>
Statements of Operations:
Revenues ............................ $ 730,158 $ 634,439
Operating expenses:
Cost of providing services ......... (348,062) (302,098)
Other operating expenses ........... (587,953) (470,489)
---------- ----------
Operating results .................. (205,857) (138,148)
Financial results, net ............. (56,718) (34,462)
---------- ----------
Loss before taxation ............... (262,575) (172,610)
Income taxation .................... (2,870) (2,655)
---------- ----------
Loss after taxation ................ (265,445) (175,265)
Minority interest .................. 5,729 3,895
---------- ----------
Net Loss ........................... $ (259,716) $ (171,370)
========== ==========
</TABLE>
4. Accounts receivable
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Trade accounts receivable ..................... $ 47,148 $ 29,398
Less: Provision for doubtful accounts ......... (10,149) (7,067)
--------- --------
$ 36,999 $ 22,331
========= ========
</TABLE>
Included in accounts receivable are $14.3 million and $22.2 million at
March 31, 1998 and March 31, 1997, respectively, pre-billed to customers and
credit balances which have been recorded as deferred income (Note 12).
5. Other receivables
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Prepayments and accrued income ......... $14,272 $15,469
Other receivables ...................... 15,172 5,823
------- -------
$29,444 $21,292
======= =======
</TABLE>
6. Inventories
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Decoders and associated components ............................... $ 28,689 $ 19,247
Less: Provision for slow moving and obsolete inventories ......... (10,406) (6,466)
--------- --------
$ 18,283 $ 12,781
========= ========
</TABLE>
F-22
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
7. Valuation and qualifying accounts
<TABLE>
<CAPTION>
At March Translation
31, 1997 adjustment
------------- -------------
(thousands) (thousands)
<S> <C> <C>
Provision for:
Doubtful accounts -- Note 4 ................... $ (7,067) $ 708
Slow moving and obsolete inventories --
Note 6 ....................................... (6,466) 648
Program and film rights ....................... (476) 48
Decoder technology ............................ (29,358) 2,942
Postretirement benefits ....................... (4,678) 469
Subscriber guarantees ......................... (42,203) 4,229
Programming costs ............................. (9,125) 914
Write down of carrying values of assets in
certain African countries .................... (7,963) 798
Development costs/losses in joint ventures..... -- --
---------- -------
$ (107,336) $10,756
========== =======
<CAPTION>
Credited/
Arising on (Charged)
acquisition to cost and At March
of subsidiary Deductions expenses 31, 1998
--------------- ------------- ------------- ------------
(thousands) (thousands) (thousands) (thousands)
<S> <C> <C> <C> <C>
Provision for:
Doubtful accounts -- Note 4 ................... $ (6,251) $ -- $ 2,461 $ (10,149)
Slow moving and obsolete inventories --
Note 6 ....................................... (4,135) -- (453) (10,406)
Program and film rights ....................... -- -- (1,444) (1,872)
Decoder technology ............................ -- 3,682 -- (22,734)
Postretirement benefits ....................... -- -- 443 (3,766)
Subscriber guarantees ......................... -- 37,974 -- --
Programming costs ............................. -- -- (882) (9,093)
Write down of carrying values of assets in
certain African countries .................... -- -- 2,824 (4,341)
Development costs/losses in joint ventures..... (3,398) -- (4,610) (8,008)
--------- ------- -------- ---------
$ (13,784) $41,656 $ (1,661) $ (70,369)
========= ======= ======== =========
</TABLE>
The decoder technology provision relates to guarantees in respect of
potential defects in the technology of decoders used by a NetHold associate.
The provision for subscriber guarantees relates to guarantees provided to
Canal+ regarding the number of subscribers of a NetHold associate that were
sold to Canal+. During fiscal 1998, the guarantee resulted in a payment which
was charged against the provision created as of March 31, 1997. The Company
believes that payment under the guarantee of the amount provided is probable.
The provisions for programming costs arises from an agreement with Canal+
according to which MIH will reimburse Canal+ for any increases in the
programming costs incurred by NetHold subsidiaries which result from the need
to renegotiate such contracts. The Company believes that payment under the
agreement of the amount provided is probable.
The provision for the write down of the carrying value of assets in
certain African countries relates to managements' estimates regarding the
recoverability of such assets, given the current economic and political
environment in certain African countries.
F-23
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
8. Tangible fixed assets (in thousands)
<TABLE>
<CAPTION>
Land, buildings and Machinery, furniture Transponders
leasehold improvements and equipment and transmitters Decoders
----------------------- ---------------------- ---------------------- ----------
Purchased Leased Purchased Leased Purchased Leased Leased Total
----------- ----------- ----------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost
At March 31, 1997 ......... $3,627 $ 8,824 $ 44,165 $ 3,922 $ 10,660 $ 28,174 $ 8,033 $ 107,405
Translation adjustment .... (638) (1,272) (8,341) (655) (1,717) (2,890) (193) (15,706)
Additions ................. 1,171 2,759 37,340 3,377 3,166 21,576 -- 69,389
Disposals ................. (221) -- (4,438) -- (3,671) (1,038) -- (9,368)
------ -------- --------- -------- -------- -------- -------- ---------
At March 31, 1998 ......... 3,939 10,311 68,726 6,644 8,438 45,822 7,840 151,720
------ -------- --------- -------- -------- -------- -------- ---------
Accumulated
depreciation
At March 31, 1997 ......... (409) -- (12,389) (1,440) (2,155) (136) -- (16,529)
Translation adjustment .... 91 12 2,748 220 282 8 -- 3,361
Charge for the year ....... (318) (297) (16,090) (734) (525) (3,223) (5,573) (26,760)
Disposals ................. 73 3 1,183 -- 1,069 128 -- 2,456
------ -------- --------- -------- -------- -------- -------- ---------
At March 31, 1998 ......... (563) (282) (24,548) (1,954) (1,329) (3,223) (5,573) (37,472)
------ -------- --------- -------- -------- -------- -------- ---------
Net book value
At March 31, 1998 ......... $3,376 $ 10,029 $ 44,178 $ 4,690 $ 7,109 $ 42,599 $ 2,267 $ 114,248
====== ======== ========= ======== ======== ======== ======== =========
At March 31, 1997 ......... $3,218 $ 8,824 $ 31,776 $ 2,482 $ 8,505 $ 28,038 $ 8,033 $ 90,876
====== ======== ========= ======== ======== ======== ======== =========
</TABLE>
The Company leases certain land and buildings, machinery, furniture and
equipment, and transponders and transmitters. Commitments for minimum rentals
under non-cancellable leases as at March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
For the years ended March 31: ------------- ------------
(thousands) (thousands)
------------- ------------
<S> <C> <C>
1999 ....................................... $ 14,312 $ 33,611
2000 ....................................... 12,938 33,615
2001 ....................................... 10,636 33,630
2002 ....................................... 9,716 33,712
2003 and after ............................. 67,385 110,132
--------- --------
Total minimum lease payments ............... 114,987 $244,700
========
Less: amount representing interest ......... (47,815)
---------
$ 67,172
=========
</TABLE>
Operating rental expenses for the year ended March 31, 1998 amounted to
approximately $33 million. Capital leases bear interest ranging from 6%-21% as
of March 31, 1998. The weighted average interest rate was 10%.
F-24
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
9. Intangible assets
<TABLE>
<CAPTION>
1998
Subscriber base Goodwill Total
(thousands) (thousands) (thousands)
----------------- ------------- ------------
<S> <C> <C> <C>
Cost
At April 1, 1997 .................. $ 55,000 $ 152,870 $ 207,870
Translation difference ............ (6,750) (20,268) (27,018)
Additions ......................... 36,490 36,490
Disposals ......................... (17,561) (17,561)
--------- ---------
At March 31, 1998 ................. 48,250 151,531 199,781
--------- --------- ---------
Accumulated amortization
At April 1, 1997 .................. -- -- --
Amortization for the year ......... (10,311) (28,689) (38,999)
Translation difference ............ 661 2,169 2,829
--------- --------- ---------
At March 31, 1998 ................. (9,650) (26,520) (36,170)
--------- --------- ---------
Net book value ..................... $ 38,600 $ 125,011 $ 163,611
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1997
Subscriber base Goodwill Total
(thousands) (thousands) (thousands)
----------------- ------------- ------------
<S> <C> <C> <C>
Cost
At April 1, 1996 .................. --
Additions ......................... $55,000 $152,870 $207,870
------- -------- --------
At March 31, 1997 ................. 55,000 152,870 207,870
------- -------- --------
Accumulated amortization
At April 1, 1996 .................. -- -- --
Amortization for the year ......... -- -- --
------- -------- --------
At March 31, 1997 ................. -- -- --
------- -------- --------
Net book value ..................... $55,000 $152,870 $207,870
======= ======== ========
</TABLE>
F-25
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
10. Long-term investments
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Marketable securities (a) ................................. $56,924 $309,669
Associates (b) ............................................ 12,992 12,051
Joint ventures (c) ........................................ 7,104 4,790
Unsecured loans to joint ventures ......................... -- 5,230
------- --------
$77,020 $331,740
======= ========
(a) Marketable securities at cost
Listed Shares
UBC ...................................................... $52,840 $ 35,084
Canal+ ................................................... -- 273,459
Unlisted shares
Cable News Egypt S.A.E (CNE) ............................. 2,985 1,126
Croco Beteiligungs Gesellschaft GmbH ..................... 1,004 --
LTH AE ................................................... 95 --
------- --------
$56,924 $309,669
======= ========
(b) Associates
Electronic Media Network Limited / SuperSport International
Holdings Limited ("M-Net") ............................... $10,312 $ 12,051
Orbicom (Proprietary) Limited ("Orbicom") ................. -- --
Share of post acquisition retained profits ................ 2,680 --
------- --------
$12,992 $ 12,051
======= ========
</TABLE>
F-26
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
10. Long-term investments--Continued
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
(c) Joint ventures
Digco BV ("Digco") ............................................. $ 7,762 $ --
MultiChoice Supplies (Proprietary) Limited
("MultiChoice Supplies") ...................................... 3,686 4,790
Irdeto (1997) .................................................. -- --
MultiChoice Middle East ........................................ -- --
OpenTV ......................................................... -- --
Share of post acquisition retained profits less losses ......... (4,344) --
-------- --------
$ 7,104 $ 4,790
======== ========
Listed shares at market value
UBC ........................................................... $104,817 $ 12,957
Canal+ ........................................................ -- 273,459
M-Net ......................................................... 54,483 71,022
-------- --------
$159,300 $357,438
======== ========
</TABLE>
The following information relates to the Company's significant
investments:
<TABLE>
<CAPTION>
March 31,
-------------------------
1998 1997
Type of investment ------------- --------- Nature of business Country
% %
<S> <C> <C> <C> <C>
Marketable securities at cost
UBC ................................... 17.3 15.0 Pay-television Thailand
Canal+ ................................ -- 4.9 Pay-television France
CNE ................................... 10.0 10.0 Television Egypt
Associates
M-Net ................................. 19.8(1) 20.0 Pay-television South Africa
Orbicom ............................... 20.0 20.0 Signal distribution South Africa
Joint ventures
Digco ................................. 50.0 -- Decoder technology The Netherlands
MultiChoice Supplies .................. 50.0 50.0 Decoder rentals South Africa
Irdeto (1998 : Subsidiary) ............ -- 49.0 Technology development The Netherlands
OpenTV ................................ 44.5 -- Technology development USA
Multichoice Middle East ............... 45.0 45.0
Subsidiaries
Myriad Africa BV ...................... 100.0 100.0 Investment holding The Netherlands
MultiChoice Africa (Pty) Limited
("MultiChoice Africa") ............... 100.0 100.0 Pay-television South Africa
MultiChoice Africa Limited ............ 100.0 100.0 Investment holding British Virgin Islands
NetMed ................................ 100.0 100.0 Investment holding The Netherlands
NetHold Hellas S.A. ................... 52.0 52.0 Pay-television Greece
MultiChoice Hellas S.A. ............... 52.0 52.0 Pay-television Greece
Irdeto (1997 : Joint venture) ......... 100.0 -- Technology development The Netherlands
</TABLE>
- ----------------
(1) The Company accounts for its investment in M-Net using the equity method of
accounting because of the significant influence the Company exercises over
M-Net as a result of common ownership, the Company's management and
directors' representation on the Board of Directors of M-Net and the fact
that substantially all of M-Net's revenues are derived from the Company.
F-27
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
10. Long-term investments--Continued
<TABLE>
<CAPTION>
March 31,
Significant joint venture information --------------------------------------------
1998 1997 1996
(thousands) (thousands) (thousands)
------------- ------------- ------------
<S> <C> <C> <C>
(a) NetHold (Note 3)
(b) Other joint ventures
Combined joint venture information .........
Share of results in joint ventures ......... $ (5,091) $ -- $ --
Current assets ............................. 11,110 -- --
Long-term assets ........................... 5,320 -- --
Current liabilities ........................ (26,173) -- --
Long-term liabilities ...................... (25,388) -- --
</TABLE>
11. Program and film rights
The following table sets forth the components of program and film rights,
on a gross and net basis:
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Cost
Program rights ............................ $60,893 $70,944
Film rights ............................... 13,554 10,291
------- -------
74,447 81,235
------- -------
Accumulated amortization
Program rights ............................ 26,266 17,337
Film rights ............................... 9,927 8,425
------- -------
36,193 25,762
------- -------
Net book value
Program rights ............................ 34,627 53,607
Film rights ............................... 3,627 1,866
------- -------
$38,254 $55,473
======= =======
Classified on the balance sheets as follows:
Currents assets ............................ $22,543 $32,599
Non-current assets ......................... 15,711 22,874
------- -------
$38,254 $55,473
======= =======
</TABLE>
12. Accrued expenses and other current liabilities
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Deferred income .......................................... $ 14,344 $ 22,213
Accrued expenses ......................................... 41,973 42,399
Taxes and social securities .............................. 12,630 5,086
Amounts owing in respect of investments acquired ......... 6,400 42,387
Other current liabilities ................................ 46,555 24,042
-------- --------
$121,902 $136,127
======== ========
</TABLE>
F-28
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
13. Provisions
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Decoder technology .................................................. $22,734 $29,358
Postretirement benefits (Note 26) ................................... 3,766 4,678
Write down of carrying values of assets in certain African countries 4,341 7,963
Subscriber guarantees ............................................... -- 42,203
Programming costs ................................................... 9,093 9,125
Provision for development costs/losses in joint ventures ............ 10,629 --
------- -------
$50,563 $93,327
======= =======
</TABLE>
14. Long-term debt and program and film rights
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
Long-term debt comprises: ------------- ------------
<S> <C> <C>
Capital leases -- Note 8 ......................................... $ 67,172 $ 48,912
NetHold Finance VOF .............................................. 23,984 26,655
Other long-term debt ............................................. -- 519
--------- ---------
91,156 76,086
Less: Short-term portion included in current liabilities ......... (36,369) (15,476)
--------- ---------
$ 54,787 $ 60,610
========= =========
</TABLE>
Program and film rights payable are non-interest bearing and amounts due
in future fiscal years are $6.4 million in 1999; $15.9 million in 2000 and $8.7
million thereafter.
The loan from NetHold Finance VOF bears interest at 2% above the Amsterdam
Inter-bank Benchmark Rate and matures on or before October 5, 1998.
The currency mix of the long-term debt as at March 31, 1998 is:
<TABLE>
<CAPTION>
%
-----
<S> <C>
European Currency Unit .......... 39.0
Greek drachmae .................. 29.0
Netherlands guilders ............ 19.0
South African rand .............. 11.0
US dollars ...................... 2.0
-----
100.0
=====
</TABLE>
F-29
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
15. Deferred taxation
The deferred taxation relates to the temporary differences between the
book values and the tax bases of assets and liabilities. Significant components
of the Company's deferred taxation liabilities and assets are summarized below:
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Deferred taxation liabilities
Leased assets .......................................... $ 1,097 $ 2,648
Purchased intangible fixed assets ...................... 3,275 --
Prepayments ............................................ 1,995 2,356
Subscriber base ........................................ 13,472 19,250
--------- ---------
Gross deferred taxation liabilities .................... 19,839 24,254
--------- ---------
Deferred taxation assets
Purchased intangible fixed assets ...................... 2,062 2,053
Purchased tangible fixed assets ........................ 350 153
Accounts receivable and other assets ................... 1,387 175
Accrued expenses and other current liabilities ......... 23,791 21,870
Program and film rights ................................ 3,113 566
Leased tangible fixed assets ........................... 2,881 209
Deferred income ........................................ 4,929 6,275
Tax loss carryforwards ................................. 36,156 26,770
--------- ---------
Gross deferred taxation assets ......................... 74,669 58,071
--------- ---------
Net deferred taxation assets ........................... 54,830 33,817
Less Valuation allowance ............................... (58,105) (33,817)
--------- ---------
Net deferred tax liabilities ........................... $ (3,275) $ --
========= =========
</TABLE>
The Company has raised a valuation allowance against the net deferred
taxation asset as in management's estimate it is more likely than not that the
deferred taxation asset will not be realized, due to the historical operating
losses incurred by the Company's operations and the timing limits on the tax
loss carry-forwards that arose on these losses.
16. Net revenues
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
1998 1997 1996
(thousands) (thousands) (thousands)
------------- ------------- ------------
<S> <C> <C> <C>
Subscription revenues ............. $404,479 $ -- $ --
Decoder sales and repairs ......... 63,082 -- --
Technology and other .............. 33,931 -- --
-------- ----- -----
$501,492 $ -- $ --
======== ===== =====
</TABLE>
F-30
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
17. Financial results, net
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
1998 1997 1996
(thousands) (thousands) (thousands)
------------- ------------- ------------
<S> <C> <C> <C>
Dividend income ......................... $ 3,177 $ -- $ --
Gain on disposal of investments ......... 2,647 -- --
Interest income ......................... 7,898 -- --
Exchange losses ......................... (6,049) -- --
Interest expense ........................ (13,161) (107) --
--------- ------- -----
$ (5,488) $ (107) $ --
========= ======= =====
</TABLE>
18. Income taxation
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
1998 1997 1996
(thousands) (thousands) (thousands)
------------- ------------- ------------
<S> <C> <C> <C>
Foreign taxation
Current ....................... $ (5,964) $ -- $ --
Deferred ...................... (1,606) -- --
-------- ----- -----
Charged against income ......... $ (7,570) $ -- $ --
======== ===== =====
</TABLE>
The difference between income taxation expense computed at statutory rates
of the respective companies (35% average) and income taxation expense provided
on results are as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1998 1997 1996
(thousands) (thousands) (thousands)
------------- ------------- ------------
<S> <C> <C> <C>
Income taxation benefit at statutory rates ............ $ 19,631 $ -- $ --
Unprovided timing differences ......................... (22,080) -- --
Permanent differences
Profit on sale of investments ........................ 1,692 -- --
Profit on dilution of interest in associates ......... 315 -- --
Non deductible charges ............................... (13,961) -- --
Expenditure of a capital nature ...................... 156 -- --
Other taxes .......................................... (3,064) -- --
Change in taxation rates ............................. 9,741 -- --
--------- ----- -----
Income taxation expense .............................. $ (7,570) $ -- $ --
========= ===== =====
</TABLE>
The Company has tax loss carry-forwards of approximately $92.1 million. A
summary of the tax loss carry-forwards by tax jurisdiction, and the expiry
dates at March 31, 1998 (in thousands) is set out below:
<TABLE>
<CAPTION>
Africa Mediterranean Netherlands Total
---------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
1999 ................ $ 2,400 $ 792 $ -- $ 3,192
2000 ................ 2,400 5,762 -- 8,162
2001 ................ 2,400 26,544 -- 28,944
2002 ................ 9,200 2,554 -- 11,754
2003 ................ 1,452 14,048 -- 15,500
Indefinite .......... 19,351 -- 5,230 24,581
------- ------- ------ -------
$37,203 $49,700 $5,230 $92,133
======= ======= ====== =======
</TABLE>
Tax loss carry-forwards of $23.6 million are only available for offset
against future taxable income from the same category of income which created
the loss.
F-31
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
18. Income taxation--Continued
The ultimate outcome of additional taxation assessments may vary from the
amounts accrued, however management of the Company believe that any additional
taxation liability over and above the amount accrued would not have a material
adverse impact on the Company's results of operations or financial position.
Unprovided timing differences are timing differences that are expected to
reverse within the carry-forward period of tax losses (note 3(j)) and are,
therefore, effectively a valuation allowance.
19. Discontinued operations
With effect from October 1, 1997 the Company sold its Internet-related
businesses to M-Web Holdings Limited, a related party, for $20.5 million, which
was settled in cash and resulted in a surplus of $4.4 million. The Company
accounted for the operating losses of the Internet-related businesses as
discontinued operations for the period from May 1, 1997 to September 30, 1997.
The $4.4 million surplus on this transaction was accounted for as a capital
contribution.
20. Related party transactions
The Company entered into transactions and has balances with a number of
affiliated companies, including equity investees, shareholders and entities
under common control. The transactions with affiliated companies are summarized
in the following table:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
1998 1997 1996
(thousands) (thousands) (thousands)
------------- ------------- ------------
<S> <C> <C> <C>
Income
Satellite transmission costs (a) ........... $ 1,308 $ -- $ --
Interest income (b) ........................ -- 11,916 14,205
-------- ------- -------
$ 1,308 $11,916 $14,205
======== ======= =======
Costs
Channel and programming costs (c) .......... $171,355 $ -- $ --
Transmission costs (d) ..................... 17,369 -- --
Use of broadcasting facilities (e) ......... 933 -- --
Licensing fees (f) ......................... 2,671 -- --
-------- ------- -------
$192,328 $ -- $ --
======== ======= =======
</TABLE>
- ----------------
(a) Certain costs related to the lease, maintenance and insurance of signal
distribution are charged on by the Company to one of its affiliated
companies.
(b) Interest income relates to a loan from the Company to one of the
subsidiaries of NetHold. Interest income on the loan has been included in
equity results in joint ventures.
(c) The Company purchased the right to transmit certain channels and programs
from an affiliated company.
(d) The Company is charged by an affiliate for services relating to the lease,
maintenance and insurance of signal distribution equipment.
(e) The Company is charged for the use of broadcasting facilities of an
affiliated company.
(f) Licensing fees are charged by an affiliated company for the use of certain
subscriber technology and software.
F-32
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
20. Related party transactions--Continued
The balances of advances, deposits, receivables and payables between the
Company and affiliates are:
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Receivables
MIH Holdings ............................... $ 8,657 $ --
OpenTV ..................................... 323 --
Computicket ................................ 434 --
UBC ........................................ 3,872 --
Myriad International Holdings B.V. ......... 1,498 --
------- ------
$14,784 $ --
======= ======
Payables
Irdeto ..................................... $ -- $6,337
M-Web ...................................... 2,223 --
MIH Holdings ............................... -- 3,513
M-Cell ..................................... 237 --
Supersport ................................. 1,819 --
M-Net ...................................... 362 --
Orbicom .................................... 216 --
------- ------
$ 4,857 $9,850
======= ======
</TABLE>
21. Segment and geographic information
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which disaggregates its
businesses by service/product and by geography. The Company's reportable
business segments are pay-television services and technology. The
pay-television business segment is conducted in Africa and the Middle East and
the Mediterranean. The technology business segment consists of Irdeto, based in
The Netherlands, and the Company's joint venture interest in OpenTV, based in
the United States. The Company's interests in OpenTV and the Middle East are
accounted for by the equity method and are, therefore, included in equity
results in joint ventures below.
F-33
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
21. Segment and geographic information--Continued
The accounting policies of the segments are identical to the accounting
policies described in "Summary of Significant Accounting Policies".
<TABLE>
<CAPTION>
Pay-television services Technology
1998 --------------------------- -------------
Africa
&
The Middle Mediter-
East ranean
------------- -------------
SALES (thousands) (thousands) (thousands)
<S> <C> <C> <C>
External sales ........................ $ 382,308 $ 106,403 $ 12,781
Inter-segment sales ................... -- -- 4,719
--------- ---------- ---------
Total revenue ......................... $ 382,308 $ 106,403 $ 17,500
========= ========== =========
RESULTS
Operating loss ........................ $ (4,901) $ (26,626) $ (3,035)
Depreciation and
amortization(c) ...................... (36,994) (18,243) (2,711)
Amortization of
program and film rights .............. -- (32,599) --
Operating loss is stated before the
following items;
Exchange (losses)/gains ............... (1,464) (8,042) 672
Dividend income ....................... -- -- --
Interest expense ...................... (46,890) (10,814) (555)
Gain on disposal of
investments .......................... -- -- --
Interest income ....................... 3,078 474 1,647
Equity results in associates .......... (2,783) -- --
Equity results in joint ventures ...... (556) -- (4,535)
Income taxation ....................... -- (1,658) (2,777)
OTHER INFORMATION
Segment assets ........................ 290,671 164,561 101,806
Investments in equity companies ....... 13,857 -- 6,239
Other investments at cost ............. 3,080 -- 1,004
Segment liabilities ................... 170,207 228,322 52,478
Capital expenditures .................. 23,356 7,085 1,223
<CAPTION>
1998
Segmental Reconciling Consolidated
Total Corporate items Total
------------- ------------- -------------------- -------------
SALES (thousands) (thousands) (thousands) (thousands)
<S> <C> <C> <C> <C>
External sales ........................ $ 501,492 $ -- $ -- $ 501,492
Inter-segment sales ................... 4,719 -- (4,719) --
---------- --------- ------------- ----------
Total revenue ......................... $ 506,211 $ -- $ (4,719) $ 501,492
========== ========= ============= ==========
RESULTS
Operating loss ........................ $ (34,562) $ (8,165) $ -- $ (42,727)
Depreciation and
amortization(c) ...................... (57,948) (62) -- (58,010)
Amortization of
program and film rights .............. (32,599) -- -- (32,599)
Operating loss is stated before the
following items;
Exchange (losses)/gains ............... (8,834) 2,785 -- (6,049)
Dividend income ....................... -- 3,177 -- 3,177
Interest expense ...................... (58,259) (1,825) 46,923 (a) (13,161)
Gain on disposal of
investments .......................... -- 2,647 -- 2,647
Interest income ....................... 5,199 49,001 (46,302) (a) 7,898
Equity results in associates .......... (2,783) -- -- (2,783)
Equity results in joint ventures ...... (5,091) -- -- (5,091)
Income taxation ....................... (4,435) (3,135) -- (7,570)
OTHER INFORMATION
Segment assets ........................ 557,038 539,631 (450,614) (b) 646,055
Investments in equity companies ....... 20,096 -- -- 20,096
Other investments at cost ............. 4,084 52,840 -- 56,924
Segment liabilities ................... 451,007 392,089 (450,614) (b) 392,482
Capital expenditures .................. 31,664 -- -- 31,664
</TABLE>
- ----------------
(a) Represents interest income and expenses on loans between group companies in
different segments and corporate that eliminate on consolidation.
(b) Represents adjustments to the assets and liabilities for the segments
relating to intergroup loans which eliminate on consolidation.
(c) Excludes amortization of program and film rights included in cost of
providing services and amortization of goodwill on equity method
investments included in equity results in joint ventures.
22. Commitments and contingencies
(a) Loans
MultiChoice Africa is required to lend a joint venture an amount not
exceeding $1.6 million, which represents 20% of a banking facility available to
fund the acquisition of decoders.
(b) Program and film rights and decoders
At March 31, 1998, the Company had entered into contracts for the purchase
of program and film rights and decoders. The Company's commitments in respect
of these contracts amount to $11.6 million (1997: $6.7 million and $12.6
million (1997: $14.8 million), respectively.
F-34
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
22. Commitments and contingencies--Continued
(c) Capital expenditure
The Company had capital expenditure commitments as at March 31, 1998 and
1997 of $17.5 million and $2.6 million, respectively.
(d) Lines of credit
At March 31, 1998, the Company had overdraft borrowing facilities of $43.7
million and decoder rental funding facilities in an aggregate amount equal to
$10.3 million with various financial institutions.
(e) Loss insurance
The Company does not generally carry risk of loss insurance for injury to
others, damage to the property of others, or interruption of its business
operations.
23. Foreign currency management
The currencies of the countries in which the Company operates are also the
functional currencies. For these operations, all gains and losses from foreign
currency transactions are included in current results. The cumulative
translation effects for operations using functional currencies other than the
US dollar are included in the foreign currency translation adjustment in
shareholders' equity.
The Company uses foreign currency forward exchange contracts, which
typically expire within one year, to hedge payments of foreign currencies
related to the purchase of goods and services in currencies other than the
functional currency. Realized gains and losses on these contracts are
recognized in the same period as the hedged transactions. The Company had
foreign exchange forward contracts on hand at March 31, 1998 hedging South
African rand, Greek drachmae and Thai baht against the US dollar and South
African rand against the British pound sterling. The US dollar/Thai baht
exchange contracts were entered into by the Company on behalf of UBC. Under a
written agreement, all profits/losses arising from these contracts are for the
account of UBC. The Company does not currently hold or issue derivative
financial instruments for trading purposes.
The contractual amounts, exchange rates and settlement dates of the
outstanding contracts at March 31, 1998 are set out below:
<TABLE>
<CAPTION>
Contractual Average
amounts exchange
(thousands) rates Settlement dates
------------- ----------- ------------------------------------
<S> <C> <C> <C>
Greek drachmae/US dollar ............. $14,000 307.49 April 27, 1998 -- May 25, 1999
South African rand/US dollar ......... 23,849 5.22 August 31, 1998 -- January 28, 1999
Thai baht/US dollar .................. 8,000 50.35 June 30, 1998
South African rand/British
pound sterling ...................... 1,727 7.97 July 31, -- August 31, 1998
</TABLE>
F-35
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
24. Fair value of financial instruments
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturities of these instruments. The value of long-term debt
is estimated using discounted cash flows based on the Company's incremental
borrowing rates for similar types of borrowings. The value of forward exchange
contracts is based on quoted market prices. A comparison of the carrying value
and fair value of these instruments is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
----------------------------- ----------------------------
Carrying Carrying
Value Fair Value Value Fair Value
(thousands) (thousands) (thousands) (thousands)
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents .......... $153,412 $153,412 $ 60,773 $ 60,773
Receivables ........................ 81,227 81,227 43,623 43,623
Marketable securities .............. 56,924 104,817 309,669 286,416
Liabilities:
Payables and provisions ............ 257,630 257,630 281,844 281,844
Short-term borrowings .............. 59,199 59,199 32,640 32,640
Long-term debt ..................... 79,395 79,395 91,368 91,368
Off-balance-sheet instruments
Forward exchange contracts ......... 47,576 45,999 28,027 24,610
</TABLE>
25. Pension funds
The Company has defined contribution plans covering employees of most of
its subsidiaries. The Company's contributions under these plans are based
primarily on the performance of the business units and employee compensation.
Total expense amounted to $2.4 million for 1998.
26. Postretirement benefits
MultiChoice Africa provides postretirement benefits by way of medical aid
contributions. At March 31, 1998 and 1997 the provision for benefits is $3.8
million and $4.7 million, respectively. During the year ended March 31, 1997,
an agreement was reached with employees of MultiChoice Africa to terminate the
postretirement medical aid benefits plan in exchange for an increase of the
MultiChoice Africa's annual contributions to the retirement benefit fund. The
provision will be released to operating results to match the additional
contributions to the retirement benefit plan.
27. Acquisition of subsidiaries, net of cash acquired
<TABLE>
<CAPTION>
1998
(thousands)
------------
<S> <C>
Fair value of tangible assets:
Fixed assets .......................................... $ (23,451)
Investments and loans ................................. (19,638)
Current assets -- other than cash ..................... (25,127)
Current liabilities ................................... 40,865
Long term liabilities ................................. 16,928
---------
(10,423)
Goodwill .............................................. (31,223)
---------
Consideration ......................................... (41,646)
Cash acquired ......................................... 7,735
---------
Net cash paid for acquisitions ........................ $ (33,911)
=========
</TABLE>
In 1997, cash from acquisition of subsidiaries of $54,045 represents cash
balances of the Acquired MIH Businesses.
F-36
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
28. Subsequent events
On March 23, 1999, in anticipation of a public offering of securities by
the Company, shareholders authorized an amendment to the Company's Articles of
Association, whereby the Company's 22,789 ordinary shares with a par value of
$1 each converted into 7,447,681 Class A Ordinary Shares with no par value and
30,787,319 Class B Ordinary Shares with no par value. The two classes of shares
generally have the same rights, except that holders of Class B Ordinary Shares
are entitled to three votes per share and holders of Class A Ordinary Shares
are entitled to one vote per share. The conversion was accounted for as a stock
split, therefore, all shareholders equity and share data in these financial
statements have been retroactively restated to reflect the conversion.
Shareholders authorized a total of 167,778,303 Ordinary Shares divided into
103,468,878 Class A Ordinary Shares, 55,920,509 Class B Ordinary Shares and
8,388,916 Preference Shares with no par value.
On March 18, 1999 the Company increased its interest in OpenTV to 80.1%,
through the acquisition of a 44.5% share from Thomson Consumer Electronics,
Inc. ("Thomson") and agreement to dispose of a portion of that interest
representing 8.9% of OpenTV to a subsidiary of Sun Microsystems. The purchase
from Thomson was in exchange for a $46.2 million note bearing interest at 7%
annually. The note is convertible into Class A Ordinary Shares at the
completion of the anticipated public offering of Class A Ordinary Shares. The
number of shares received by Thomson will equal the amount of the note plus
accrued interest, divided by the offering price of Class A Ordinary Shares. The
disposition to the subsidiary of Sun Microsystems will be in exchange for
approximately $9.2 million in cash.
29. Differences between IAS and United States Generally Accepted Accounting
Principles
The Company's consolidated financial statements are prepared in accordance
with IAS, which differ in certain respects from accounting principles generally
accepted in the United States ("US GAAP").
The only significant difference which affects the Company's results and
shareholders' equity relates to the accounting for its investment in UBC. Under
IAS the investment in UBC is carried at cost through March 31, 1998. In June
1998, the Company increased its shareholding in UBC to approximately 26.1% and,
as a result, exercises significant influence in UBC. Under IAS, the Company
thereafter will use the equity method of accounting for UBC. US GAAP requires a
retroactive adjustment of financial statements for an investee that was
previously accounted for on a basis other than the equity method when that
investee becomes qualified for use of the equity method. The adjustment
therefore reflects the effect of applying the equity method to the investment
in UBC determined under US GAAP. The initial investment in UBC occurred in
March 1997 and the effect on the year ended March 31, 1997 is not material.
F-37
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
I Reconciliation of net (loss)/profit (in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Net (loss)/profit under IAS ........................ $ (63,802) $ 409,164
US GAAP adjustment:
Equity accounting for UBC .......................... (15,482) --
----------- ------------
Net (loss)/profit under US GAAP .................... $ (79,284) $ 409,164
=========== ============
Weighted average common shares outstanding ......... 38,235,000 38,235,000
=========== ============
Net (loss)/profit per share under US GAAP .......... $ (2.07) $ 10.70
=========== ============
Net (loss)/profit under US GAAP consists of:
Loss from continuing operations .................... $ (75,348) $ 409,164
Discontinued operations ............................ (3,936) --
----------- ------------
Net (loss)/profit .................................. $ (79,284) $ 409,164
=========== ============
Per share amounts:
Continuing operations ............................. $ (1.97) $ 10.70
Discontinued Operations ........................... (0.10) --
----------- ------------
Net (loss) profit ................................. $ (2.07) $ 10.70
=========== ============
</TABLE>
Reconciliation of shareholders' equity:
<TABLE>
<CAPTION>
March 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Total shareholders' equity under IAS ............. $ 253,573 $397,285
US GAAP adjustment:
Equity accounting for UBC ........................ (24,883) --
--------- --------
Total shareholders' equity under US GAAP ......... $ 228,690 $397,285
========= ========
</TABLE>
II Additional disclosure requirements
(a) Certain Risks and Concentrations
The Company is exposed to certain concentrations of credit risk relating
to its cash and current investments. The Company places its cash and current
investments with high quality institutions. The Company's policy is designed to
limit exposure with any one institution and to invest its excess cash in low
risk investment accounts. The Company has not experienced any losses on such
accounts. As of March 31, 1998, cash and current investments were held with
numerous financial institutions.
The Company's digital programming is or will be transmitted to customers
through different satellites around the world, and in certain regions its
terrestrial analog signal is also transmitted to regional broadcast points
through satellites. In addition, the Company receives a significant amount of
its programming through satellites. Satellites are subject to significant risks
that may prevent or impair commercial operations. Although the Company has not
experienced any significant disruption of its transmissions, the operation of
satelittes is beyond the control of the Company. Disruption of the
transmissions of satellites could have a material adverse effect on the
Company.
(b) Stock based compensation
MIH management and employees participate in the Stock Option Plan (the
"Plan") of the Company's parent MIH Holdings Limited ("MIHH"). Under the Plan,
MIHH may grant options to its employees for up to 11.8 million shares of MIHH's
common stock. Stock options may be granted with an exercise price not less than
100% of the market value of the options at the time of the grant. One third of
the options generally vest at the anniversary of
F-38
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
II Additional disclosure requirements --Continued
each of the third, fourth and fifth year after the grant date of the stock
options and expire after ten years. Unvested shares are subject to cancellation
upon expiration or termination of employment.
<TABLE>
<CAPTION>
1998
----------------------------------------
Weighted average
exercise price
Shares (Rand)
------------ -----------------
<S> <C> <C>
Outstanding at April 1, 1997 .......... 734,749 10.40
Granted ............................... 3,082,000 15.79
Exercised ............................. (150,856) 10.39
Forfeited ............................. (150,917) 14.47
--------- -----
Outstanding at March 31, 1998 ......... 3,514,976 14.25
========= =====
</TABLE>
The following table summarizes information about the stock options
outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Range of exercise Remaining Weighted-average Weighted average
prices Outstanding as of contractual life exercise price Exercisable as of exercise price
(Rand) March 31, 1998 (years) (Rand) March 31, 1998 (Rand)
- ------------------- ------------------- ------------------ ------------------ ------------------- -----------------
<S> <C> <C> <C> <C> <C>
5.60 - 12.50 571,076 6.13 10.62 259,804 9.53
12.51 - 17.50 2,943,900 9.33 14.95 -- --
</TABLE>
For purposes of US GAAP, the Company applies Accounting Principles Board
("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock option plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended
March 31, 1998
(In thousands except for per share data) ---------------
<S> <C> <C>
Net loss As reported $ (63,802)
Pro forma $ (64,678)
Net loss per share As reported $ (1.67)
Pro forma $ (1.69)
</TABLE>
The weighted average grant date fair value of options granted during
fiscal 1998 was rand 9.40. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants during fiscal 1995,
respectively: dividend yield of 0%; expected volatility of 30%; an expected
risk-free interest rate of 14.9%; and an expected life of 6 years.
(c) Restricted Net Assets
The net assets of certain of MIH Limited's subsidiaries and associates are
subject to regulatory restrictions with regard to the transfer of such assets
to MIH Limited in the form of loans, advances or cash dividends without the
consent of regulatory authorities. The restrictions primarily relate to foreign
exchange control regulations in South Africa, which prescribe that South
African residents and companies are not permitted to export capital from South
Africa or to hold foreign currency without the approval of the South African
Reserve Bank. These exchange control regulations effectively prevent MIH
Limited from receiving distributions from its South African subsidiaries,
without regulatory approval. The total net assets of subsidiaries subject to
such restriction as of March 31, 1998, amount to approximately $120.5 million.
The following are the condensed balance sheets and statements of
operations and cash flow for MIH Limited as of March 31, 1998 and 1997 and the
years then ended. Investments in subsidiaries and associated companies are
accounted for using the equity method of accounting.
F-39
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
II Additional disclosure requirements--Continued
<TABLE>
<CAPTION>
Balance Sheets
March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .............................. $ 89,226 $ 6,728
Amounts owing by related parties ....................... 5,370 --
---------- ----------
Non-current assets 94,596 6,728
Long-term investments .................................. 225,400 522,463
---------- ----------
Total assets ........................................ $ 319,996 $ 529,191
========== ==========
LIABILITIES
Current liabilities
Bank overdrafts ........................................ $ -- $ 12,720
Current portion of long-term debt ...................... 23,984 --
Accrued expenses and other current liabilities ......... 10,568 44,933
Provisions ............................................. 31,871 74,253
---------- ----------
Total liabilities ................................... 66,423 $ 131,906
---------- ----------
SHAREHOLDERS' EQUITY
Share capital ........................................... 23 23
Share premium ........................................... 589,529 585,161
Accumulated loss ........................................ (313,547) (197,928)
Foreign currency translation adjustment ................. (22,432) 10,029
---------- ----------
Total shareholders' equity .......................... 253,573 397,285
---------- ----------
Total liabilities and shareholders' equity .......... $ 319,996 $ 529,191
========== ==========
</TABLE>
F-40
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
II Additional disclosure requirements--Continued
<TABLE>
<CAPTION>
Statements of Operations
Year ended March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
General and administrative expenses ................. $ (6,587) $ (899)
Financial results, net .............................. 8,311 (107)
Equity results in joint ventures/associates ......... (59,812) (129,858)
Profit on sale of joint venture ..................... -- 540,028
Income taxation ..................................... (5,714) --
--------- ----------
Net (loss)/profit for the year ...................... $ (63,802) $ 409,164
========= ==========
</TABLE>
Statements of Cash flow
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1998 1997
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Net cash (used in)/from operating activities ................ $ (20,528) $ 5,979
---------- ---------
Disposal of investments ..................................... 269,222 --
Acquisition of associates and subsidiaries .................. (103,474) (10,348)
---------- ---------
Net cash from /(used in) investing activities ............... 165,748 (10,348)
---------- ---------
Finance income/(costs) ...................................... 2,488 (107)
Dividends paid .............................................. (51,816) --
Bank overdrafts (repaid)/raised ............................. (12,720) 9,913
---------- ---------
Net cash (used in)/from financing activities ................ (62,048) 9,806
---------- ---------
Net increase in cash and cash equivalents ................... 83,172 5,437
Cash and cash equivalents at beginning of the year .......... 6,728 1,466
Translation adjustment on cash and cash equivalents ......... (674) (175)
---------- ---------
Cash and cash equivalents at end of the year ................ $ 89,226 $ 6,728
========== =========
</TABLE>
F-41
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
II Additional disclosure requirements--Continued
(d) Significant Associates: Summarized financial information
The following are the summarized balance sheets and statements of
operations for UBC and M-Net, as derived from their respective audited
financial statements and converted to US dollars.
<TABLE>
<CAPTION>
UBC M-Net/Supersport
-------------- ----------------------------
December 31, March 31,
-------------- ----------------------------
1997 1998 1997
(thousands) (thousands) (thousands)
-------------- ------------- ------------
<S> <C> <C> <C>
Current assets ........................................ $18,243 $157,300 $145,219
Non-current assets .................................... 70,298 74,325 73,529
------- -------- --------
Total assets ....................................... 88,541 231,625 218,748
------- -------- --------
Current liabilities ................................... 25,257 137,107 133,872
Non-current liabilities ............................... 8,268 29,586 25,730
------- -------- --------
Total liabilities .................................. 33,525 166,693 159,602
------- -------- --------
Minority interest ..................................... 4,037 -- --
Total shareholders' equity ......................... 50,979 64,932 59,146
------- -------- --------
Total liabilities and shareholders' equity ......... $88,541 $231,625 $218,748
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31, Year ended March 31,
-------------- ----------------------------
1997 1998 1997
(thousands) (thousands) (thousands)
-------------- ------------- ------------
<S> <C> <C> <C>
Net sales ....................... $ 36,794 $216,971 $192,954
Operating (loss)/profit ......... (34,961) 28,053 18,658
Net income ...................... 36,212 10,446 5,120
</TABLE>
(e) Recently issued accounting standards
SFAS No. 130, "Reporting Comprehensive Income" was issued by the Financial
Accounting Standards Board ("FASB") in June 1997 and is effective for fiscal
years beginning after December 15, 1997. It will be effective for the Company's
financial statements for the year ended March 31, 1999. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. This Statement established guidelines for the reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. It requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements; it does not
address issues of recognition or measurement. Management is currently assessing
the impact of adopting this Statement on its financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits" was issued by the FASB in February 1998 and is
effective for all years beginning after December 15, 1997. It will be effective
for the Company's financial statements for the year ended March 31, 1999.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. This statement revises employers' disclosures
about pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer considered as
useful as they were when SFAS No. 87, "Employers' Accounting for Pensions,"
SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," were
issued. The Statement suggests combined formats for presentation of pension and
other postretirement benefit disclosures. Management is currently assessing the
impact of adopting this Statement on its financial statements.
F-42
<PAGE>
MIH Limited and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
II Additional disclosure requirements--Continued
SFAS No.133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for fiscal years beginning after June 15, 1999. It
will be effective for the Company's financial statements for the year ended
March 31, 2001. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted transaction,
or (c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. Management
is currently assessing the impact of adopting this Statement on its financial
statements.
In July of 1997, the International Accounting Standards Committee ("IASC")
issued International Accounting Standard ("IAS") 1 (revised) "Disclosure of
Accounting Policies". IAS 1 will be effective for the Company's financial
statements for the year ending March 31, 2000. IAS 1 defines overall
considerations for financial statements and prescribes the minimum structure
and content of four basic financial statements (Balance sheet, Income
statement, Cash flow statement, and Statement showing changes in equity),
including certain information required on the financial statements. IAS 1 also
addresses various issues in disclosures in financial statements. The Company
believes that it has complied with the main provisions of this standard and
does not believe that this standard will have a significant influence on the
Company's financial statements.
The IAS has issued IAS 17 (revised 1997), "Leases", which supersedes IAS
17, "Accounting for Leases" and is operative for financial statements covering
periods beginning on or after January 1, 1999. The changes from the original
IAS 17 do not fundamentally alter the accounting treatments. The Company does
not expect a material impact on its financial statements as a result of
adopting IAS 17 (revised 1997).
In January 1998, the IASC issued IAS 19 (revised 1998) "Employee
Benefits", which supersedes IAS 19 "Retirement Benefit Costs". It will be
effective for the Company's financial statements for the year ending March 31,
2000. The revised standard applies a uniform accounting model to pension
benefits and other short term employee benefits such as compensated absences,
as well as other post-employment benefits and termination benefits. It also
requires disclosure of equity compensation benefits. IAS 19 (revised 1998) also
changes certain key provisions with respect to defined benefit plans. For
example, all companies must use the projected unit credit method to measure
their pension expense and pension obligation. The Company is currently
assessing the impact that this standard may have on the Company's financial
statements.
In June of 1998, the IASC issued IAS 35 "Discontinuing Operations". IAS 35
will be effective for the Company's financial statements for the year ending
March 31, 2000. IAS 35 is a presentation and disclosure standard. It requires
that enterprises follow the recognition and measurement principles in other IAS
standards. The standard defines the situations in which disclosures must be
made by the enterprise for a discontinuing operation. Appendices to IAS 35 also
provide (a) illustrative disclosure and (b) guidance on how prior period
information should be restated to conform to the presentation requirement of
IAS 35. The Company believes that it has complied with the provisions of this
standard and does not believe that this standard will have a significant
influence on the Company's financial statements.
In June of 1998, the IASC issued IAS 36 "Impairment of Assets". IAS 36
will be effective for the Company's financial statements for the year ending
March 31, 2001. IAS 36 establishes the procedures that an enterprise should
apply to ensure that its assets are not overstated in the financial statements.
It also prescribes the method an enterprise should use to assess the amount to
be recovered from an asset and the timing when an enterprise should account for
an impairment loss. Under IAS 36, an impairment loss should be recognized
whenever the recoverable amount of an asset is less than its carrying amount.
The Company is currently assessing the impact that this standard may have on
its financial statements.
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the directors and shareholders of
MIH Limited
We have audited the accompanying combined balance sheets of the Acquired MIH
Businesses (predecessor to MIH Limited) as of March 31, 1997 and 1996, and the
related combined statements of operations and cash flow and changes in net
deficit for each of the two years in the period ended March 31, 1997. These
combined financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the Republic of South Africa, which are substantially the same as
those followed in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
combined financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Acquired MIH
Businesses (predecessor to MIH Limited) as of March 31, 1997 and 1996, and the
combined results of their operations and cash flow for each of the two years in
the period ended March 31, 1997, in conformity with International Accounting
Standards.
International Accounting Standards vary in certain significant respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of combined
results for each of the two years in the period ended March 31, 1997 and the
net deficit as of March 31, 1997 and 1996 to the extent summarized in Note 24
to the combined financial statements.
Johannesburg, Republic of South Africa Coopers & Lybrand
June 15, 1998 Chartered Accountants (SA)
Registered Accountants and Auditors
F-44
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Combined Balance Sheets
March 31, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
Notes 1997 1996
------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 53,908 $ 15,063
Accounts receivable, net ............................... 4 22,331 17,748
Other receivables ...................................... 5 21,292 34,972
Program and film rights ................................ 10 32,599 2,417
Amounts owing by related parties ....................... 17 10,247 10,560
Inventories, net ....................................... 6 12,781 13,414
--------- ---------
Total current assets ................................ 153,158 94,174
Non-Current Assets
Tangible fixed assets, net ............................. 8 87,449 39,052
Long-term investments .................................. 9 23,672 21,327
Program and film rights ................................ 10 22,874 1,571
--------- ---------
Total non-current assets ............................ 133,995 61,950
--------- ---------
TOTAL ASSETS ........................................ $ 287,153 $ 156,124
========= =========
LIABILITIES
Current Liabilities
Bank overdrafts ........................................ $ 753 $ 7,914
Current portion of long-term debt ...................... 13 15,476 1,927
Current portion of program and film rights ............. 13 7,251 --
Accounts payable ....................................... 42,540 35,436
Accrued expenses and other current liabilities ......... 11 79,673 50,123
Amounts owing to related parties ....................... 17 83,817 79,892
Provisions ............................................. 12 16,865 7,052
--------- ---------
Total current liabilities ........................... 246,375 182,344
Non-Current Liabilities
Long-term debt ......................................... 13 60,610 6,219
Program and film rights ................................ 13 30,758 --
--------- ---------
Total non-current liabilities ....................... 91,368 6,219
--------- ---------
TOTAL LIABILITIES ................................... 337,743 188,563
--------- ---------
Commitments and contingencies .......................... 19 -- --
NET DEFICIT ......................................... (50,590) (32,439)
--------- ---------
TOTAL LIABILITIES AND NET DEFICIT ................... $ 287,153 $ 156,124
========= =========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-45
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Combined Statements of Operations
for the years ended March 31, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
Notes 1997 1996
------- ------------- -------------
<S> <C> <C> <C>
Net revenues .................................. 14 $ 391,898 $ 282,894
Operating expenses:
Cost of providing services ................... (259,391) (212,919)
Selling, general and administrative .......... (140,446) (77,553)
Depreciation and amortization ................ (16,191) (9,818)
---------- ----------
Total operating expenses ...................... (416,028) (300,290)
---------- ----------
Operating loss ................................ (24,130) (17,396)
Financial results, net ........................ 15 (5,267) (926)
Equity results in joint ventures .............. 1,144 (1,826)
Equity results in associates .................. 2,644 2,388
---------- ----------
Loss before taxation .......................... (25,609) (17,760)
Income taxation ............................... 16 (1,158) (3,883)
---------- ----------
Loss after taxation ........................... (26,767) (21,643)
Minority interest ............................. 738 114
---------- ----------
Net loss .................................. $ (26,029) $ (21,529)
========== ==========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-46
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Combined Statements of Cash Flow
for the years ended March 31, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Operating loss $ (24,130) $ (17,396)
Adjustments for:
Depreciation and amortization .............................................. 16,191 9,818
Amortization of program and film rights .................................... 18,796 10,123
Taxation refunded/(paid) ................................................... 3,863 (5,364)
Loss on sale of tangible fixed assets ...................................... 5,223 680
Decrease/(increase) in receivables ......................................... 3,934 (30,627)
Payments for program and film rights ....................................... (32,747) (7,278)
Net increase in amounts owing to related parties ........................... 27,139 989
Increase in inventories .................................................... (964) (3,755)
Increase in payables ....................................................... 53,509 46,793
(Decrease)/increase in current portion of long-term debt to
related parties .......................................................... (2,268) 2,574
--------- ---------
Net cash from operating activities ...................................... 68,546 6,557
--------- ---------
Cash flows from investing activities
Purchase of tangible fixed assets ........................................... (17,649) (13,022)
Proceeds on sale of tangible fixed assets ................................... 4,227 3,253
Dividends received from associates .......................................... 1,490 2,057
Investments acquired ........................................................ (658) (3,136)
(Increase)/decrease in unsecured loan ....................................... (2,050) 188
--------- ---------
Net cash used in investing activities ................................... (14,640) (10,660)
--------- ---------
Cash flows from financing activities
Finance costs ............................................................... (5,267) (926)
Funds raised from outside shareholders ...................................... 738 114
Long-term debt raised/(repaid) .............................................. 27,174 (4,741)
Long-term debt (repaid)/raised from related party ........................... (11,272) 10,207
Capital leases repaid ....................................................... (18,422) (7,278)
Bank overdrafts (repaid)/raised ............................................. (6,219) 1,349
--------- ---------
Net cash used in financing activities ................................... (13,268) (1,275)
--------- ---------
Net increase/(decrease) in cash and cash equivalents ........................ 40,638 (5,378)
Cash and cash equivalents at the beginning of the year ...................... 15,063 22,081
Translation adjustment on cash and cash equivalents ......................... (1,793) (1,640)
--------- ---------
Cash and cash equivalents at end of the year ................................ $ 53,908 $ 15,063
========= =========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-47
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Combined Statement of Changes in Net Deficit
for the years ended March 31, 1997 and 1996
(in thousands of US dollars)
<TABLE>
<CAPTION>
Myriad Africa NetMed Total
(thousands) (thousands) (thousands)
--------------- ------------- ------------
<S> <C> <C> <C>
Share capital
At April 1, 1995 ................................................... $ 48 $ 26 $ 74
======== ========= =========
At March 31, 1996 .................................................. 48 26 74
======== ========= =========
At March 31, 1997 .................................................. 48 26 74
======== ========= =========
Share premium
At April 1, 1995 ................................................... $ 24,869 $ -- $ 24,869
======== ========= =========
At March 31, 1996 .................................................. 24,869 -- 24,869
======== ========= =========
At March 31, 1997 .................................................. 24,869 -- 24,869
======== ========= =========
Accumulated loss
At April 1, 1995 ................................................... $ -- $ (31,450) $ (31,450)
Cumulative effect of change in accounting policy (Note 23) ......... (3,868) -- (3,868)
Profit/(loss) for the year ......................................... 13,350 (33,940) (20,590)
-------- --------- ---------
At March 31, 1996 .................................................. 9,482 (65,390) (55,908)
Loss for the year .................................................. (8,175) (20,914) (29,089)
-------- --------- ---------
At March 31, 1997 .................................................. $ (1,307) $ (86,304) $ (84,997)
======== ========= =========
Foreign Currency Translation Adjustment
At April 1, 1995 ................................................... $ -- $ (1,295) $ (1,295)
Translation adjustment ............................................. (1,801) 2,561 760
-------- --------- ---------
At March 31, 1996 .................................................. (1,801) 1,266 (535)
Translation adjustment ............................................. 319 7,779 8,098
-------- --------- ---------
At March 31, 1997 .................................................. $ (1,482) $ 9,045 $ 7,563
======== ========= =========
Total Combined Net Deficit
At April 1, 1995 ................................................... $ 24,917 $ (32,719) $ (7,802)
Cumulative effect of change in accounting policy (note 23) ......... (3,868) (3,868)
Net profit/(loss) .................................................. 13,350 (33,940) (20,590)
Translation adjustment ............................................. (1,801) 2,561 760
-------- --------- ---------
At March 31, 1996 .................................................. 32,598 (64,098) (31,500)
Net Loss ........................................................... (8,175) (20,914) (29,089)
Translation adjustment ............................................. 319 7,779 8,098
-------- --------- ---------
At March 31, 1997 .................................................. $ 24,742 $ (77,233) $ (52,491)
======== =========
Equity investment in Irdeto .................................................................... 1,901
---------
Combined Net Deficit ........................................................................... $ (50,590)
=========
</TABLE>
Difference between the total net loss for the years ended March 31, 1996
and 1997 and the net loss recorded in the statements of operations amounting to
$(939) and $3,060, respectively, and the difference between the total net
deficit at March 31, 1996 and 1997 and the net deficit in the combined balance
sheet amounting to $(939) and $1,901, respectively, are attributable to the
gains/(losses) and net equity/(deficit) of Irdeto, an equity investment which
is included in the Acquired MIH Businesses (note 3(a)).
The accompanying notes are an integral part of these
combined financial statements.
F-48
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements
1. Description of business and basis of presentation
These combined financial statements include the accounts of Myriad Africa
B.V. ("Myriad Africa"), NetMed B.V. ("NetMed"), and equity investments in
MultiChoice Middle East Holdings Inc. ("MultiChoice Middle East"), Irdeto B.V.
("Irdeto") and their subsidiaries (collectively referred to as the "Acquired
MIH Businesses"). The Acquired MIH Businesses are the predecessor to MIH
Limited ("MIH") and subsidiaries. Historically, no combined financial
statements have been prepared for the Acquired MIH Businesses. The reason for
the presentation of the combined financial statements of the Acquired MIH
Businesses is to provide financial statements for the years ended March 31,
1997 and 1996 that are comparable to the MIH consolidated financial statements
for the year ended March 31, 1998 which include MIH and the Acquired MIH
Businesses after the Canal+ transaction described in Note 2.
The principal activities of the Acquired MIH Businesses are the provision
of pay-television and subscriber management services ("pay-television
services") and the development of pay-television technology. These activities
are conducted primarily in Africa, Greece, Cyprus, the Middle East and in the
Netherlands.
2. Canal+ transaction
Until March 31, 1997, the Acquired MIH Businesses were collectively part
of the Network Holdings S.A. Group ("NetHold"), a joint venture between MIH and
Compagnie Richemont A.G. ("Richemont"). The principal activities of NetHold
included pay-television services operations through its subsidiaries and equity
investments in Africa, Greece, Cyprus, the Middle East, Benelux, Italy and
Scandinavia. Additionally, NetHold held 100% of the share capital of Irdeto, a
decoder technology company. Effective March 31, 1997, MIH sold its interest in
NetHold to Canal+ in exchange for a 5% share in Canal+ and NetHold's
pay-television services businesses in Greece and Cyprus (NetMed), Africa
(Myriad Africa) and the Middle East (MultiChoice Middle East) and subsequently
acquired a 49% share in Irdeto.
3. Principal accounting policies and reporting currency
The combined financial statements are based on International Accounting
Standards ("IAS") issued by the International Accounting Standards Committee
and have been prepared on the historical cost basis.
The Acquired MIH Businesses have adopted the US dollar as their reporting
currency. Notwithstanding the US dollar reporting currency, the Acquired MIH
Businesses measure separately the transactions of each of their material
operations using the particular currency of the primary economic environment in
which the operation conducts its business (its functional currency).
The financial statements have been translated from functional currencies
to the reporting currency by translating assets and liabilities, both monetary
and non-monetary, and including goodwill and other intangible assets which
arise as a result of equity investments in entities, at the closing rate at
each balance sheet date. Income and expense items are translated at exchange
rates at the dates of the transactions or average rates. All resulting exchange
differences are included in equity.
Preparation of the combined financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(a) Basis of combination
The combined financial statements include the consolidated accounts of
Myriad Africa (including its equity investment in MultiChoice Middle East) and
NetMed and an equity investment in Irdeto. Included in Note 9 is a listing of
the significant companies included in the combined financial statements. The
structure of the Acquired MIH Businesses has not changed during the periods
presented in these combined financial statements.
F-49
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
3. Principal accounting policies and reporting currency--Continued
An inter-company loan owing by the Acquired MIH Businesses to another
NetHold subsidiary, which was acquired by MIH, has been included in net
deficit.
All inter-company transactions are eliminated as part of the combination
process, and the interest of the minority shareholders in the combined equity
and the combined results of the Acquired MIH Businesses are shown separately in
the Combined Balance Sheet and Statement of Operations. For financial reporting
purposes, the equity accounts of the Acquired MIH Businesses have been
accumulated into a single amount entitled net deficit. Where the losses
applicable to the minority shareholders in a consolidated subsidiary exceed the
minority interest in the subsidiary, the excess, and any further losses
applicable to the minority, are charged against the majority interest except to
the extent that the minority has a binding obligation to, and is able to, make
good the losses. If the subsidiary subsequently reports profits, the majority
interest is allocated to all such profits until the minority's share of losses
previously absorbed by the majority has been recovered.
Companies in which the Acquired MIH Businesses have joint control are
accounted for using the equity method with the Acquired MIH Businesses' share
of profit and losses included in the Combined Statement of Operations. The
Acquired MIH Businesses' share of post acquisition retained profits/losses is
added to/deducted from the cost of the joint venture investments in the
Combined Balance Sheet.
Associated companies, in which the Acquired MIH Businesses have
significant influence, are accounted for using the equity method with the
Acquired MIH Businesses' share of profits and losses included in the Combined
Statement of Operations. The Acquired MIH Businesses' share of post acquisition
retained profits/losses is added to/deducted from the cost of the associated
company investments in the Combined Balance Sheet.
Other investments are stated at cost. When necessary a provision is made
on the basis of an evaluation of each individual investment for any diminution
in value which is considered to be of a permanent nature.
(b) Foreign currencies
Individual companies' transactions in currencies other than their
functional currency are recorded at the rate of exchange at the date of the
transaction or, if hedged forward, at the rate of exchange under the related
forward exchange contract. Assets and liabilities in currencies other than
their functional currency are translated at year-end rates. Any resulting
exchange differences are reflected in the Statement of Operations.
On combination, assets and liabilities of companies denominated in foreign
currencies have been translated at year-end rates. Income and expense items are
translated using the annual weighted average rates of exchange or, where known
or determinable, at the rate on the date of the transaction for significant
items.
Adjustments from translation have been recorded in the net deficit and are
are reflected in the Combined Statement of Operations only upon sale or
liquidation of the underlying investments.
(c) Cash and cash equivalents
Cash and cash equivalents represent cash and short-term highly liquid
investments with original maturities of three months or less.
(d) Trade accounts receivable
Trade accounts receivable are stated at estimated realizable values and an
allowance for doubtful accounts is provided for an amount considered by
management to be sufficient to meet probable future losses related to
uncollectable amounts.
(e) Inventories
Inventories, consisting primarily of decoders and associated components,
are stated at the lower of cost or net realizable value. Cost is generally
determined on the first-in first-out basis. Where necessary, provision is made
for obsolete, slow moving or defective inventories.
F-50
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
3. Principal accounting policies and reporting currency--Continued
(f) Tangible fixed assets
Tangible fixed assets are stated at historical cost less accumulated
depreciation. Depreciation is charged on a straight-line basis over the
estimated useful lives of the respective assets, based on the following useful
lives:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings ................................... 50
Machinery, furniture and equipment .......... 4 - 10
Transponders and transmitters ............... 10
Decoders .................................... 2
</TABLE>
Land is not depreciated. Major improvements to leasehold properties are
amortized over the period of the respective leases.
Fully depreciated assets are retained in property and depreciation
accounts until they are removed from service. In the case of disposals, assets
and related depreciation are removed from the accounts and the net amount, less
proceeds from disposal, is charged or credited to the Statement of Operations.
(g) Leases
Assets held under capital lease agreements are treated as tangible fixed
assets and the present value of the related lease payments is recorded as a
liability. Costs for operating leases are charged to the Statement of
Operations in the year that they are incurred.
(h) Program and film rights
Film rights are stated at acquisition cost less accumulated amortization.
Sports rights are written off upon showing the event and general entertainment
and films are amortized on a straight-line basis over the period of the licence
or based on showings where the number of showings is limited. Amortization of
program and film rights is included in the cost of providing services.
(i) Taxation
Provision is made for all taxes payable in respect of taxable profits
earned in the year. Deferred taxation is provided at current rates for taxation
on all timing differences between values for financial reporting and fiscal
purposes under the liability method. No deferred taxation is provided for in
respect of timing differences that are anticipated to reverse within the
carry-forward period of tax losses.
(j) Minority interest
The interest of third parties in subsidiaries of the Acquired MIH
Businesses are accounted for on the basis of their share in the underlying
equity of the subsidiaries. Through March 31, 1997, the Acquired MIH Businesses
recorded losses of $9.2 million, attributable to minority interest.
(k) Revenue recognition
The Acquired MIH Businesses generate revenue from subscription fees,
decoder sales and rentals, advertising and the performance of other services,
net of sales taxes and discounts. Subscription fees are earned over the period
of providing services. Technology licensing and other services are recorded
upon delivery of products and customer acceptance, if any, or performance of
services. Advertizing revenues are recognized upon showing over the period of
the advertizing contract.
(l) Pensions and other postretirement benefits
The Acquired MIH Businesses have various postretirement and pension plans
in accordance with local conditions and practices in the countries in which it
operates. The plans are predominantly defined contribution plans. Current
contributions to the pension funds operated for employees are charged to the
Statement of Operations as incurred.
F-51
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
3. Principal accounting policies and reporting currency--Continued
(m) Research and development costs
Research and development costs are expensed in the financial period during
which they are incurred. Research and development costs for the years ended
March 31, 1997 and 1996 were not material.
(n) Dividends
Dividends proposed are payable when declared by the board of directors.
Dividends declared by the Acquired MIH Businesses are payable in the functional
currency of the respective entity.
(o) Financial instruments
The Acquired MIH Businesses enter into foreign currency exchange contracts
in order to reduce the impact of certain foreign currency exchange rate
fluctuations. Firmly committed transactions and the related receivable and
payable may be hedged with forward exchange contracts. Any gains/losses are
included in accrued liabilities and are recognized in results when the
transaction being hedged is recognized.
(p) Segment reporting
The Acquired MIH Businesses have prepared their segmental reporting based
on the method of internal reporting, which disaggregates its businesses by
service or product and by geography.
4. Accounts receivable
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Trade accounts receivable ...................... $ 29,398 $ 21,577
Less : Provision for doubtful accounts ......... (7,067) (3,829)
-------- --------
$ 22,331 $ 17,748
======== ========
</TABLE>
Included in accounts receivable are $22.2 million and $14.0 million at
March 31, 1997 and March 31, 1996, respectively, pre-billed to customers and
credit balances which have been recorded as deferred income (Note 11).
5. Other receivables
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Prepayments and accrued income ......... $15,469 $19,736
Other receivables ...................... 5,823 15,236
------- -------
$21,292 $34,972
======= =======
</TABLE>
6. Inventories
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Decoders and associated components ............................... $ 19,247 $ 18,173
Less: Provision for slow moving and obsolete inventories ......... (6,466) (4,759)
-------- --------
$ 12,781 $ 13,414
======== ========
</TABLE>
F-52
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
7. Valuation and qualifying accounts
<TABLE>
<CAPTION>
Charged to
At March 31, Translation costs and At March 31,
1996 adjustment expenses 1997
(thousands) (thousands) (thousands) (thousands)
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Provision for doubtful accounts -- Note 4 ......... $ (3,829) $ 456 $ (3,694) $ (7,067)
Provision for slow moving and obsolete
inventories -- Note 6 ............................ (4,759) 567 (2,274) (6,466)
-------- ------ -------- ---------
$ (8,588) $1,023 $ (5,968) $ (13,533)
======== ====== ======== =========
</TABLE>
8. Tangible fixed assets (in thousands)
<TABLE>
<CAPTION>
Land, buildings and
leasehold Machinery, furniture Transponders and
improvements and equipment Transmitters Decoders
-------------------- ---------------------- ---------------------- ----------
Purchased Leased Purchased Leased Purchased Leased Leased Total
----------- -------- ----------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost
At March 31, 1996 ......... $2,793 $ -- $ 32,012 $ 5,928 $ 1,094 $ 4,301 $ -- $ 46,128
Translation adjustments ... (279) -- (3,015) (567) (105) (411) -- (4,377)
Additions ................. 701 9,050 9,291 12,156 7,657 27,547 11,404 77,806
Disposals ................. (285) -- (3,963) (6,114) (3,484) -- -- (13,846)
------ ------ -------- -------- -------- -------- -------- ---------
At March 31, 1997 ......... 2,930 9,050 34,325 11,403 5,162 31,437 11,404 $ 105,711
------ ------ -------- -------- -------- -------- -------- ---------
Accumulated
depreciation
At March 31, 1996 ......... (208) -- (4,320) (1,795) (54) (699) -- (7,076)
Translation adjustments ... 10 -- 354 172 5 68 -- 609
Charge for the year ....... (178) -- (5,695) (4,927) (744) (1,276) (3,371) (16,191)
Disposals ................. 14 -- 910 3,178 294 -- -- 4,396
------ ------ -------- -------- -------- -------- -------- ---------
At March 31, 1997 ......... (362) -- (8,751) (3,372) (499) (1,907) (3,371) (18,262)
------ ------ -------- -------- -------- -------- -------- ---------
Net book value
At March 31, 1997 ......... $2,568 $9,050 $ 25,574 $ 8,031 $ 4,663 $ 29,530 $ 8,033 $ 87,449
====== ====== ======== ======== ======== ======== ======== =========
At March 31, 1996 ......... $2,585 $ -- $ 27,692 $ 4,133 $ 1,040 $ 3,602 $ -- $ 39,052
====== ====== ======== ======== ======== ======== ======== =========
</TABLE>
F-53
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
8. Tangible fixed assets (in thousands)--Continued
The Acquired MIH Businesses lease certain land and buildings, machinery,
furniture and equipment, and transponders and transmitters. Commitments for
minimum rentals under non-cancellable leases as at March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Capital leases Operating leases
(thousands) (thousands)
For the years ended March 31 ---------------- -----------------
<S> <C> <C>
1998 ....................................... $ 12,064 $ 33,034
1999 ....................................... 11,618 33,611
2000 ....................................... 8,851 33,615
2001 ....................................... 7,002 33,630
2002 and after ............................. 51,919 143,844
--------- --------
Total minimum lease payments ............... $ 91,454 $277,734
========
Less: amount representing interest ......... (42,542)
---------
$ 48,912
=========
</TABLE>
Operating rental expenses for fiscal 1997 amounted to approximately $37.8
million. (1996: $11 million) Capital leases bear interest ranging from 6%-20%
as of March 31, 1997. The weighted average interest rate was 12%.
9. Long-term investments
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Associates (a) .................................................... $12,051 $ 11,982
Joint ventures (b) ................................................ 5,265 4,652
Unlisted investments .............................................. 1,126 1,118
Unsecured loans to joint ventures ................................. 5,230 3,575
------- --------
$23,672 $ 21,327
======= ========
(a) Associates
Electronic Media Network Limited ("M-Net") ........................ $10,224 $ 11,186
Orbicom (Proprietary) Limited ("Orbicom") ......................... -- --
Share of post acquisition retained profits less losses............. 1,827 796
------- --------
$12,051 $ 11,982
======= ========
(b) Joint ventures
MultiChoice Supplies (Proprietary) Limited
("MultiChoice Supplies") ....................................... $ 4,790 $ 5,268
Irdeto ............................................................ 20 22
MultiChoice Middle East ........................................... 983 1,118
Share of post acquisition retained profits less losses ............ (528) (1,756)
------- --------
$ 5,265 $ 4,652
======= ========
Market value of listed shares
M-Net ............................................................. $71,022 $ 33,050
======= ========
</TABLE>
F-54
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
9. Long-term investments--Continued
The following information relates to the Acquired MIH Businesses'
significant investments:
<TABLE>
<CAPTION>
March 31,
-------------------
1997 1996 Nature of business Country
Type of investment --------- ---------
% %
<S> <C> <C> <C> <C>
Unlisted marketable securities at cost
Cable News Egypt S.A.E. ............ 10.0 10.0 Television Egypt
Associates
M-Net .............................. 20.0 20.0 Pay-television South Africa
Orbicom ............................ 20.0 20.0 Signal distribution South Africa
Joint ventures
MultiChoice Supplies ............... 50.0 50.0 Decoder rentals South Africa
Irdeto ............................. 49.0 49.0 Technology development The Netherlands
MultiChoice Middle East ............ 45.0 45.0 Pay-television Mauritius
Subsidiaries
Myriad Africa BV ................... 100.0 100.0 Investment holding The Netherlands
MultiChoice Africa (Pty) Limited
("MultiChoice Africa") ............ 100.0 100.0 Pay-television South Africa
MultiChoice Africa Limited ......... 100.0 100.0 Investment Holding British Virgin Islands
NetMed ............................. 100.0 100.0 Investment Holding The Netherlands
NetMed Hellas S.A. ................. 52.0 52.0 Pay-television Greece
MultiChoice Hellas S.A. ............ 52.0 52.0 Pay-television Greece
</TABLE>
The aggregate summarized financial information of the joint ventures at
March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Current assets ..................... $ 2,220 $ 5,206
Long-term assets ................... 5,485 6,335
Current liabilities ................ (3,680) (4,627)
Long-term liabilities .............. (379) (2,498)
Shareholders' deficit .............. (3,646) (4,416)
Revenues ........................... 10,455 5,960
Expenses ........................... (12,552) (7,003)
--------- --------
Net loss before taxation ........... (2,097) (1,043)
Taxation benefit/(expense) ......... 43 (83)
--------- --------
Net loss ........................... $ (2,054) $ (1,126)
========= ========
</TABLE>
F-55
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
10. Program and film rights
The following table sets forth the components of program and film rights,
on a gross and net basis:
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Cost
Program rights ............................ $70,944 $16,909
Film rights ............................... 10,291 1,996
------- -------
81,235 18,905
------- -------
Accumulated amortization
Program rights ............................ 17,337 14,148
Film rights ............................... 8,425 769
------- -------
25,762 14,917
------- -------
Net book value
Program rights ............................ 53,607 2,761
Film rights ............................... 1,866 1,227
------- -------
$55,473 $ 3,988
======= =======
Classified on the balance sheets as follows:
Currents assets ............................ $32,599 $ 2,417
Non-current assets ......................... 22,874 1,571
------- -------
$55,473 $ 3,988
======= =======
</TABLE>
11. Accrued expenses and other current liabilities
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Deferred income ..................... $22,213 $14,035
Accrued expenses .................... 35,968 10,604
Taxes and social securities ......... 5,086 73
Other current liabilities ........... 16,406 25,411
------- -------
$79,673 $50,123
======= =======
</TABLE>
12. Provisions
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Post retirement benefits ............................................ $ 4,678 $4,306
Write down of carrying values of assets in certain African countries 5,001 2,746
Decoder technology .................................................. 4,098 --
Programming costs ................................................... 2,885 --
Other provisions .................................................... 203 --
------- ------
$16,865 $7,052
======= ======
</TABLE>
F-56
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
13. Long-term debt and program and film rights
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Long-term debt comprises:
Capital leases -- Note 8 ........................................ $ 48,912 $ 8,146
NetHold Finance VOF ............................................. 26,655 --
Other long term debt ............................................ 519 --
--------- --------
76,086 8,146
Less: Short term portion included in current liabilities ......... (15,476) (1,927)
--------- --------
$ 60,610 $ 6,219
========= ========
</TABLE>
Program and film rights payable are non-interest bearing and amounts due
in future fiscal years are $7.3 million in 1998, $10.7 million in 1999 and $20
million thereafter.
The loan repayable to Nethold Finance VOF is unsecured and matures on or
before October 4, 1998. The loan is denominated in Netherlands guilders and
bears interest at 2% above the Amsterdam Inter-bank Benchmark Rate.
Other long-term debt does not have fixed repayment terms and bears
interest at 6%.
The currency mix of the long-term debt as at March 31, 1997 is:
<TABLE>
<CAPTION>
%
---------
<S> <C>
Greek drachmae .................. 42.0
Netherlands guilder ............. 24.0
South African rand .............. 10.0
European Currency Unit .......... 24.0
-----
100.0
=====
</TABLE>
14. Net revenues
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Subscription revenues ............. $315,463 $233,332
Decoder sales and repairs ......... 60,183 43,645
Other ............................. 16,252 5,917
-------- --------
$391,898 $282,894
======== ========
</TABLE>
15. Financial results
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Interest income ................ $ 4,005 $ 2,301
Interest expense ............... (7,780) (3,200)
Exchange losses ................ (1,492) (27)
-------- --------
$ (5,267) $ (926)
======== ========
</TABLE>
F-57
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
16. Income taxation
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Foreign taxation
Current ....................... $ (1,158) $ (3,883)
Deferred ...................... -- --
-------- --------
Charged against income ......... $ (1,158) $ (3,883)
======== ========
</TABLE>
The difference between income taxation expense computed at statutory rates
of the respective businesses and income taxation expense provided on earnings
are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Income taxation benefit at statutory rates ......... $ 10,252 $ 6,062
Unprovided timing differences ...................... (6,107) (9,265)
Permanent differences:
Non-deductible charges ............................ (2,469) (98)
Expenditure of a capital nature ................... 54 64
Dividends received ................................ (504) (646)
Utilisation of losses carried forward ............. (2,384) --
-------- --------
Income taxation expense ............................ $ (1,158) $ (3,883)
======== ========
</TABLE>
The Acquired MIH Businesses have tax loss carry-forwards of approximately
$76.5 million expiring in years 1998 through 2002 and tax losses of $19.5
million which may be carried forward indefinitely.
The ultimate outcome of additional taxation assessments may vary from the
amounts accrued, however, management of the Acquired MIH Businesses believe
that any additional taxation liability over and above the amount accrued would
not have a material adverse impact on the Acquired MIH Businesses results of
operations or financial position.
Unprovided timing differences are timing differences that are expected to
reverse within the carry-forward period of tax losses (note 3(i)) and are,
therefore, effectively a valuation allowance.
F-58
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
16. Income taxation
The deferred taxation relates to the temporary differences between the
book values and the tax bases of assets and liabilities. Significant components
of the Acquired MIH Businesses deferred taxation liabilities and assets are
summarized below:
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Deferred taxation liabilities
Leased assets .......................................... $ 2,648 $ --
Prepayments ............................................ 2,386 3,125
--------- ---------
Gross deferred taxation liabilities .................... 5,034 3,125
--------- ---------
Deferred taxation assets
Purchased intangible fixed assets ...................... 2,053 2,329
Purchased tangible fixed assets ........................ 153 77
Accounts receivable and other assets ................... 175 33
Accrued expenses and other current liabilities ......... 21,870 12,586
Program and film rights ................................ 566 --
Leased tangible fixed assets ........................... 209 153
Deferred income ........................................ 6,275 1,597
Tax loss carry-forwards ................................ 26,770 23,729
--------- ---------
Gross deferred taxation assets ......................... 58,071 40,504
--------- ---------
Net deferred taxation assets ........................... 53,037 37,379
Less: Valuation allowance .............................. (53,037) (37,379)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The Acquired MIH Businesses have recorded a valuation allowance against
the net deferred taxation asset as in management's estimate it is more likely
than not that the deferred taxation asset will not be realized, due to the
historical operating losses of the Acquired MIH Businesses and timing limits on
the tax loss carry-forwards that arose on those losses.
F-59
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
17. Related party transactions
The Acquired MIH Businesses entered into transactions and have balances
with a number of affiliated companies, including equity investees, shareholders
and entities under common control. Transactions with affiliated companies are
summarized in the following table:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Income
Satellite transmission costs (a) ........... $ 227 $ --
Costs
Channel and programming costs (b) .......... $137,804 $103,608
Satellite transmission costs (c) ........... 12,767 8,835
Use of broadcasting facilities (d) ......... 741 546
Licensing fees (e) ......................... 2,404 2,164
-------- --------
$153,716 $115,153
======== ========
</TABLE>
- ----------------
(a) Certain costs related to the lease, maintenance and insurance of signal
distribution are charged on by the Acquired MIH Businesses to one of its
affiliated companies.
(b) The Acquired MIH Businesses purchased the right to transmit certain
channels and programs from an affiliated company.
(c) The Acquired MIH Businesses are charged by an affiliate for services
relating to the lease, maintenance and insurance of signal distribution
equipment ranging from ground-stations to satellite transponders.
(d) The Acquired MIH Businesses are charged for the use of broadcasting
facilities of an affiliated company.
(e) Licensing fees are charged by an affiliated company for the use of certain
subscriber technology and software.
The balances of advances, deposits, receivables and payables between the
Acquired MIH Businesses and affiliates are:
<TABLE>
<CAPTION>
March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Receivables:
M-Net ............................ $ 1,000 $ 3,028
Orbicom .......................... 3,350 4,946
MIH Holdings ..................... 2,324 2,586
MultiChoice Nigeria .............. 3,020 --
Other ............................ 553
-------
$10,247 $10,560
======= =======
Payables:
MIH Limited ...................... $78,527 $48,982
NetHold .......................... -- 15,369
Irdeto ........................... 4,317 3,714
FilmNet .......................... -- 11,827
MultiChoice Belgium N.V. ......... 841 --
Other ............................ 132 --
------- -------
$83,817 $79,892
======= =======
</TABLE>
F-60
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
18. Segment and geographic information
The reportable segments of the Acquired MIH Businesses are those that are
based on the Acquired MIH Businesses' method of internal reporting, which
disaggregates its businesses by service/product and by geography. The Acquired
MIH Businesses reportable business segments are pay-television services and
technology. The pay-television business segment is conducted in Africa and the
Middle East and the Mediterranean. The technology business segment consists of
an equity investment in Irdeto, based in The Netherlands. The Acquired MIH
Businesses' operations in the Middle East are accounted for by the equity
method and are, therefore, included in equity in results of joint ventures
below.
The accounting policies of the segments are identical to the accounting
policies described in "Summary of Significant Accounting Policies".
<TABLE>
<CAPTION>
Segmental
1997 (in thousands) Pay television services Technology Total
- ------------------- ---------------------------------- ------------ -------------
Africa
&
The Middle East Mediterranean
----------------- --------------
<S> <C> <C> <C> <C>
SALES
External sales ............................ $306,950 $ 83,873 $ -- $ 390,823
Inter-segment sales ....................... -- 1,075 -- 1,075
-------- --------- ------ ---------
Total revenue ............................. $306,950 $ 84,948 $ -- $ 391,898
======== ========= ====== =========
RESULTS
Operating loss ............................ $ (8,953) $ (15,177) $ -- $ (24,130)
Depreciation and amortization (a) ......... (9,029) (7,162) -- (16,191)
Amortization of program and film
rights ................................... -- (18,796) -- (18,796)
Operating loss is stated before the
following items;
Exchange loss ............................. (1,420) (72) -- (1,492)
Interest expense .......................... (2,384) (5,396) -- (7,780)
Interest income ........................... 3,413 592 -- 4,005
Equity results in associates .............. 2,644 -- -- 2,644
Equity results in joint ventures .......... (1,916) -- 3,060 1,144
Income taxation ........................... (19) (1,139) -- (1,158)
OTHER INFORMATION
Segment assets ............................ 132,995 148,226 5,932 287,153
Investments in equity companies ........... 14,242 -- 3,074 17,316
Other investments ......................... 6,356 -- -- 6,356
Segment liabilities ....................... 116,963 220,780 -- 337,743
Capital expenditure ....................... 7,841 9,808 -- 17,649
</TABLE>
F-61
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
18. Segment and geographic information--Continued
<TABLE>
<CAPTION>
Segmental
1996 (in thousands) Pay television services Technology Total
- ------------------- ---------------------------------- ------------ -------------
Africa
&
The Middle East Mediterranean
----------------- --------------
<S> <C> <C> <C> <C>
SALES
External sales .................................. $242,340 $ 40,100 $ -- $ 282,440
Inter-segment sales ............................. -- 454 -- 454
-------- --------- ------ ---------
Total revenue ................................... $242,340 $ 40,554 $ -- $ 282,894
======== ========= ====== =========
RESULTS
Operating profit/(loss) ......................... $ 8,945 $ (26,341) $ -- $ (17,396)
Depreciation and amortization (a) ............... (7,171) (2,647) -- (9,818)
Amortization of program and film rights ......... -- (10,123) -- (10,123)
Operating income/(loss) is stated before the
following items;
Exchange gain/(loss) ............................ 206 (233) -- (27)
Interest expense ................................ (1,696) (1,504) -- (3,200)
Interest income ................................. 2,301 -- -- 2,301
Equity results in associates .................... 2,388 -- -- 2,388
Equity results in joint ventures ................ (857) -- (969) (1,826)
Income taxation ................................. (3,543) (340) -- (3,883)
OTHER INFORMATION
Segment assets .................................. 112,008 43,000 1,116 156,124
Investment in equity companies .................. 16,003 -- 631 16,634
Other investments ............................... 4,693 -- -- 4,693
Segment liabilities ............................. 78,564 101,763 188,563
Capital expenditures ............................ $ 8,758 $ 4,264 $ -- $ 13,022
</TABLE>
(a) Excludes amortization of program and film rights included in cost of
providing services.
19. Commitments and contingencies
(a) Loans
MultiChoice Africa is required to lend a joint venture, an amount not
exceeding $1.6 million, which represents 20% of a banking facility available to
fund the acquisition of decoders.
(b) Loss insurance
The Acquired MIH Businesses do not generally carry risk of loss insurance
for injury to others, damage to the property of others, or interruption of
their business operations.
20. Foreign currency management
The currencies of the countries in which the Acquired MIH Businesses'
operate are also their functional currency. For these operations, all gains and
losses from foreign currency transactions are included in current results. The
cumulative translation effects for operations using functional currencies other
than the US dollar are included in Net Deficit.
The Acquired MIH Businesses use foreign currency forward exchange
contracts, which typically expire within one year, to hedge payments of foreign
currencies related to the purchase and sale of goods and services in currencies
other than the functional currency. Realized gains and losses on these
contracts are recognized in the same period as the hedged transactions. The
Acquired MIH Businesses had foreign exchange forward contracts on hand at
March 31, 1997, hedging South African rand against the US dollar and the British
pound sterling. The Acquired MIH Businesses do not currently hold or issue
derivative financial instruments for trading purposes.
F-62
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
20. Foreign currency management--Continued
The contractual amounts, exchange rates and settlement dates of the
outstanding foreign currency forward exchange contracts at March 31, 1997, are
set out below:
<TABLE>
<CAPTION>
Average
exchange Settlement
(thousands) rates Dates
------------- ---------- ------------------------------------
<S> <C> <C> <C>
South African rand/US dollars ......... $26,070 5,06 April 30, 1997 to March 27, 1998
South African rand/ British pound
sterling ............................. $ 1,954 7,12 April 30, 1997 to February 27, 1998
</TABLE>
21. Fair value of financial instruments
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturities of these instruments. The value of long-term debt
is estimated using discounted cash flows based on the Acquired MIH Businesses'
incremental borrowing rates for similar types of borrowings. The value of
foreign currency forward exchange contracts is based on quoted market prices. A
comparison of the carrying value and fair value of these instruments is as
follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------------------------- -------------------------------
Carrying Value Fair Value Carrying Value Fair Value
(thousands) (thousands) (thousands) (thousands)
---------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents .......... $ 53,908 $ 53,908 $ 15,063 $ 15,063
Receivables ........................ 53,870 53,870 63,280 63,280
Liabilities:
Payables and provision ............. 222,895 222,895 172,503 172,503
Short-term borrowings .............. 23,480 23,480 9,841 9,841
Long-term debt ..................... 91,368 91,368 6,219 6,219
Off-balance-sheet instruments
Forward exchange contracts ......... 28,024 24,610 17,410 18,738
</TABLE>
22. Pension fund
The Acquired MIH Businesses have defined contribution plans covering
employees of most of its subsidiaries. The Acquired MIH Businesses'
contributions under these plans are based primarily on the performance of the
business units and employee compensation. Total contributions amounted to $3.5
million for 1997. (1996: $2.9 million)
23. Postretirement benefits
MultiChoice Africa provides post retirement medical benefits by way of
medical aid contributions. IAS 19 "Retirement Benefit Costs", is effective for
periods beginning after January 1, 1995 and requires recognition of the costs
of such benefits on an accrual basis. MultiChoice Africa recognized its
cumulative actuarially determined liability for postretirement medical benefits
as of April 1, 1995 of $3.9 million. In accordance with IAS 19 and IAS 8, "Net
Profit or Loss for the Period, Fundamental Errors and Changes in Accounting
Policies" the change has been reported retrospectively through an adjustment of
$3.9 million to the opening balance of MultiChoice Africa accumulated results
as of April 1, 1995. During the year ended March 31, 1997, an agreement was
reached with employees of MultiChoice Africa to terminate the postretirement
medical aid benefits plan in exchange for an increase of MultiChoice Africa's
annual contributions to the retirement benefit fund. The provision will be
released to operating results to match the additional contributions to the
retirement benefit plan.
F-63
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
24. Differences between IAS and United States Generally Accepted Accounting
Principles
The Acquired MIH Businesses' combined financial statements are prepared in
accordance with IAS, which differ in certain respects from accounting
principles generally accepted in the United States ("US GAAP").
As discussed in Note 23, MultiChoice Africa adopted IAS 19 effective April
1, 1995 by recognizing an adjustment to retained earnings. Under US GAAP, SFAS
106 "Employers Accounting for Postretirement Benefits Other Than Pensions", the
effect of adoption is recognized immediately in net income of the period of
change as the effect of a change in accounting principle. Net income under US
GAAP would be as follows:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------
1997 1996
(thousands) (thousands)
------------- ------------
<S> <C> <C>
Net income--IAS ............................................. $ (26,029) $ (21,529)
Cumulative effect of change in accounting principle ......... -- (3,868)
--------- ---------
Net income--US GAAP ......................................... $ (26,029) $ (25,397)
========= =========
</TABLE>
No other material differences exist between the net loss and total net
deficit as determined under IAS and US GAAP.
Additional disclosure requirements
(a) Certain Risks and Concentrations
The Acquired MIH Businesses are exposed to certain concentrations of
credit risk relating to cash and current investments. The Acquired MIH
Businesses place cash and current investments with high quality institutions.
The Acquired MIH Businesses' policy is designed to limit exposure with any one
institution and to invest its excess cash in low risk investment accounts. The
Acquired MIH Businesses have not experienced any losses on such accounts. As of
March 31, 1997, cash and current investments were held with numerous financial
institutions.
The Acquired MIH Businesses' digital programming is or will be transmitted
to customers through different satellites around the world, and in certain
regions its terrestrial analog signal is also transmitted to regional broadcast
points through satellites. In addition, the Acquired MIH Businesses receive a
significant amount of their programming through satellites. Satellites are
subject to significant risks that may prevent or impair commercial operations.
Although the Acquired MIH Businesses have not experienced any significant
disruption of its transmissions the operation of the satellites is beyond the
control of the Acquired MIH Businesses. Disruption of the transmissions of
satellites could have a material adverse effect on the Acquired MIH Businesses.
(b) Stock based compensation
MIH management and employees participate in the Stock Option Plan (the
"Plan") of MIH Holdings Limited ("MIHH"). Under the Plan MIHH may grant options
to its employees for up to 11.8 million shares of MIHH's common stock. Stock
options may be granted with an exercise price not less than 100% of the market
value of the shares at the time of the grant. One third of the options
generally vest at the anniversary of each of the third, fourth and fifth year
after the grant date of the stock options and expire after ten years. Unvested
shares are subject to cancellation upon expiration or termination of
employment.
<TABLE>
<CAPTION>
1997
---------------------------------------
Weighted average
exercise price
Shares (Rand)
------------- -----------------
<S> <C> <C>
Outstanding at April 1, 1996 .......... 898,423 10.26
Granted ............................... -- --
Exercised ............................. (111,956) 8.64
Forfeited ............................. (51,718) 11.75
-------- -----
Outstanding at March 31, 1997 ......... 734,749 10.40
======== =====
</TABLE>
F-64
<PAGE>
Acquired MIH Businesses
(Predecessor to MIH Limited)
Notes to the Combined Financial Statements (Continued)
24. Differences between IAS and United States Generally Accepted Accounting
Principles--Continued
The following table summarizes information about the stock options
outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Range of Remaining Weighted-average
exercise prices Outstanding as of contractual life exercise price Exercisable as of Weighted average
(Rand) March 31, 1997 (years) (Rand) March 31, 1997 exercise price
- ----------------- ------------------- ------------------ ----------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
5.60-8.50 271,618 5.88 6.82 160,557 6.99
8.51-12.50 463,131 7.64 12.50 -- --
</TABLE>
The Acquired MIH Businesses apply Accounting Principles Board ("APB")
Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations for purposes of US GAAP in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plan. Under SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"), the compensation cost for the Acquired MIH Businesses is determined
based on the fair value at the grant date of stock options awarded under the
plan. No stock option where granted under the Plan between April 1, 1995, the
effective date of SFAS 123 to be used by the Acquired MIH Businesses for
purposes of calculating the impact of SFAS 123, and March 31, 1997. The
application of SFAS 123 therefore does not have an impact on the reported net
loss of the Acquired MIH Businesses.
F-65
<PAGE>
EXHIBIT D
CERTAIN DEFINITIONS
"Acquired MIH Businesses" means NetHold's pay-television businesses in Africa,
Cyprus, Greece and the Middle East acquired by the Company in the Canal+
Transaction, along with Irdeto.
"AMM" means Asia Multimedia Company Limited, a subsidiary of Telecom Asia.
"baht" means the Thai baht, the functional currency of the Kingdom of Thailand.
"Canal+" means Canal Plus S.A., a leading pay-television operator in Europe.
"Canal+ Transaction" means the March 1997 transaction in which the Company sold
its interest in NetHold to Canal+ in exchange for a 5% equity interest in
Canal+ and all of NetHold's pay-television businesses in Africa, Cyprus, Greece
and the Middle East.
"CBSat" means the China Broadcasting Film and Television Satellite Co. Ltd.
"Cineplex" means Cineplex Company Limited, the programming subsidiary of UBC.
"CNE" means Cable Network Egypt, a terrestrial analog pay-television operator
in Egypt.
"Combined Statements" means the Combined Financial Statements for the Acquired
MIH Businesses.
"Company" means MIH Limited, together with its subsidiaries and joint ventures.
"Consolidated Statements" means the Consolidated Financial Statements of the
Company.
"Condensed Consolidated Statements" means the interim financial statements of
the Company.
"drachma(e)" or "GRD" means Greek drachma(e), the functional currency of
Greece.
"ERT" means Greek Radio Television S.A., the state-owned broadcasting entity in
Greece.
"EU" means the European Union.
"Financial Statements" means the Combined Statements, the Consolidated
Statements and the Condensed Consolidated Statements.
"IAS" means international accounting standards issued by the International
Accounting Standards Committee.
"International Offering" means the offering of Class A Ordinary Shares outside
of the United States and Canada.
"Irdeto" means Irdeto B.V., the holding company for the company's technology
division other than OpenTV.
"Issuer" means MIH Limited, the issuer of the Class A Ordinary Shares offered
hereby.
"Johnnic" means Johnnic (IOM) Limited, a current holder of 9% of the Ordinary
Shares.
"JSE" means the Johannesburg Stock Exchange.
"Lumiere" means Lumiere Television Limited, a Cypriot investor that is the
Company's minority partner in MultiChoice Cyprus.
"M-Cell" means M-Cell Limited, a leading cellular telephone provider in South
Africa.
"M-Net Ltd." means Electronic Media Network Limited, the company that produces
the premium film channel carried by the Company's pay-television services in
Africa.
"M-Web" means M-Web Holdings Limited, the leading Internet service provider in
South Africa.
"MCOT" means the Mass Communications Organization of Thailand, one of the two
primary media regulators in Thailand.
"Memorandum" and "Articles" means the Issuer's Memorandum and Articles of
Association.
"MIH Holdings" means MIH Holdings Limited, the indirect holder of all of the
Class B Ordinary Shares.
D-1
<PAGE>
"MIH Investments" means MIH Investments (Proprietary) Limited, the holder of a
majority of MIH Holdings' shares.
"Mindport" means the Company's technology division, including Irdeto and
OpenTV.
"MTN" means Mobile Telephone Networks (Proprietary) Limited.
"MultiChoice Africa" means MultiChoice Africa (Proprietary) Limited.
"MultiChoice Cyprus" means MultiChoice Cyprus Limited.
"MultiChoice Egypt" means MultiChoice Egypt Limited.
"MultiChoice Hellas" means MultiChoice Hellas S.A.
"MultiChoice Middle East Holdings" means MultiChoice Middle East Holdings Inc.
"MultiChoice Middle East" means MultiChoice Middle East Inc.
"Nasdaq" means the Nasdaq National Market.
"Naspers" means Naspers Limited, a JSE-listed company that owns all of the
voting stock of MIH Investments.
"NetHold" means NetHold B.V., the holding company through which the Company
held its interest in the Acquired MIH Businesses prior to the Canal+
Transaction.
"NetMed" means NetMed B.V. and its subsidiaries, the subsidiaries through which
the Company conducts its pay-television operations in Greece and Cyprus.
"NetMed Hellas" means NetMed Hellas S.A.
"Offerings" means the International Offering and the U.S. Offering.
"OpenTV" means OpenTV, Inc., the Company's subsidiary that produces software
for interactive television.
"Orbicom" means Orbicom (Proprietary) Limited, an affiliate that provides
transmission services.
"Ordinary Shares" means the Class A Ordinary Shares and the Class B Ordinary
Shares.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Richemont" means Richemont S.A.
"RTBA" means the Thai Radio and Television Broadcasting Act of BE 2498 (AD
1955).
"Rule 144" means Rule 144 promulgated under the Securities Act.
"SABC" means the South African Broadcasting Corporation, the state-owned
broadcaster in South Africa.
"Securities Act" means the U.S. Securities Act of 1933.
"SG&A" means selling, general and administrative costs.
"South Africa" means the Republic of South Africa.
"SSIH" means SuperSport International Holdings Limited, the company that
produces the sports channels carried by the Company's pay-television services
in Africa.
"Sub-Saharan Africa" means countries in the sub-Saharan African region
excluding South Africa.
"Syned" means Synergistic Network Development S.A., the signal transmission and
distribution subsidiary of NetMed.
"Telecom Asia" means Telecom Holding Company Limited.
"Thomson" means Thomson Consumer Electronics, Inc.
D-2
<PAGE>
"Thomson Conversion" means the conversion of a $46.2 million note issued to
Thomson into Class A Ordinary Shares at the price shares are sold to the public
in the Offerings.
"TPS" means Television par Satellite, a digital satellite pay-television
operator in France.
"UBC" means United Broadcasting Corporation Public Company Limited, the
Company's Thailand joint venture.
"UBC Cable" means UBC Cable Network Public Company Limited, a subsidiary of
UBC.
"UBC Group" means UBC and its subsidiaries.
"U.S. dollar", "dollar" or "$" means the United States dollar, the functional
currency of the United States of America.
"US GAAP" means generally accepted accounting principles in the United States.
"U.S. Offering" means the offering of Class A Ordinary Shares in the United
States and Canada.
"ZAR" or "rand" means South African rand, the functional currency of the
Republic of South Africa.
D-3
<PAGE>
EXHIBIT G
GLOSSARY OF TECHNICAL TERMS
addressable: A device is addressable if a signal can be transmitted from the
conditional access system to the device instructing it to carry out or cease to
carry out a particular function, for instance, descrambling a signal.
analog: Information is transmitted by varying the phase, amplitude or frequency
of a radio carrier wave with the information that is being transmitted.
bandwidth: The radio frequency spectrum, whether the transmission medium is
physical wire or thin air, can be divided up into any number of "channels".
Each channel takes up a certain amount of space on the frequency spectrum. The
amount of spectrum occupied by the channel is its band width and is usually
measured in Kilohertz (Khz) and Megahertz (MHz). A broader band width can carry
more information.
bouquet: The channels offered by a pay-television provider on a given platform.
broadband: High-capacity transmission capability usually associated with
fibre-optic cable. Generally used when discussing video or TV transmission
systems.
C-band: A frequency range of the electromagnetic spectrum used heavily for
satellite transmission, having an uplink frequency at 6 GHz and a downlink
frequency at 4 GHz.
CA module: Conditional access module. Forms part of the conditional access
system.
CATV: Cable television.
co-axial cable: A cable consisting of insulated center conductor and a
concentric outer conductor. Co-axial cable is used primarily for wideband,
video, or radio-frequency applications.
compression: Technology that reduces or lowers the band width or space required
for transmission or storage of a data set.
conditional access system or CAS: The technology that provides for selective
access to specific services including subscription television services.
decoder: The term given to the device in a signal receiver that receives the
scrambled signal and converts it into a quality audio or visual signal for
listening or viewing.
dedicated line: A transmission circuit which is available at all times
installed between two sites of a private network.
digital: A method of storing, processing, or transmitting information in terms
of binary digits.
digital compression: The process of reducing the number of bits required to
store or transmit information in digital form.
dish: A dish collects signals downlinked from a satellite or concentrates them
for uplinking to the satellite.
downlink: The signal that travels from the satellite down to the receivers on
earth.
DStv: Digital satellite television.
DTH: Direct-to-Home. The generic term used to describe the system of signal
transmission from an earth station to a satellite and then to home for viewing.
encryption: Transforms digital or analog data into a format that is
unintelligible without the proper decryption key.
fiber optic cable: A transmission medium that uses glass or plastic fibers
rather than copper wire to transport data or voice signals.
footprint: The geographic area covered by the beam of a satellite, the outer
edge of which is generally defined as that area where the quality of
communication degrades below an acceptable commercial level.
G-1
<PAGE>
head-end: The source end of a television broadcast system. Head-ends receive
television signals from a variety of sources including satellite or dedicated
line and transmit it through the cable, satellite or terrestrial subscription
networks.
integrated receiver/decoder or IRD: Digital set-top receiver with a built-in
de-scrambler for decoding pay-television services.
Ku-band: A frequency range used for satellite downlink transmissions which
falls within the 12 to 14 GHz range of the electromagnetic spectrum, allowing
use of 27 inch (or 90 cm) or smaller ground dishes.
LMDS: Local, Multipoint Distribution Service. LMDS uses low-power transmitters
to broadcast programming to receiving equipment in homes and businesses.
MPEG II: A set of standards developed by the Moving Pictures Experts Group that
details guidelines for access rates, compression and conditional access.
multichannel, multi-point distribution service or MMDS: Also known as "wireless
cable", MMDS uses high-power transmitters to broadcast programming to receiving
equipment in homes and businesses.
near video-on-demand (VOD): A service on a switched network that allows users
to select individual programmes electronically and watch them instantaneously.
net churn: The percentage of subscribers over a given period who terminate
their subscription, net of former subscribers who reconnect during that period.
pay-per-view: A service which may be offered by subscription TV operators where
subscribers elect to view individual scheduled premium programmes, such as
select movies and sporting events, for a fee.
piracy: Any impersonation, unauthorized browsing, falsification, breach of
copyright, theft of data or disruption of service or control information in a
network.
set-top box: Device used to receive and decode subscription services including
subscription television services for display on television.
scrambler: A device that alters a message at the transmitter to make the
message unintelligible at a receiver not equipped with an appropriate
de-scrambling device.
smart card: A credit card-sized device with embedded processors that provides
entitlement functions and stores decryption keys and digital signatures and
which may be inserted in a set-top box.
subscribers: Viewers who pay a fee for any programming package offered by the
Company.
transponder: A microwave repeater on a satellite that can retransmit a signal
or set of signals.
ultra-high frequency (UHF): Frequencies from 300 MHz to 3000 MHz.
uplink: The signal that travels from the earth transmitting station up to the
receiving station, such as a satellite.
very-high frequency (VHF): Frequencies from 30 MHz to 300 MHz.
wireless cable: Refers to the use of MMDS or LMDS systems for transmission of
subscription TV services.
G-2
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Class A
Ordinary Shares in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has not been any change in the facts set forth in
this prospectus or in the affairs of the Company since the date hereof.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ............................. 1
Risk Factors ................................... 5
Use of Proceeds ................................ 14
Dividend Policy ................................ 14
Dilution ....................................... 15
The Company .................................... 17
Capitalization ................................. 20
Selected Financial and Operating Data .......... 21
Management's Discussion and Analysis
of Financial Condition and Results of
Operations .................................. 24
Business ....................................... 38
Regulation ..................................... 58
Management ..................................... 62
Certain Transactions ........................... 65
Security Ownership ............................. 66
Description of Capital Stock ................... 67
Shares Eligible for Future Sale ................ 71
Certain United States Federal Income Tax
Consequences ................................ 73
Underwriting ................................... 75
Legal Matters .................................. 78
Independent Accountants ........................ 78
Index to Financial Statements .................. F-1
Certain Definitions ............................ D-1
Glossary of Technical Terms .................... G-1
</TABLE>
Until , 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Class A Ordinary Shares, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
8,300,000 Shares
[MIH LOGO]
MIH Limited
Class A Ordinary Shares
----------------------------------
P R O S P E C T U S
----------------------------------
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
, 1999
================================================================================
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 25, 1999
PROSPECTUS
8,300,000 Shares
MIH Limited
[MIH Logo] Class A Ordinary Shares
----------------
All of the Class A Ordinary Shares offered hereby are being sold by MIH
Limited (the "Issuer" and, together with its subsidiaries and joint ventures,
the "Company"). Of the Class A Ordinary Shares offered hereby, 4,150,000 shares
are being offered outside the United States and Canada (the "International
Offering") and 4,150,000 shares are being offered in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offerings"). The initial public offering price per share and the underwriting
discount per share are identical for both Offerings. See "Underwriting".
Prior to the Offerings, there has been no public market for the Class A
Ordinary Shares. It is currently anticipated that the initial public offering
price per Class A Ordinary Share will be between $16.00 and $18.00. For a
discussion relating to factors to be considered in determining the initial
public offering price, see "Underwriting".
The Class A Ordinary Shares have been approved for listing on the Nasdaq
National Market (the "Nasdaq"), and application has been made to list the Class
A Ordinary Shares on the Amsterdam Stock Exchange, under the symbol "MIHL".
The Issuer's Ordinary Shares have been designated into two classes,
consisting of Class A Ordinary Shares and Class B Ordinary Shares. Under the
Issuer's Memorandum and Articles of Association (the "Memorandum" and
"Articles"), the holders of Class B Ordinary Shares generally have rights,
including as to dividends, identical to those of Class A Ordinary Shares,
except that holders of Class B Ordinary Shares are entitled to three votes per
share and holders of Class A Ordinary Shares are entitled to one vote per
share. Holders of Class B Ordinary Shares and Class A Ordinary Shares generally
vote together as a class, except as otherwise required under British Virgin
Islands law or the Memorandum and Articles. After giving effect to the
Offerings (without giving effect to any exercise by the Underwriters of options
to purchase additional shares) and the Thomson Conversion (as defined), it is
expected that holders of Class A Ordinary Shares will own 37.5% of the Issuer
and holders of Class B Ordinary Shares will own 62.5% of the Issuer. This means
that holders of Class B Ordinary Shares will control 83.3% of the aggregate
voting power of the Ordinary Shares while holders of Class A Ordinary Shares
will control the remaining 16.7%.
See "Risk Factors" beginning on page 5 for a discussion of certain factors
that should be considered by prospective purchasers of the Class A Ordinary
Shares offered hereby.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Issuer (2)
---------- -------------- ------------
<S> <C> <C> <C>
Per Class A Ordinary Share ......... $ $ $
Total(3) ........................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Issuer has agreed to indemnify the several Underwriters (as defined
herein) against certain liabilities, including certain liabilities under
the Securities Act (as defined herein). See "Underwriting".
(2) Before deducting expenses payable by the Issuer estimated at $3,750,000.
(3) The Issuer has granted to the International Managers (as defined herein)
and the U.S. Underwriters (as defined herein) options, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
622,500 and 622,500 Class A Ordinary Shares, respectively, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Issuer will be
$ , $ and $ , respectively. Pursuant to the Intersyndicate
Agreement (as defined herein), the International Managers and the U.S.
Underwriters are also permitted to sell Class A Ordinary Shares to each
other for purposes of resale at the public offering price, less an amount
not greater than the selling concession. See "Underwriting".
----------------
The Class A Ordinary Shares are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Class A Ordinary Shares will be made in New York,
New York on or about , 1999.
----------------
Merrill Lynch International Donaldson, Lufkin & Jenrette
MeesPierson N.V.
----------------
The date of this Prospectus is , 1999
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Issuer and each of
the underwriters named below (the "International Managers") and concurrently
with the sale of Class A Ordinary Shares to the U.S. Underwriters (as defined
below), the Issuer has agreed to sell to each of the International Managers,
and each of the International Managers for whom Merrill Lynch International
("Merrill Lynch"), DLJ Securities International and MeesPierson N.V. are acting
as representatives (the "International Representatives"), has severally agreed
to purchase from the Issuer, the number of Class A Ordinary Shares set forth
opposite its name below.
<TABLE>
<CAPTION>
Number
of Class A
International Managers Ordinary Shares
- -------------------------------------- ----------------
<S> <C>
Merrill Lynch International ..........
DLJ Securities International .........
MeesPierson N.V. .....................
---------
Total ............................... 4,150,000
=========
</TABLE>
The Issuer has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement" and, together with the International Purchase Agreement,
the "Purchase Agreements") with certain underwriters in the United States and
Canada (the "U.S. Underwriters" and, together with the International Managers,
the "Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (the "U.S. Representatives," and together with the
International Representatives, the "Representatives"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of 4,150,000 Class A Ordinary Shares to the International Managers
pursuant to the International Purchase Agreement, the Issuer has agreed to sell
to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to
purchase, an aggregate of 4,150,000 Class A Ordinary Shares. The public
offering price per Class A Ordinary Share and the underwriting discount per
Class A Ordinary Share are identical under the International Purchase Agreement
and the U.S. Purchase Agreement.
In each Purchase Agreement, the several International Managers and the
several U.S. Underwriters, respectively have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all the Class A
Ordinary Shares offered in the International Offering and the U.S. Offering,
respectively, if any are purchased.
The Class A Ordinary Shares are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. In the
event of default by an Underwriter, the Purchase Agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting Underwriters
may be increased or the Purchase Agreement may be terminated. The sale of Class
A Ordinary Shares to the U.S. Underwriters is conditioned upon the sale of
Class A Ordinary Shares to the International Managers, and vice versa.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell Class A
Ordinary Shares to each other for purposes of resale at the public offering
price set forth on the cover page of this Prospectus, less an amount not
greater than the selling concession. Under the terms of the Intersyndicate
Agreement, the U.S.
75
<PAGE>
Underwriters and any dealer to whom they sell Class A Ordinary Shares will not
sell or offer to sell Class A Ordinary Shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, and the International Managers and any
dealer to whom they sell Class A Ordinary Shares will not sell or offer to sell
Class A Ordinary Shares to U.S. persons or Canadian persons or to persons they
believe intend to resell to U.S. persons or Canadian persons, except, in each
case, for transactions pursuant to the Intersyndicate Agreement. Any U.S.
Underwriters and International Managers who purchase from each other for the
purpose of resale will be deemed an "underwriter" under the Securities Act.
The International Representatives have advised the Issuer that the
International Managers propose initially to offer the Class A Ordinary Shares
to the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per Class A Ordinary Share. The International Managers may
allow, and such dealers may allow, a discount not in excess of $ per Class
A Ordinary Share on sales to certain other dealers. After the Offerings, the
public offering price, concession and discount may be changed.
The Issuer, its directors, executive officers and shareholders have
agreed, subject to certain exceptions, not to directly or indirectly (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Ordinary Shares or any
securities convertible into or exchangeable or exercisable for any Ordinary
Shares, or request the filing of any registration statement under the
Securities Act, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of Ordinary
Shares, whether any such swap transaction is to be settled by delivery of the
Ordinary Shares or other securities, in cash or otherwise without the prior
written consent of Merrill Lynch, on behalf of the Underwriters, for a period
of 180 days after the date of this Prospectus. Each of MIH (BVI) Limited, SSIH,
Johnnic and Thomson have also agreed to substantial restrictions on their
ability to dispose of shares during the period between 180 days and one year
after the date of this Prospectus.
The Issuer has granted an option to the International Managers,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of 622,500 additional Class A Ordinary Shares at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of the Class A Ordinary Shares
offered hereby. To the extent that the International Managers exercise this
option, each International Manager will be obligated, subject to certain
conditions, to purchase a number of additional Class A Ordinary Shares
proportionate to such International Manager's initial amount reflected in the
foregoing table. The Issuer has also granted an option to the U.S.
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an additional 622,500 Class A Ordinary Shares to cover
over-allotments, if any, on terms similar to those granted to International
Managers.
The Issuer has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.
Until the distribution of the Class A Ordinary Shares is completed, rules
of the Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase the
Class A Ordinary Shares. As an exception to these rules, the U.S.
Representatives are permitted to engage in certain transactions that stabilize
the price of the Class A Ordinary Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Class A Ordinary Shares.
If the Underwriters create a short position in the Class A Ordinary Shares
in connection with the Offerings, (i.e., if they sell more Class A Ordinary
Shares than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Class A Ordinary
Shares in the open market. The U.S. Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase Class A Ordinary Shares in the open market to reduce the Underwriters'
short position or to stabilize the price of the Class A Ordinary Shares, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offering.
76
<PAGE>
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
Neither the Issuer nor any of the U.S. Underwriters makes any
representation or prediction, however, as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Class
A Ordinary Shares. In addition, neither the Issuer nor any of the Underwriters
makes any representation that the Representatives will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
Each International Manager agrees that (a) it has not offered or sold and,
for a period of six months following consummation of the Offerings, will not
offer or sell any Class A Ordinary Shares to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes
of their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (b) it has complied with and will comply
with all applicable provisions of the Public Offers of Securities Regulations
1995 and the Financial Services Act 1986 with respect to anything done by it in
relation to the Class A Ordinary Shares in, from, or otherwise involving the
United Kingdom and (c) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with
the issue or sale of the Class A Ordinary Shares to a person who is of a kind
described in Article 11 (3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or to a person to whom the
document may otherwise lawfully be issued or passed on.
The Class A Ordinary Shares have been approved for listing on the Nasdaq,
and application has been made to list the Class A Ordinary Shares on the
Amsterdam Stock Exchange, under the symbol "MIHL".
Certain of the Underwriters have been engaged from time to time, and may
in the future be engaged, to perform financial advisory and other investment
banking services to the Issuer and its affiliates. In particular, MeesPierson
has provided the Company with a short term loan facility, which will be repaid
with a portion of the proceeds from the Offerings. In connection with rendering
such services in the past, MeesPierson and such other Underwriters have
received customary compensation, including reimbursement of related expenses.
The Underwriters do not intend to confirm sales of Class A Ordinary Shares
offered hereby to any accounts over which they exercise discretionary
authority.
Prior to the Offerings, there has been no public market for the Class A
Ordinary Shares. The initial public offering price for the Class A Ordinary
Shares will be determined through negotiations between the Issuer and the
Representatives. Among the factors to be considered in determining the initial
public offering price, in addition to prevailing market conditions, are the
financial and operating history and condition of the Company, an assessment of
the Company's business and financial prospects, the Company's management, the
prospects for the industry in which the Company operates and the recent market
prices of securities of companies in industries similar to that of the Company.
The initial public offering price set forth on the cover page of this
Prospectus should not, however, be considered as an indication of the actual
value of the Class A Ordinary Shares. Such price is subject to change as a
result of market conditions and other factors. There can be no assurance that
an active trading market will develop for the Class A Ordinary Shares or that
the Class A Ordinary Shares will trade in the public market subsequent to the
Offerings made hereby at or above the initial public offering price.
77
<PAGE>
ADDITIONAL INFORMATION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Ordinary Shares being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amounts to
be Paid
-------------
<S> <C>
SEC registration fee ............................. $ 45,110
NASD filing fee .................................. $ 16,727
Nasdaq National Market listing fee ............... $ 50,000
Amsterdam Stock Exchange listing fee ............. $ 5,000
Printing, mailing and engraving expenses ......... $ 300,000
Legal fees and expenses .......................... $1,500,000
Accounting fees and expenses ..................... $1,550,000
Transfer agent and registrar fees ................ $ 15,000
Miscellaneous expenses ........................... $ 268,163
Total ............................................ $3,750,000
</TABLE>
A copy of this Prospectus, including the Financial Statements, and the
Memorandum and Articles are available for inspection at the offices of
MeesPierson N.V., Rokin 55, 1012 KK, Amsterdam, The Netherlands, tel: +31 (0)20
527 2467, fax: +31 (0)20 527 1928.
The issuance of the Class A Ordinary Shares being offered by the Issuer in
the Offerings was authorized, and the preemptive rights of the existing
shareholders were excluded, by resolutions of the Board of Directors of the
Issuer on February 10, 1999 and March 23, 1999.
Other than as disclosed herein, there has been no material adverse change
in the financial condition or results of operations of the Company since March
31, 1998.
The Issuer, having made all reasonable enquiries, confirms that, to the
best of its knowledge and belief as of the date hereof, the information
contained in this prospectus relating to the Company, is accurate and this
prospectus does not omit to state any material fact the omission of which would
make any such information misleading. The Issuer is responsible for the
accuracy and the completeness of the information contained in this prospectus.
78
<PAGE>
CERTAIN NETHERLANDS TAX CONSEQUENCES
The overview of certain Netherlands taxes set forth below is only intended
for individuals and corporate entities resident in the Netherlands who invest
in Ordinary Shares of the Issuer. This overview describes the tax consequences
that will generally apply to such investors under the Netherlands tax laws in
force and in effect as of the date hereof, and is subject to changes in
Netherlands law, including changes that could have retroactive effect. Not
every potential tax consequence of such investment under the laws of the
Netherlands will be addressed. It is therefore recommended that each investor
consults his own tax adviser with respect to the tax consequences of an
investment in the Ordinary Shares.
Individual and Corporate Income Tax
Individuals Not Engaged in an Enterprise
As a general rule, an individual who is resident or deemed to be resident
in the Netherlands ("Netherlands resident individual") and who holds Ordinary
Shares ("Netherlands Ordinary Shareholder") that are not attributable to an
enterprise carried on by or on behalf of such resident, is subject to income
tax at progressive rates on distributions made by the Issuer as well as on
certain distributions deemed made by the Issuer as described below.
Distributions to Netherlands Ordinary Shareholders. Distributions by the
Issuer made to Netherlands Ordinary Shareholders who are subject to Netherlands
income tax include, but are not limited to:
(i) distributions in cash or in kind, deemed and constructive
distributions and repayments of paid-in capital not recognized
for Netherlands income tax purposes; and
(ii) liquidation proceeds, proceeds of redemption of Ordinary Shares
or, as a rule, consideration for the repurchase (buy-back) of
Ordinary Shares by the Issuer in excess of the average paid-in
capital recognized for Netherlands income tax purposes.
Capital gains. Capital gains realized on the disposition of the Ordinary
Shares by a Netherlands resident individual are generally exempt from
Netherlands income tax if (i) the individual does not have a substantial
interest as defined below and if (ii) the Ordinary Shares are not attributable
to an enterprise carried on by or on behalf of such individual. See
"Individuals Engaged in an Enterprise, Companies and Other Entities" below.
Substantial interest. A Netherlands resident individual will be subject to
tax (generally at a rate of 25%) with respect to any dividend (deemed or
actual) derived from, and any gain (deemed or actual) realized on the disposal
(deemed or actual) of, the Ordinary Shares if such holder has a substantial
interest (deemed or actual) in the Issuer. Generally, a holder of Ordinary
Shares will not have a substantial interest in the Issuer if he, his spouse,
certain other relatives (including foster children) or certain persons sharing
his household, do not hold, alone or together, whether directly or indirectly,
the ownership of, or certain other rights over, Ordinary Shares representing
five percent or more of the total issued and outstanding capital (or the issued
and outstanding capital of any class of Ordinary Shares) of the Issuer, or
rights to acquire Ordinary Shares, whether or not already issued, that
represent at any time (and from time to time) five percent or more of the total
issued and outstanding capital (or the issued and outstanding capital of any
class of Ordinary Shares) of the Issuer or the ownership of certain profit
participating certificates that relate to five percent or more of the annual
profit of the Issuer and/or to five percent or more of the liquidation proceeds
of the Issuer. A deemed substantial interest is present if (part of) a
substantial interest has been disposed of, or is deemed to have been disposed
of, on a non-recognition basis.
Individuals Engaged in an Enterprise, Companies and Other Entities
Netherlands resident individuals who own Ordinary Shares that are
attributable to an enterprise carried on by or on behalf of such individuals,
and companies or other entities, subject to Netherlands corporate income tax,
that are resident in the Netherlands for Netherlands tax purposes and that own
Ordinary Shares, are generally subject to income tax or corporate income tax
with respect to distributions made by the Issuer as well as with respect to
certain distributions deemed made by the Issuer and with respect to any gain
realized on the disposal of the Ordinary Shares.
Netherlands Qualifying Pension Funds and Investment Institutions
("Beleggingsinstellingen")
A Netherlands qualifying pension fund is not subject to corporate income
tax. Furthermore, qualifying Netherlands resident investment institutions are
subject to corporate income tax at a special rate of 0 percent.
79
<PAGE>
Net Wealth Tax
Netherlands resident individuals are subject to Netherlands net wealth tax
on the basis of their world-wide net wealth, which includes the fair market
value of the Ordinary Shares.
Gift, Estate and Inheritance Taxes
Gift, estate and inheritance taxes will arise in the Netherlands with
respect to an acquisition of Ordinary Shares by way of a gift by, or on the
death of, a holder of Ordinary Shares who is resident or deemed to be resident
of the Netherlands.
For purposes of Netherlands gift, estate and inheritance taxes, an
individual who holds the Netherlands nationality will be deemed to be resident
in the Netherlands if he has been resident in the Netherlands at any time
during the ten years preceding the date of the gift or his death. Furthermore,
for purposes of Netherlands gift tax, an individual not holding the Netherlands
nationality will be deemed to be resident in the Netherlands if he has been
resident in the Netherlands at any time during the twelve months preceding the
date of the gift.
Other Taxes and Duties
No Netherlands capital tax, registration tax, transfer tax, stamp duty or
any other similar documentary tax or duty will be payable in the Netherlands in
respect of or in connection with the subscription, issue, placement, allotment
or delivery of the Ordinary Shares.
PROSPECTIVE INVESTORS SHOULD CONSULT LEGAL AND TAX ADVISORS IN THE
COUNTRIES OF THEIR CITIZENSHIP, RESIDENCE AND DOMICILE TO DETERMINE THE
POSSIBLE TAX CONSEQUENCES OF PURCHASING, HOLDING AND REDEEMING ORDINARY SHARES
UNDER THE LAWS OF THEIR RESPECTIVE JURISDICTION.
80
<PAGE>
LEGAL MATTERS
The validity of the Class A Ordinary Shares offered hereby will be passed
upon by Harney Westwood & Riegels, the British Virgin Islands. Certain United
States legal matters will be passed upon for the Company by Cravath, Swaine &
Moore, New York, New York. Matters relating to Dutch tax law have been passed
upon for the Company by Loyens & Volkmaars, Amsterdam, the Netherlands. Certain
United States legal matters will be passed upon for the Underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New
York, New York.
INDEPENDENT ACCOUNTANTS
The Consolidated Financial Statements of the Company as of March 31, 1998
and 1997 and for each of the three years in the period ended March 31, 1998,
and the Combined Financial Statements of the Acquired MIH Businesses as of
March 31, 1997 and 1996 and for the years then ended appearing in this
Prospectus, have been audited by Coopers & Lybrand, independent accountants, as
set forth in their report thereon appearing elsewhere herein.
With respect to the unaudited interim financial information as of
September 30, 1998 and for the six months ended September 30, 1998 and 1997,
contained herein, PricewaterhouseCoopers, Inc., independent accountants, have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report included herein states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such financial information should be
restricted in light of the limited nature of the review procedures applied. The
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and
11 of the Securities Act.
81
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Class A
Ordinary Shares in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has not been any change in the facts set forth in
this prospectus or in the affairs of the Company since the date hereof.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ............................. 1
Risk Factors ................................... 5
Use of Proceeds ................................ 14
Dividend Policy ................................ 14
Dilution ....................................... 15
The Company .................................... 17
Capitalization ................................. 20
Selected Financial and Operating Data .......... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................. 24
Business ....................................... 38
Regulation ..................................... 58
Management ..................................... 62
Certain Transactions ........................... 65
Security Ownership ............................. 66
Description of Capital Stock ................... 67
Shares Eligible for Future Sale ................ 71
Certain United States Federal Income Tax
Consequences ................................ 73
Underwriting ................................... 75
Additional Information ......................... 78
Certain Netherlands Tax Consequences ........... 79
Legal Matters .................................. 81
Independent Accountants ........................ 81
Index to Financial Statements .................. F-1
Certain Definitions ............................ D-1
Glossary of Technical Terms .................... G-1
</TABLE>
Until , 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Class A Ordinary Shares, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
8,300,000 Shares
[MIH LOGO]
MIH Limited
Class A Ordinary Shares
----------------------------------
P R O S P E C T U S
----------------------------------
Merrill Lynch International
Donaldson, Lufkin & Jenrette
MeesPierson N.V.
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Ordinary Shares being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to be
Paid
-------------
<S> <C>
SEC registration fee ............................. $ 45,110
NASD filing fee .................................. $ 16,727
Nasdaq National Market listing fee ............... $ 50,000
Amsterdam Stock Exchange listing fee ............. $ 5,000
Printing, mailing and engraving expenses ......... $ 300,000
Legal fees and expenses .......................... $1,500,000
Accounting fees and expenses ..................... $1,550,000
Transfer agent and registrar fees ................ $ 15,000
Miscellaneous expenses ........................... $ 268,163
Total ........................................... $3,750,000
</TABLE>
Item 14. Indemnification of Directors and Officers
The Memorandum and Articles of the Issuer provide that, to the fullest
extent permitted by British Virgin Islands law or any other applicable laws,
directors of the Issuer will not be personally liable to the Issuer or its
shareholders for any acts or omissions in the performance of their duties. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission. These provisions will not limit the
liability of directors under United States federal securities laws.
Item 15. Recent Sales of Unregistered Securities
On March 19, 1999, the Issuer issued a convertible note of $46,206,106 to
Thomson Consumer Electronics, Inc. in exchange for 73,809,524 shares of OpenTV,
Inc. and a right to receive 6,614,736 shares of OpenTV, Inc. Simultaneously
with the Offerings, the note will convert into such number of Class A Ordinary
Shares derived by dividing the amount of the note plus accrued interest by the
price per share of the Class A Ordinary Shares in the Offerings. Exemption of
the issuance of the note was claimed under Section 4(2) of the Securities Act
of 1933.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- ------------------------------------------------------------------------------------------
<S> <C>
1.1+ U.S. Purchase Agreement.
1.2+ International Purchase Agreement.
3.1 Memorandum of Association of the Registrant.
3.2 Articles of Association of the Registrant.
4.1+ Specimen Certificate for Class A Ordinary Shares of the Registrant.
5.1 Opinion of Harney Westwood & Riegels with respect to the validity of the securities being
offered.
10.1# Shareholders' Agreement dated June 20, 1997 among Myriad International Holdings B.V., MP
Communications B.V. and NetHold Mediterranean B.V.
10.2#* Investment & Shareholders' Agreement dated April 4, 1997 among Canal+ S.A., FilmNet
Investments B.V., Myriad Holdings Netherlands B.V., MIH Holdings Limited, MIH Limited
and Irdeto B.V.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- ----------- -----------------------------------------------------------------------------------------
<S> <C>
10.3#* Shareholders' Agreement dated February 16, 1998 among Telecom Holding Company Limited,
Shinawatra Computer and Communications Public Company Limited, MIH Limited and
International Broadcasting Corporation Public Company Limited, as supplemented by the
Supplementary Shareholders' Agreement dated May 20, 1998 and as amended by the
Amendment to Shareholders' Agreement dated September 25, 1998.
10.4#* Greek Football Broadcasting Agreement dated December 29, 1995 between Football Societes
Anonymes Association and NetHold Hellas S.A.
10.5#* Greek Basketball Broadcasting Agreement dated July 3, 1998 between Greek Association of
Basketball Societes Anonymes and NetHold Hellas Pay-TV Societe Anonyme.
10.6#* Channel Distribution Agreement dated June 18, 1998 between MultiChoice Africa
(Proprietary) Limited and Electronic Media Network Limited.
10.7#* Analogue Agreement dated March 31, 1995 between MultiChoice Africa (Proprietary) Limited
and Electronic Media Network Limited.
10.8#* Facility Letter dated September 29, 1998 from ABSA Bank to MIH Limited.
10.9 Loan Agreement dated February 17, 1999 between MIH Limited and MeesPierson N.V.
10.10+ MIH Limited Share Scheme.
10.11+ Stock Purchase Option Agreement dated March 18, 1999 between Thomson Consumer
Electronics, Inc. and MIH Limited.
15.1 Letter re: unaudited interim financial information.
21+ Subsidiaries of the Registrant.
23.1# Consents of Harney Westwood & Riegels (one is included in Exhibit 5).
23.2# Consent of Mallinicks.
23.3# Consent of Nauta Dutilh.
23.4# Consent of Zepos & Zepos.
23.5# Consent of White & Case (Thailand) Limited.
23.6 Consent of Coopers & Lybrand.
</TABLE>
- ----------------
* Indicates that portions of the exhibit have been omitted pursuant to a
request for confidential treatment and that such portions have been filed
separately with the Commission.
+ To be filed by amendment.
# Filed previously with the Commission.
(b) Financial Statement Schedules
All financial schedules, other than that listed above, have been omitted
because the information required to be set forth therein is not applicable or
is shown in the Financial Statements or Notes thereto.
Item 17. Undertakings.
The Registrant will provide to the Underwriters at the closing specified
in the Purchase Agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
II-2
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of a Registration
Statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, MIH Limited, a corporation organized and existing under the
laws of the British Virgin Islands, certifies that it has duly caused this
Registration Statement on Form F-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hoofddorp, The
Netherlands, on this 25th day of March, 1999.
MIH LIMITED
By: /s/ ALLAN M. ROSENZWEIG
-------------------------------------
Allan M. Rosenzweig
Group Director--Corporate Finance and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 25th day of March, 1999:
<TABLE>
<CAPTION>
Signature Title
- ------------------------------------------ -------------------------------------
<S> <C>
* Chairman of the Board
-------------------------
Theunissen Vosloo
* Chief Executive Officer and Director
-------------------------
Jacobus D. T. Stofberg
* Director
-------------------------
Jacobus P. Bekker
* Director
-------------------------
Vaughan G. Bray
* Chief Executive Officer--
------------------------- MIH Asia and Director
Johannes H. W. Hawinkels
* Chief Executive Officer--
------------------------- Mindport and Director
Stephen Oldfield
* Director
-------------------------
Stephan J. Z. Pacak
* Chief Financial Officer
------------------------- and Director
Lesley R. Penfold
/s/ ALLAN M. ROSENZWEIG Group Director--
------------------------- Corporate Finance and Director
Allan M. Rosenzweig
*By: /s/ ALLAN M. ROSENZWEIG
-------------------------
Allan M. Rosenzweig
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ----------- ------------------------------------------------------------------------------------------
<S> <C>
1.1+ U.S. Purchase Agreement.
1.2+ International Purchase Agreement.
3.1 Memorandum of Association of the Registrant.
3.2 Articles of Association of the Registrant.
4.1+ Specimen Certificate for Class A Ordinary Shares of the Registrant.
5.1 Opinion of Harney Westwood & Riegels with respect to the validity of the securities being
offered.
10.1# Shareholders' Agreement dated June 20, 1997 among Myriad International Holdings B.V., MP
Communications B.V. and NetHold Mediterranean B.V.
10.2#* Investment & Shareholders' Agreement dated April 4, 1997 among Canal+ S.A., FilmNet
Investments B.V., Myriad Holdings Netherlands B.V., MIH Holdings Limited, MIH Limited
and Irdeto B.V.
10.3#* Shareholders' Agreement dated February 16, 1998 among Telecom Holding Company Limited,
Shinawatra Computer and Communications Public Company Limited, MIH Limited and
International Broadcasting Corporation Public Company Limited, as supplemented by the
Supplementary Shareholders' Agreement dated May 20, 1998 and as amended by the
Amendment to Shareholders' Agreement dated September 25, 1998.
10.4#* Greek Football Broadcasting Agreement dated December 29, 1995 between Football Societes
Anonymes Association and NetHold Hellas S.A.
10.5#* Greek Basketball Broadcasting Agreement dated July 3, 1998 between Greek Association of
Basketball Societes Anonymes and NetHold Hellas Pay-TV Societe Anonyme.
10.6#* Channel Distribution Agreement dated June 18, 1998 between MultiChoice Africa
(Proprietary) Limited and Electronic Media Network Limited.
10.7#* Analogue Agreement dated March 31, 1995 between MultiChoice Africa (Proprietary) Limited
and Electronic Media Network Limited.
10.8#* Facility Letter dated September 29, 1998 from ABSA Bank to MIH Limited.
10.9 Loan Agreement dated February 17, 1999 between MIH Limited and MeesPierson N.V.
10.10+ MIH Limited Share Scheme.
10.11+ Stock Purchase Option Agreement dated March 18, 1999 between Thomson Consumer
Electronics, Inc. and MIH Limited.
15.1 Letter re: unaudited interim financial information.
21+ Subsidiaries of the Registrant.
23.1# Consents of Harney Westwood & Riegels (one is included in Exhibit 5).
23.2# Consent of Mallinicks.
23.3# Consent of Nauta Dutilh.
23.4# Consent of Zepos & Zepos.
23.5# Consent of White & Case (Thailand) Limited.
23.6 Consent of Coopers & Lybrand.
</TABLE>
- ---------------
* Indicates that portions of the exhibit have been omitted pursuant to a
request for confidential treatment and that such portions have been filed
separately with the Commission.
+ To be filed by amendment.
# Filed previously with the Commission.
EXHIBIT 3.1
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
MEMORANDUM OF ASSOCIATION
OF
MIH LIMITED
1. NAME
The name of the Company is MIH Limited.
2. REGISTERED OFFICE
The Registered Office of the Company is at the offices of Havelet Trust
Company (BVI) Limited, P.O. Box 3186, Road Town, Tortola, British Virgin
Islands, or at such other place within the British Virgin Islands as the
Company may from time to time by a resolution of members determine.
3. REGISTERED AGENT
The Registered Agent of the Company is Havelet Trust Company (BVI)
Limited, P.O. Box 3186, Road Town, Tortola, British Virgin Islands, or
such other qualified person in the British Virgin Islands as the Company
may from time to time by a resolution of members determine.
4. GENERAL OBJECTS AND POWERS
4.1. The object of the Company is to engage in any act or activity that
is not prohibited under any law for the time being in force in the
British Virgin Islands.
4.2. The Company may not -
4.2.1. carry on business with persons resident in the British
Virgin Islands;
4.2.2. own an interest in real property situate in the British
Virgin Islands, other than a lease referred to in clause
4.3.5;
1
<PAGE>
4.2.3. carry on banking or trust business, unless it is licensed
to do so under the Banks and Trust Companies Act, 1990;
4.2.4. carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed
under an enactment authorising it to carry on that
business;
4.2.5. carry on the business of company management, unless it is
licensed under the Company Management Act, 1990; or
4.2.6. carry on the business of providing the registered office or
the registered agent for companies incorporated in the
British Virgin Islands.
4.3. For purposes of clause 4.2.1, the Company shall not be treated as
carrying on business with persons resident in the British Virgin
Islands if -
4.3.1. it makes or maintains deposits with a person carrying on
banking business within the British Virgin Islands;
4.3.2. it makes or maintains professional contact with solicitors,
barristers, accountants, bookkeepers, trust companies,
administration companies, investment advisers or other
similar persons carrying on business within the British
Virgin Islands;
4.3.3. it prepares or maintains books and records within the
British Virgin Islands;
4.3.4. it holds, within the British Virgin Islands, meetings of
its directors or members;
4.3.5. it holds a lease of property for use as an office from
which to communicate with members or where books and
records of the Company are prepared or maintained;
4.3.6. it holds shares, debt obligations or other securities in a
company incorporated under the International Business
Companies Act or under the Companies Act; or
2
<PAGE>
4.3.7. shares, debt obligations or other securities in the Company
are owned by any person resident in the British Virgin
Islands or by any company incorporated under the
International Business Companies Act or under the Companies
Act.
4.4. The Company shall have all such powers as are permitted by law for
the time being in force in the British Virgin Islands,
irrespective of corporate benefit, to perform all acts and engage
in all activities necessary or conducive to the conduct, promotion
or attainment of the object of the Company.
5. CURRENCY
The capital of the Company shall be denominated in the currency of the
United States of America.
6. AUTHORISED SHARES
The Company is authorised to issue 131 642 450 shares of no par value.
7. CLASSES AND NUMBER OF SHARES
The shares which the Company is authorised to issue are divided into
three classes as follows -
7.1. 81 183 898 'A' ordinary shares of no par value ("A Shares");
7.2. 43 876 429 'B' ordinary shares of no par value ("B Shares");
7.3. 6 582 123 'C' preference shares of no par value ("Preference
Shares"). The A Shares and the B Shares are collectively referred
to herein as "Ordinary Shares". The holders of shares now or
hereafter outstanding shall have no pre-emptive right to purchase,
or have offered to them for purchase, any shares or other equity
securities issued or to be issued by the Company. The preferences,
qualifications, limitations, restrictions and the special or
relative rights in respect of the rights of the shares of each
class are set out in the following clauses.
8. DESIGNATIONS, POWERS, PREFERENCES, ETC. OF PREFERENCE SHARES
3
<PAGE>
8.1. Notwithstanding anything to the contrary herein or in the
Company's Articles of Association ("Articles of Association"), the
directors are hereby expressly authorised to provide (without any
resolution of members), by resolution or resolutions, out of the
unissued Preference Shares, for one or more series of Preference
Shares and, with respect to each such series, to fix the number of
shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series,
the relative, participating, optional or other rights (if any) and
any qualifications, preferences, limitations or restrictions of
the shares of such series, including, without limitation, the
dividend rate (and whether dividends are cumulative), conversion
rights, rights and terms of redemption (including sinking fund
provisions) and redemption price and liquidation preferences and
to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below
the number of shares of such series then outstanding. The
designation and relative rights and preferences of each such
series of Preference Shares and the qualifications, limitations or
restrictions thereof, if any, which may differ from those of any
or all other series at any time outstanding, shall be filed in
accordance with the applicable provisions of British Virgin
Islands law so as to constitute an amendment to this Memorandum of
Association.
8.2. Preference Shares, regardless of series, which are converted into
other securities or other consideration, shall be retired and
cancelled and shall have the status of authorised but unissued
Preference Shares, without designation as to series.
9. DESIGNATIONS, POWERS, PREFERENCES, ETC OF ORDINARY SHARES
9.1. Save as herein otherwise provided, the A Shares and the B Shares
shall rank pari passu in all respects.
9.2. The A Shares and the B Shares shall have the following rights and
be subject to the following restrictions:
4
<PAGE>
As Regards Voting -
9.2.1. If there is only one class of Ordinary Share in issue, each
Ordinary Share shall entitle the holder thereof to one (1)
vote.
9.2.2. Subject as set out in clause 9.2.3 below, if there are A
Shares and B Shares in issue, each A Share shall entitle
the holder thereof to one (1) vote, and each B Share shall
entitle the holder thereof to three (3) votes, provided,
however, that, except as otherwise required by law, holders
of A Shares and B Shares, as such, shall not be entitled to
vote on any amendment to this Memorandum of Association or
to the Articles of Association which relates solely to the
terms of one or more outstanding series of Preference
Shares unless such amendment would adversely affect the
rights of the holders of Ordinary Shares of either class,
in which case the class so affected shall be entitled to a
class vote thereon. Except as expressly set out herein or
in the Articles of Association and subject to the
requirements of any applicable laws and the rights of any
outstanding series of Preference Shares to vote as a
separate class or series, all matters submitted to a vote
of members shall be voted on by the holders of the A Shares
and the B Shares, voting together as a single class.
9.2.3. Should any of the B Shares be converted into A Shares under
the provisions of clauses 9.2.9 to 9.2.19 hereof, then the
holders thereof shall have the rights (including the voting
rights) of A Shares.
As Regards Dividends And Distributions -
9.2.4. Subject to the preferential and other dividend rights of
any outstanding series of Preference Shares, holders of A
Shares and B Shares shall be entitled to such dividends and
other distributions in cash, shares or property of the
Company as may be declared thereon by a resolution of the
directors from time to time out of assets or funds of the
Company legally available therefor. No dividend or other
distribution may be declared or paid on any A
5
<PAGE>
Share unless a like dividend or other distribution is
simultaneously declared or paid, as the case may be, on
each B Share, nor shall any dividend or other distribution
be declared or paid on any B Share unless a like dividend
or other distribution is simultaneously declared or paid,
as the case may be, on each A Share, in each case, without
preference or priority of any kind. All dividends and
distributions on the A Shares and B Shares payable in
Ordinary Shares shall be paid in the form of A Shares to
the holders of A Shares and in the form of B Shares to the
holders of B Shares. In no event shall shares of either
class of Ordinary Share be split, divided or combined
unless the outstanding shares of the other class of
Ordinary Shares be proportionately split, divided or
combined.
9.2.5. In the event of a transaction as a result of which the A
Shares are converted into or exchanged for one or more
other securities, cash or other property (a "Class A
Conversion Event"), then from and after such Class A
Conversion Event, a holder of B Shares shall be entitled to
receive, upon the conversion of such B Shares pursuant to
clauses 9.2.9 to 9.2.19, the amount of such securities,
cash and other property that such holder would have
received if the conversion of such B Shares had occurred
immediately prior to the record date (or, if there is no
record date, the effective date) of the Class A Conversion
Event. This clause 9.2.5 shall be applicable in the same
manner to all successive conversions or exchanges of
securities issued pursuant to any Class A Conversion Event.
9.2.6. No adjustments in respect of dividends shall be made upon
the conversion of any B Share, provided, however, that, if
a B Share is converted after the record date for the
payment of a dividend or other distribution on B Shares but
before such payment, then the record holder of such B Share
at the close of business on such record date shall be
entitled to receive the dividend or other distribution
payable on such B Share on the payment date notwithstanding
the conversion thereof.
As Regards Option Rights Or Warrants -
6
<PAGE>
9.2.7. Subject to clauses 9.2.4, 9.2.5 and 9.2.6, the Company may
not issue additional B Shares or issue options, rights or
warrants to subscribe for additional B Shares, except that
the Company may make a pro rata offer to all holders of
Ordinary Shares of rights to subscribe for additional
shares of the class of Ordinary Shares held by them. The
Company may make offerings of options, rights or warrants
to subscribe for shares of any class or classes of shares
(other than B Shares) to all holders of A Shares or B
Shares if an identical offering is made simultaneously to
all the holders of the other class of Ordinary Shares. All
offerings of options, rights or warrants shall offer the
respective holders of A Shares and B Shares the right to
subscribe at the same rate per share.
As Regards Mergers -
9.2.8. In the event of a merger of the Company with or into
another entity (whether or not the Company is the surviving
entity), the holders of each A Share and B Share shall be
entitled to receive the same per share consideration as the
per share consideration, if any, received by the holders of
each share of the other class of Ordinary Shares, provided
that, if such consideration consists in any part of voting
securities (or of options or warrants to purchase, or of
securities convertible into or exchangeable for, voting
securities), then the Company may (but is not obliged to)
provide in the applicable merger agreement for the holders
of B Shares to receive, on a per share basis, voting
securities with three (3) times the number of votes per
share as those voting securities to be received by the
holders of A Shares (or options or warrants to purchase, or
securities convertible into or exchangeable for, voting
securities with three (3) times the number of votes per
share as those voting securities issuable upon exercise of
the options or warrants to be received by the holders of A
Shares, or into which the convertible or exchangeable
securities to be received by the holders of A Shares may be
converted or exchanged).
As regards Conversion Of B Shares -
9.2.9. Voluntary conversion
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Each B Share shall be convertible at any
time, at the option of its record holder,
into one validly issued, fully paid and
non-assessable A Share.
9.2.10. Voluntary conversion procedure
At the time of a voluntary conversion, the
record holder of B Shares shall deliver to
the principal office of the Company or any
transfer agent for A Shares -
9.2.10.1. the certificate or certificates
representing the B Shares to be
converted, duly endorsed in
blank or accompanied by proper
instruments of transfer; and
9.2.10.2. written notice to the Company
stating that the record holder
elects to convert such share or
shares and stating the name or
names (with addresses) and the
nominations in which the
certificate or certificates
representing the A Shares
issuable upon the conversion are
to be issued and including
instructions for the delivery
thereof.
Conversions shall be deemed to have been
effected at the time when delivery is made
to the Company or its transfer agent of such
written notice and the certificate or
certificates representing the B Shares to be
converted and as of such time each Person
named in such written notice as the Person
to whom a certificate representing A Shares
is to be issued, shall be deemed to be the
holder of record of the number of A Shares
to be evidenced by that certificate. Upon
such delivery, the Company or its transfer
agent shall promptly issue and deliver at
the stated address of such record holder of
A Shares, a certificate or certificates
representing the number of A Shares to which
such record holder is entitled by reason of
such conversion and shall cause such A
Shares to be registered in the name of the
record holder.
9.2.11. Automatic conversion
8
<PAGE>
Subject to clause 9.2.12 below, each B Share
shall automatically, without any further
action on the part of the Company or any
other Person, convert into one A Share -
9.2.11.1. upon any Transfer of any B Share to any
Person other than the Initial Holder or a
Permitted Transferee; or
9.2.11.2. on the first date on which the number of B
Shares then outstanding is less than 10% of
all the then outstanding Ordinary Shares
(calculated without regard to the difference
in voting rights between the classes of
Ordinary Shares); or
9.2.11.3. if and when the directors and the holders of
a majority of the outstanding B Shares
approve the conversion of all the B Shares
into A Shares; or
9.2.11.4. if and when the directors, in their sole
discretion, elect to effect a conversion
after a determination that there has been a
material adverse change in the liquidity,
marketability or market value of the A
Shares, considered in the aggregate, due
to -
9.2.11.4.1. the exclusion of the A Shares
from trading on a national
securities exchange or the
exclusion of the A Shares from
quotation on Nasdaq National
Market or such other system then
in use; or
9.2.11.4.2. requirements under any
applicable state law,
in any such case, as a result of the
existence of the B Shares.
9.2.12. Notwithstanding anything to the contrary set
out in clause 9.2.11, a holder of B Shares
may pledge such holder's B Shares to a
financial institution pursuant to a bona
fide pledge of such B Shares as
9
<PAGE>
collateral security for any indebtedness or
other obligations of any Person (the
"Pledged Shares") due to the pledgee or its
nominee, provided, however, that -
9.2.12.1. such B Shares shall not be voted
by or registered in the name of
the pledgee and shall remain
subject to the provisions of
clause 9.2.9 to 9.2.19; and
9.2.12.2. upon any foreclosure,
realisation or other similar
action by the pledgee, such
Pledged Shares shall
automatically convert into A
Shares on a share for share
basis unless all right, title
and interest in such Pledged
Shares shall be Transferred
concurrently by the pledgee or
the purchaser in such
foreclosure to a Permitted
Transferee;
9.2.13. The automatic conversion events set out in
clause 9.2.11 shall be referred to herein as
"Events of Automatic Conversion". The
determination of whether an Event of
Automatic Conversion shall have occurred
shall be made by the directors or a
committee of the directors.
9.2.14. Automatic conversion procedure
Any conversion pursuant to an Event of
Automatic Conversion shall be deemed to have
been effected at the time the Event of
Automatic Conversion occurred (the
"Conversion Time"). At the Conversion Time,
the certificate or certificates which
represented immediately prior thereto the B
Shares which were so converted (the
"Converted B Shares") shall, automatically
and without further action, represent the
same number of A Shares. Holders of
Converted B Shares shall deliver their
certificates, duly endorsed in blank or
accompanied by proper instruments of
transfer, to the principal office of the
Company or the office of any transfer agent
for A Shares, together with a notice setting
out the name or names (with addresses) and
the nominations in which the certificate or
certificates representing such A Shares are
to be issued and
10
<PAGE>
including instructions for delivery thereof.
Upon such delivery, the Company or its
transfer agent shall promptly issue and
deliver at such stated address to such
holder of A Shares a certificate or
certificates representing the number of A
Shares to which such holder is entitled by
reason of such conversion, and shall cause
such A Shares to be registered in the name
of such holder. The Person entitled to
receive the A Shares issuable upon such
conversion shall be treated for all purposes
as the record holder of such A Shares at and
as of the Conversion Time and the rights of
such Person as the holder of B Shares which
have been converted shall cease and
terminate at and as of the Conversion Time,
in each case without regard to any failure
by such holder to deliver the certificates
or the notice required by this clause
9.2.14.
9.2.15. Unconverted shares: notice required
In the event of the conversion of less than
all the B Shares evidenced by a certificate
surrendered to the Company in accordance
with the procedures of this clause 9.2, the
Company shall execute and deliver to or upon
the written order of the holder of such
unconverted shares, without charge to such
holder, a new certificate evidencing the
number of B Shares not converted.
9.2.16. Retired shares
B Shares which are converted into A Shares
as provided herein shall be retired and
cancelled and shall have the status of
authorised but unissued B Shares.
9.2.17. Reservation
The Company shall at all times reserve and
keep available, out of its authorised and
unissued A Shares, for the purposes of
effecting conversions, such number of duly
authorised A Shares as shall from time to
time be sufficient to effect the conversion
of all outstanding B Shares. All the A
Shares so issuable shall, when so issued, be
duly and validly issued, fully paid and free
from liens and charges with respect to such
issuance.
11
<PAGE>
9.2.18. Determination of voting rights and Events of
Automatic Conversion
The directors of the Company or a duly
authorised committee of such directors shall
have the power to determine, in good faith
after reasonable enquiry, whether an Event
of Automatic Conversion has occurred with
respect to any B Share. A determination by
the directors of the Company or such
committee that an Event of Automatic
Conversion has occurred shall be conclusive.
As a condition to counting the votes cast by
any holder of B Shares at any annual or
special meeting of shareholders or in
connection with any written consent of
shareholders or as a condition to
registration of transfer of B Shares or for
any other purpose, the directors or a duly
authorised committee thereof, in their/its
discretion, may require the holder of such
shares to furnish such affidavits or other
proof as the directors or such committee
deems necessary or advisable to determine
whether an Event of Automatic Conversion
shall have occurred. If the directors or
such committee determines that a holder has
substantially failed to comply promptly with
any request by the directors or such
committee for such proof, such shares shall
be entitled to one (1) vote per share until
such time as the directors or such committee
determines that such holder has complied
with such request. The directors or a
committee thereof may exercise the authority
granted by this clause 9.2.15 through duly
authorised officers or agents.
9.2.19. Share legend
The Company shall include on the
certificates representing the B Shares a
legend referring to the restrictions on
Transfer and registration imposed by clauses
9.2.9 to 9.2.18.
As Regards Liquidation -
9.2.20. In the event of any voluntary or involuntary
liquidation, distribution or winding up of
the Company, after distribution in full of
the preferential and/or other amounts to be
distributed to the
12
<PAGE>
holders of any outstanding series of
Preference Shares, the holders of A Shares
and B Shares shall be entitled to receive
all the remaining assets of the Company
available for distribution to its
shareholders, rateably in proportion to the
number of A Shares and B Shares held by
them. In any such distribution, A Shares and
B Shares shall be treated equally on a per
share basis.
10. VARIATION OF CLASS RIGHTS
Subject to the provisions of clause 9.2.2, the rights or
restrictions attached to all or any shares of any class or series
may be amended, modified, varied or cancelled by a resolution of
members or directors as set out in clause 13.1, provided that no
such amendment, modification, variation or cancellation which
adversely affects the rights or restrictions attaching to any class
or series of shares shall be effected without the approval of, or
ratification by, a resolution passed at a separate meeting of the
holders of the shares in question, by a simple majority of the votes
exercisable by the holders of the applicable class or series of
shares present and voting at the meeting, and the provisions of the
Articles of Association relating to meetings of members shall apply
to any such separate class meeting, except that a quorum at any such
meeting shall be a member or members present in person or by proxy
holding at least one-fifth of the issued shares of the class or
series in question, provided that, if a quorum is not so present,
the meeting shall be adjourned to the next day and the members
present or represented at the adjourned meeting shall constitute a
quorum.
11. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
Unless otherwise provided by the terms of issue, by this Memorandum
of Association or by the Articles of Association, any right or
restriction attached to all or any class or series of shares shall
be deemed not to be adversely affected by the creation or issue of
any other shares ranking pari passu with (but not in priority to)
any such share already issued by the Company.
12. REGISTERED SHARES AND BEARER SHARES
Shares may only be issued as registered shares and not as bearer
shares.
13. AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
13
<PAGE>
13.1. The Company may amend its Memorandum of Association and
Articles of Association by a resolution of members or
directors.
13.2. In addition to any requirements of law and of this
Memorandum of Association, an affirmative vote of the
holders of 66-2/3 percent or more of the combined
votes of all the then outstanding Ordinary Shares,
voting together as a single class, (a "Supermajority
Vote") shall be required to -
13.2.1. alter, amend, repeal or adopt any provision
which is inconsistent with, any provision of
clauses 8, 9 or this clause 13, of this
Memorandum of Association or of Regulations
48, 49, 51, 63, 64, 65, 72, 73, 76, 77, 78,
81 or 116 of the Articles of Association;
and
13.2.2. approve any merger of the Company which
would, directly or indirectly have the
effect of making changes to this Memorandum
of Association or to the Articles of
Association which would require a
Supermajority Vote if effected directly as
an amendment to this Memorandum of
Association or to the Articles of
Association.
14. DEFINITIONS AND INTERPRETATION
In this Restated Memorandum of Association -
14.1. unless the context clearly indicates a contrary
intention, an expression which denotes any one gender
includes the other genders, a natural person includes a
juristic person and vice versa, the singular includes
the plural and vice versa and the following terms have
the meanings assigned to them below and cognate
expressions bear corresponding meanings -
"Affiliate" - in relation to any Person,
any other Person which
directly or indirectly
Controls, is Controlled or is
under common Control with,
such Person;
"Beneficial Owner" - in relation to any share,
means a Person who (i) has the
power to vote or dispose or to
direct the voting or
disposition of
14
<PAGE>
such share, directly or
indirectly, through any
agreement, arrangement or
understanding (written or
oral); or (ii) has the right
to acquire such share (whether
such right is exercisable
immediately or only after the
passage of time) pursuant to
any agreement, arrangement or
understanding (written or
oral) or upon the exercise of
conversion rights, exchange
rights, warrants or options or
otherwise, and "Beneficially
Own" and "Beneficial
Ownership" have corresponding
means;
"Control" - in relation to any Person,
(i) the holding of shares or a
similar equity interest (which
in the case of a partnership
shall refer to the partnership
interest) representing more
than 50% of all the issued
shares or of the whole equity
interest in the capital of
that Person (or of another
Person which has Control of
such Person), or (ii) the
ability to appoint the
majority of the members of the
board of directors or other
governing body of such Person,
or (iii) the ability by virtue
of the holding of shares or
the possession of voting power
in or in relation to that
Person or by virtue of any
powers conferred by the
statutes or other document
relating to the Person or the
shareholders or partners of
such Person to exercise a
dominant influence over such
Person;
"Determination Date" - the date on which B Shares
are first
15
<PAGE>
issued by the Company;
"Initial Holder" - each Person in whose name
one or more B Shares are
registered at the
Determination Date and each
joint owner of a B Share at
the Determination Date. A
Person shall cease to be an
Initial Holder once that
Person no longer holds of
record or beneficially any B
Shares. For the purposes of
the definition of Initial
Holder, if any B Shares are
registered in the name of a
Nominee, such Shares shall be
deemed to be registered in the
name of the Person for whom
such Nominee is acting and
such Shares shall be deemed
not to be registered in the
name of such Nominee;
"Nominee" - a partnership or other
entity which is acting as a
bona fide nominee for the
registration of record
ownership of securities
Beneficially Owned by another
Person and which is identified
as such at the time of such
registration;
"Permitted Transferee" - any Affiliate of an Initial
Holder;
"Person" - any individual, firm,
company, corporation, trust,
government, State or agency of
a State or any joint venture,
partnership, limited liability
company, public company
limited or other incorporated
or unincorporated body;
"Transfer" - any sale, transfer
(including a transfer made in
whole or in part without
consideration as a gift),
exchange, assignment, pledge,
encumbrance, alienation or any
other disposition or
16
<PAGE>
hypothecation of record
ownership or of Beneficial
Ownership of any share,
whether by operation of law or
otherwise, provided, however,
that (i) a pledge of any share
made in accordance with the
provisions of clause 9.2.12;
and (ii) a grant of a proxy
with respect to any share to a
Person designated by the
directors of the Company who
are soliciting proxies on
behalf of the Company shall
not be considered a "Transfer"
and provided further that, in
the case of any Transfer of
record ownership to a Nominee,
such Transfer of record
ownership shall be deemed to
be made to the Person or
Persons for whom such Nominee
is acting;
14.2. terms which have not been defined herein but have been
defined in the Articles of Association have the same
meaning when used herein.
We, International Trust Company B.V.I. Limited, of PO Box 659, Road Town,
Tortola, British Virgin Islands, for the purposes of incorporating an
International Business Company under the laws of the British Virgin Islands
hereby subscribe our name to this Memorandum of Association this 26th day of
July 1991 in the presence of:
Witness Subscriber
Sgd. by Vinora Baronville
- ---------------------------- ----------------------------
International Trust Building Authorised Signatory
Wickhams Cay For and on behalf of
Road Town, Tortola International Trust Company B.V.I. Limited
17
EXHIBIT 3.2
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
ARTICLES OF ASSOCIATION
OF
MIH LIMITED
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following table
shall bear the meanings set opposite them respectively in the second
column thereof.
Words Meaning
----- -------
capital The sum of the aggregate par value of all
outstanding shares with par value of the Company and
shares with par value held by the Company as
treasury shares plus
(a) the aggregate of the amounts designated as
capital of all outstanding shares without par
value of the Company and shares without par
value held by the Company as treasury shares,
and
(b) the amounts as are from time to time
transferred from surplus to capital by a
resolution of directors.
chief executive The chief executive officer from time to time of
officer the Company.
1
<PAGE>
member A person who holds shares in the Company.
person Any individual, firm, company, corporation, trust,
government, state or agency of a state, joint
venture, the estate of a deceased individual,
limited liability company, public company limited,
partnership or incorporated or unincorporated
association of persons.
resolution of (a) A resolution approved at a duly convened
directors and constituted meeting of directors of the
Company or of a committee of directors of the
Company by the affirmative vote of a simple
majority of the directors present at the
meeting who voted and did not abstain; or
(b) a resolution consented to in writing by
three-quarters of all directors or
three-quarters of all members of the
committee, as the case may be;
except that where a director is given more than one
vote, he shall be counted by the number of votes he
casts for the purpose of establishing a majority.
resolution of (a) A resolution approved at a duly convened
members and constituted meeting of the members of the
Company by the affirmative vote of
(i) a simple majority of the votes of the
shares entitled to vote thereon which
were present at the meeting and were
voted and not abstained, or
2
<PAGE>
(ii) a simple majority of the votes of each
class or series of shares which were
present at the meeting and entitled to
vote thereon as a class or series and
were voted and not abstained and of a
simple majority of the votes of the
remaining shares entitled to vote
thereon which were present at the
meeting and were voted and not
abstained.
securities Shares and debt obligations of every kind, and
options, warrants and rights to acquire shares, or
debt obligations.
surplus The excess, if any, at the time of the determination
of the total assets of the Company over the
aggregate of its total liabilities, as shown in its
books of account, plus the Company's capital.
the Act The International Business Companies Act (No. 8 of
1984) including any modification, extension,
re-enactment or renewal thereof and any regulations
made thereunder.
the Memorandum The Memorandum of Association of the Company as
originally framed or as from time to time amended.
the Seal Any Seal which has been duly adopted as the Seal of
the Company.
3
<PAGE>
these Articles These Articles of Association as originally framed
or as from time to time amended.
treasury shares Shares in the Company that were previously issued
but were repurchased, redeemed or otherwise
acquired by the Company and not cancelled.
2. "Written" or any term of like import includes words typewritten, printed,
painted, engraved, lithographed, photographed or represented or
reproduced by any mode of reproducing words in a visible form, including
telex, facsimile, telegram, cable or other form of writing produced by
electronic communication.
3. Save as aforesaid any words or expressions defined in the Act shall bear
the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by members holding the shares except
that it is the votes allocated to the shares that shall be counted and
not the number of members who actually voted and a reference to shares
being present at a meeting shall be given a corresponding construction.
6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be issued
according to the provisions of the Memorandum.
REGISTERED SHARES
7. Every member holding registered shares in the Company shall be entitled
to a certificate signed by a director or officer of the Company and under
the Seal specifying the share or shares held by him and the signature of
the director or officer and the Seal may be facsimiles.
8. If several persons are registered as joint holders of any shares, any one
of such persons may give an effectual receipt for any dividend payable in
respect of such shares.
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
4
<PAGE>
9. Subject to the provisions of these Articles, the Memorandum and any
resolution of members, the unissued shares of the Company shall be at the
disposal of the directors who may, without limiting or affecting any
rights previously conferred on the holders of any existing shares or
class or series of shares, offer, allot, grant options over or otherwise
dispose of shares to such persons, at such times and upon such terms and
conditions as the Company may by resolution of directors determine.
10. No share in the Company may be issued until the consideration in respect
thereof is fully paid, and when issued the share is for all purposes
fully paid and non-assessable save that a share issued for a promissory
note or other written obligation for payment of a debt may be issued
subject to forfeiture in the manner prescribed in these Articles.
11. Shares in the Company shall be issued for money, services rendered,
personal property, an estate in real property, a promissory note or other
binding obligation to contribute money or property or any combination of
the foregoing as shall be determined by a resolution of directors.
12. Shares in the Company may be issued for such amount of consideration as
the directors may from time to time by resolution of directors determine,
except that in the case of shares with par value, the amount shall not be
less than the par value, and in the absence of fraud the decision of the
directors as to the value of the consideration received by the Company in
respect of the issue is conclusive unless a question of law is involved.
The consideration in respect of the shares constitutes capital to the
extent of the par value and the excess constitutes surplus.
13. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company,
shall be treated for all purposes as having been issued for money equal
to the consideration received or deemed to have been received by the
Company in respect of the other share, debt obligation or security.
14. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the
Company may by resolution of directors determine.
15. The Company may issue fractions of a share and a fractional share shall
have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and other
attributes of a whole share of the same class or series of shares.
16. Upon the issue by the Company of a share without par value, if an amount
is stated in the Memorandum to be authorized capital represented by such
shares then each share shall be
5
<PAGE>
issued for no less than the appropriate proportion of such amount which
shall constitute capital, otherwise the consideration in respect of the
share constitutes capital to the extent designated by the directors and
the excess constitutes surplus, except that the directors must designate
as capital an amount of the consideration that is at least equal to the
amount that the share is entitled to as a preference, if any, in the
assets of the Company upon liquidation of the Company.
17. The Company may purchase, redeem or otherwise acquire and hold its own
shares on such terms and conditions as may be determined by a resolution
of directors, provided, however, that the Company may only do so out of
surplus or in exchange for newly issued shares of equal value.
18. No purchase, redemption or other acquisition of shares shall be made
unless the directors determine that immediately after the purchase,
redemption or other acquisition the Company will be able to satisfy its
liabilities as they become due in the ordinary course of its business and
the realizable value of the assets of the Company will not be less than
the sum of its total liabilities, other than deferred taxes, as shown in
the books of account, and its capital and, in the absence of fraud, the
decision of the directors as to the realizable value of the assets of the
Company is conclusive, unless a question of law is involved.
19. A determination by the directors under the preceding Regulation is not
required where shares are purchased, redeemed or otherwise acquired
a) pursuant to a right of a member to have his shares redeemed or to
have his shares exchanged for money or other property of the
Company;
b) by virtue of a transfer of capital pursuant to Regulation 45;
c) by virtue of the provisions of Section 83 of the Act; or
d) pursuant to an order of the Court.
20. Shares that the Company purchases, redeems or otherwise acquires pursuant
to the preceding Regulation may be cancelled or held as treasury shares
except to the extent that such shares are in excess of 80 percent of the
issued shares of the Company in which case they shall be cancelled but
they shall be available for reissue.
21. Where shares in the Company are held by the Company as treasury shares or
are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the
election of directors of the other company, such shares of the Company
are not
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entitled to vote or to have dividends paid thereon and shall not be
treated as outstanding for any purpose except for purposes of determining
the capital of the Company.
22. The Company may by a resolution of directors include in the computation
of surplus for any purpose the unrealized appreciation of the assets of
the Company, and, in the absence of fraud, the decision of the directors
as to the value of the assets is conclusive, unless a question of law is
involved.
MORTGAGES AND CHARGES OF SHARES
23. Members may mortgage or charge their shares in the Company and upon
satisfactory evidence thereof the Company shall give effect to the terms
of any valid mortgage or charge except insofar as it may conflict with
any requirements herein contained for consent to the transfer of shares.
24. In the case of the mortgage or charge of shares there may be entered in
the share register of the Company at the request of the registered holder
of such shares
a) a statement that the shares are mortgaged or charged;
b) the name of the mortgagee or chargee; and
c) the date on which the aforesaid particulars are entered in the
share register.
25. Where particulars of a mortgage or charge are registered, such
particulars shall be cancelled
a) with the consent of the named mortgagee or chargee or anyone
authorized to act on his behalf; or
b) upon evidence satisfactory to the directors of the discharge of
the liability secured by the mortgage or charge and the issue of
such indemnities as the directors shall consider necessary or
desirable.
26. Whilst particulars of a mortgage or charge are registered, no transfer of
any share comprised therein shall be effected without the written consent
of the named mortgagee or chargee or anyone authorized to act on his
behalf.
FORFEITURE
27. When shares issued for a promissory note or other written obligation for
payment of a debt have been issued subject to forfeiture, the following
provisions shall apply.
28. Written notice specifying a date for payment to be made and the shares in
respect of which payment is to be made shall be served on the member who
defaults in making payment
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pursuant to a promissory note or other written obligations to pay a debt.
29. The written notice specifying a date for payment shall
a) name a further date not earlier than the expiration of 14 days
from the date of service of the notice on or before which payment
required by the notice is to be made; and
b) contain a statement that in the event of non-payment at or before
the time named in the notice the shares, or any of them, in
respect of which payment is not made will be liable to be
forfeited.
30. Where a written notice has been issued and the requirements have not been
complied with within the prescribed time, the directors may at any time
before tender of payment forfeit and cancel the shares to which the
notice relates.
31. The Company is under no obligation to refund any moneys to the member
whose shares have been forfeited and cancelled pursuant to these
provisions. Upon forfeiture and cancellation of the shares the member is
discharged from any further obligation to the Company with respect to the
shares forfeited and cancelled.
LIEN
32. The Company shall have a first and paramount lien on every share issued
for a promissory note or for any other binding obligation to contribute
money or property or any combination thereof to the Company, and the
Company shall also have a first and paramount lien on every share
standing registered in the name of a member, whether singly or jointly
with any other person or persons, for all the debts and liabilities of
such member or his estate to the Company, whether the same shall have
been incurred before or after notice to the Company of any interest of
any person other than such member, and whether the time for the payment
or discharge of the same shall have actually arrived or not, and
notwithstanding that the same are joint debts or liabilities of such
member or his estate and any other person, whether a member of the
Company or not. The Company's lien on a share shall extend to all
dividends payable thereon. The directors may at any time either
generally, or in any particular case, waive any lien that has arisen or
declare any share to be wholly or in part exempt from the provisions of
this Regulation.
33. In the absence of express provisions regarding sale in the promissory
note or other binding obligation to contribute money or property, the
Company may sell, in such manner as the directors may by resolution of
directors determine, any share on which the Company has a lien, but no
sale shall be made unless some sum in respect of which the lien exists is
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presently payable nor until the expiration of twenty-one days after a
notice in writing, stating and demanding payment of the sum presently
payable and giving notice of the intention to sell in default of such
payment, has been served on the holder for the time being of the share.
34. The net proceeds of the sale by the Company of any shares on which it has
a lien shall be applied in or towards payment of discharge of the
promissory note or other binding obligation to contribute money or
property or any combination thereof in respect of which the lien exists
so far as the same is presently payable and any residue shall (subject to
a like lien for debts or liabilities not presently payable as existed
upon the share prior to the sale) be paid to the holder of the share
immediately before such sale. For giving effect to any such sale the
directors may authorize some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of the
share and he shall not be bound to see to the application of the purchase
money, nor shall his title to the share be affected by any irregularity
or invalidity in the proceedings in reference to the sale.
TRANSFER OF SHARES
35. Subject to any limitations in the Memorandum, registered shares in the
Company may be transferred by a written instrument of transfer signed by
the transferor and containing the name and address of the transferee, but
in the absence of such written instrument of transfer the directors may
accept such evidence of a transfer of shares as they consider
appropriate.
36. The Company shall not be required to treat a transferee of a registered
share in the Company as a member until the transferee's name has been
entered in the share register.
TRANSMISSION OF SHARES
37. The executor or administrator of a deceased member, the guardian of an
incompetent member or the trustee of a bankrupt member shall be the only
person recognized by the Company as having any title to his share but
they shall not be entitled to exercise any rights as a member of the
Company until they have proceeded as set forth in the next following
three Regulations.
38. The production to the Company of any document which is evidence of
probate of the will, or letters of administration of the estate, or
confirmation as executor, of a deceased member or of the appointment of a
guardian of an incompetent member or the trustee of a bankrupt member
shall be accepted by the Company even if the deceased, incompetent or
bankrupt member is domiciled outside the British Virgin Islands if the
document evidencing the grant of probate or letters of administration,
confirmation as
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executor, appointment as guardian or trustee in bankruptcy is issued by a
foreign court which had competent jurisdiction in the matter. For the
purpose of establishing whether or not a foreign court had competent
jurisdiction in such a matter the directors may obtain appropriate legal
advice. The directors may also require an indemnity to be given by the
executor, administrator, guardian or trustee in bankruptcy.
39. Any person becoming entitled by operation of law or otherwise to a share
or shares in consequence of the death, incompetence or bankruptcy of any
member may be registered as a member upon such evidence being produced as
may reasonably be required by the directors. An application by any such
person to be registered as a member shall for all purposes be deemed to
be a transfer of shares of the deceased, incompetent or bankrupt member
and the directors shall treat it as such.
40. Any person who has become entitled to a share or shares in consequence of
the death, incompetence or bankruptcy of any member may, instead of being
registered himself, request in writing that some person to be named by
him be registered as the transferee of such share or shares and such
request shall likewise be treated as if it were a transfer.
41. What amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and
the circumstances of the case.
ALTERATION OF AUTHORIZED CAPITAL OR CAPITAL
42. The Company may either by a resolution of members or by a resolution of
directors amend the Memorandum to
a) increase or reduce its authorized capital and in connection
therewith the Company may in respect of any unissued shares
increase or reduce the number of such shares, increase or reduce
the par value of any such shares or effect any combination of the
foregoing;
b) increase the number of its shares having no par value;
c) increase its capital constituted by shares of no par value by
transferring reserves or profits to the capital, with or without a
distribution of shares;
d) combine and divide all or any part of its share capital into
shares of larger amount than its existing shares or combine and
reduce the number of the issued no par value shares;
e) increase the number of its issued no par value shares without an
increase of its capital;
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f) subdivide its shares, or any of them, into shares of smaller
amount than is fixed by the Memorandum;
g) convert any shares having a par value into shares of no par value;
h) convert any shares of no par value into shares having a par value;
i) convert any of its shares, whether issued or not, into shares of
another class.
43. The Company may, either by a resolution of members or by a resolution of
directors, amend the Memorandum to
a) divide the shares, including issued shares, of a class or series
into a larger number of shares of the same class or series; or
b) combine the shares, including issued shares, of a class or series
into a smaller number of shares of the same class or series,
provided,however, that where shares having a par value are divided or
combined under (a) or (b) of this Regulation, the aggregate par value of
the new shares must be equal to the aggregate par value of the original
shares.
44. The capital of the Company may by a resolution of directors be increased
by transferring an amount of the surplus of the Company to capital.
45. Subject to the provisions of the two next succeeding Regulations, the
capital of the Company may by resolution of directors be reduced by
transferring an amount of the capital of the Company to surplus.
46. No reduction of capital shall be effected that reduces the capital of the
Company to an amount that immediately after the reduction is less than
the aggregate par value of all outstanding shares with par value and all
shares with par value held by the Company as treasury shares and the
aggregate of the amounts designated as capital of all outstanding shares
without par value and all shares without par value held by the Company as
treasury shares that are entitled to a preference, if any, in the assets
of the Company upon liquidation of the Company.
47. No reduction of capital shall be effected unless the directors determine
that immediately after the reduction the Company will be able to satisfy
its liabilities as they become due in the ordinary course of its business
and that the realizable assets of the Company will not be less than its
total liabilities, other than deferred taxes, as shown in the books of
the Company and its remaining capital, and, in the absence of fraud, the
decision of the directors as to
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the realizable value of the assets of the Company is conclusive, unless a
question of law is involved.
MEETINGS AND CONSENTS OF MEMBERS
48. Any action required or permitted to be taken by the members must be
effected at a duly called annual or special meeting of the members
entitled to vote on such action and may not be effected by written
consent without a meeting.
49. Meetings of members shall be held at such times and places as may be
fixed from time to time by the directors.
50. An annual meeting of members for election of directors and for such other
business as may come before the meeting shall be held each year at such
date and time as may be determined by the directors.
51. Special meetings of members may be called only by the directors pursuant
to a resolution of directors to that effect or by the chief executive
officer. The aforegoing provisions of this Regulation 51, as well as the
provisions of Regulation 48 shall not apply to action taken by holders of
preference shares.
52. Written notice of all meetings of members, stating the time, place and
purposes thereof, shall be given not less than 10 days before the date of
the proposed meeting to those persons whose names appear as members in
the share register of the Company on the date of the notice and are
entitled to vote at the meeting.
53. The directors may fix the date notice is given of a meeting of members as
the record date for determining those shares that are entitled to vote at
the meeting.
54. A meeting of members may be called on short notice:
a) if members holding not less than 90 percent of the total number of
shares entitled to vote on all matters to be considered at the
meeting, or 90 percent of the votes of each class or series of
shares where members are entitled to vote thereon as a class or
series together with not less than a 90 percent majority of the
remaining votes, have agreed to short notice of the meeting, or
b) if all members holding shares entitled to vote on all or any
matters to be considered at the meeting have waived notice of the
meeting and for this purpose presence at the meeting shall be
deemed to constitute waiver.
55. The inadvertent failure of the directors to give notice of a meeting to a
member, or the fact that a member has not received notice, does not
invalidate the meeting.
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56. A member may be represented at a meeting of members by a proxy who may
speak and vote on behalf of the member.
57. The instrument appointing a proxy shall be produced at the place
appointed for the meeting before the time for holding the meeting at
which the person named in such instrument proposes to vote.
58. An instrument appointing a proxy shall be in substantially the following
form or such other form as the Chairman of the meeting shall accept as
properly evidencing the wishes of the member appointing the proxy.
(Name of Company)
I/We being a member of the above
Company with shares HEREBY APPOINT
of or failing him
of to be my/our proxy to vote for
me/us at the meeting of members to be held on the day
of and at any adjournment thereof.
(Any restrictions on voting to be inserted here.)
Signed this day of
- -----------------------------
Member
59. The following shall apply in respect of joint ownership of shares:
a) if two or more persons hold shares jointly each of them may be
present in person or by proxy at a meeting of members and may
speak as a member;
b) if only one of the joint owners is present in person or by proxy
he may vote on behalf of all joint owners, and
c) if two or more of the joint owners are present in person or by
proxy they must vote as one.
60. A member shall be deemed to be present at a meeting of members if he
participates by telephone or other electronic means and all members
participating in the meeting are able to hear each other.
61. A meeting of members is duly constituted if, at the commencement of the
meeting, there are present in person or by proxy not less than 50 percent
of the votes of the shares or class or series of shares entitled to vote
on resolutions of members to be considered at the meeting. If a quorum be
present, notwithstanding the fact that such quorum may be
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represented by only one person then such person may resolve any matter
and a certificate signed by such person accompanied where such person be
a proxy by a copy of the proxy form shall constitute a valid resolution
of members.
62. If within two hours from the time appointed for the meeting a quorum is
not present, the meeting shall stand adjourned to the next business day
at the same time and place or to such other time and place as the
directors may determine, and if at the adjourned meeting there are
present within one hour from the time appointed for the meeting in person
or by proxy not less than one third of the votes of the shares or each
class or series of shares entitled to vote on the resolutions to be
considered by the meeting, those present shall constitute a quorum but
otherwise the meeting shall be dissolved.
63. At any meeting of members, only such business shall be conducted as shall
have been brought before such meeting -
a) by or at the direction of the Chairman of the Board of Directors;
or
b) by any member who is a holder of record at the time of the giving
of the notice provided for in Regulation 52 who is entitled to
vote at the meeting and who complies with the procedures set out
in Regulation 64.
64. For business to be properly brought to the annual meeting of members by a
member, the member must have given written notice thereof, either by
personal delivery or by prepaid registered post to the Secretary of the
Company (the "Secretary") at the principal executive offices of the
Company not less than thirty (30) days nor more than sixty (60) days
prior to the meeting as originally scheduled, provided, however, that, if
less than forty (40) days' notice or prior public disclosure of the date
of the meeting is given or made to members, notice by the member to be
timely must be so received not later than the close of business on the
fifth day following the day on which such notice of the date of the
general meeting was posted or such public disclosure was made. For the
purposes of this Regulation 64, any adjournment(s) or postponement(s) of
the original meeting whereby the meeting will reconvene within thirty
(30) days from the original date shall be deemed, for purposes of notice,
to be a continuation of the original meeting and no business may be
brought before any reconvened meeting unless such timely notice of such
business was given to the Secretary for the meeting as originally
scheduled. A member's notice to the Secretary shall set out as to each
matter which the member wishes to be brought before the meeting of
members -
a) a brief description of the business desired to be brought before
the meeting;
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b) the name and address of record of the member proposing such
business;
c) the class and number of shares of the Company which are
beneficially owned by such member;
d) any material interest of such member in such business; and
e) if the member intends to solicit proxies in support of such
member's proposal, a representation to that effect.
Notwithstanding the aforegoing, nothing in this Regulation 64 shall be
interpreted or construed to require the inclusion of information about
any such proposal in any proxy statement distributed by, at the direction
of, or on behalf of, the directors. The chairman of a meeting of members
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with
the provisions of this Regulation 64 and, if he should so determine, he
shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. However, the notice
requirements set out in this Regulation 64 shall be deemed satisfied by a
member if the member has notified the Company of his intention to present
a proposal at a meeting of members and such member's proposal has been
included in a proxy statement that has been distributed by, at the
direction of, or on behalf of, the directors to solicit proxies for such
meeting; provided that, if such member does not appear or send a
qualified representative, as determined by the chairman of the meeting,
to present such proposal at such meeting, the Company need not present
such proposal for a vote at such meeting, notwithstanding that proxies in
respect of such vote may have been received by the Company.
65. At every meeting of members, the Chairman of the Board of Directors shall
preside as chairman of the meeting. If there is no Chairman of the Board
of Directors or if the Chairman of the Board of Directors is not present
at the meeting, the chief executive officer shall be the chairman. In the
absence of the chief executive officer, such person as shall be selected
by the Board of Directors shall act as chairman of the meeting.
66. The chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
67. At any meeting of the members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision shall
be announced to the
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meeting and recorded in the minutes thereof. If the chairman shall have
any doubt as to the outcome of any resolution put to the vote, he shall
cause a poll to be taken of all votes cast upon such resolution, but if
the chairman shall fail to take a poll then any member present in person
or by proxy who disputes the announcement by the chairman of the result
of any vote may immediately following such announcement demand that a
poll be taken and the chairman shall thereupon cause a poll to be taken.
If a poll is taken at any meeting, the result thereof shall be duly
recorded in the minutes of that meeting by the chairman.
68. Any person other than an individual shall be regarded as one member and
subject to the specific provisions hereinafter contained for the
appointment of representatives of such persons the right of any
individual to speak for or represent such member shall be determined by
the law of the jurisdiction where, and by the documents by which, the
person is constituted or derives its existence. In case of doubt, the
directors may in good faith seek legal advice from any qualified person
and unless and until a court of competent jurisdiction shall otherwise
rule, the directors may rely and act upon such advice without incurring
any liability to any member.
69. Any person other than an individual which is a member of the Company may
by resolution of its directors or other governing body authorize such
person as it thinks fit to act as its representative at any meeting of
the Company or of any class of members of the Company, and the person so
authorized shall be entitled to exercise the same powers on behalf of the
person which he represents as that person could exercise if it were an
individual member of the Company.
70. The chairman of any meeting at which a vote is cast by proxy or on behalf
of any person other than an individual may call for a notarially
certified copy of such proxy or authority which shall be produced within
7 days of being so requested or the votes cast by such proxy or on behalf
of such person shall be disregarded.
71. Directors of the Company may attend and speak at any meeting of members
of the Company and at any separate meeting of the holders of any class or
series of shares in the Company.
72. No business shall be conducted at a meeting of members except in
accordance with Regulations 48 to 71.
NUMBER OF DIRECTORS AND SHARE QUALIFICATION
73. The number of directors shall be determined from time to time by a
resolution of directors.
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74. The continuing directors may act, notwithstanding any casual vacancy in
their body, so long as there remain in office not less than the
prescribed minimum number of directors duly qualified to act, but if
the number falls below the prescribed minimum, the remaining directors
shall not act except for the purpose of filling such vacancy.
75. The shareholding qualification for directors may be fixed, and from
time to time varied, by a resolution of members and unless and until so
fixed no qualification shall be required. A director may be an
individual or a company.
APPOINTMENT AND RETIREMENT OF DIRECTORS
76. The term of each director shall expire at the next annual meeting of
members following such director's election, provided, however, that at
the annual meeting of members occurring in 1999, the directors shall be
classified, with respect to the time for which each director holds
office, into three classes, as nearly equal in number as possible, one
class of directors to be originally elected for a term expiring at the
next succeeding annual meeting of members, the second class of directors
to be originally elected for a term expiring at the second succeeding
annual meeting of members and the third class of directors to be
originally elected for a term expiring at the third succeeding annual
meeting of members, with each class to hold office until its successors
are duly elected. Except as specifically contemplated by the previous
sentence, at each annual meeting of members, the date of which shall be
fixed by or pursuant to these Articles, the successors of the class of
directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the third succeeding annual meeting of
members. If the number of directors is changed by a resolution of
directors, any newly created directorships or any decrease in
directorships shall be so apportioned among the classes as to make all
classes as nearly equal in number as possible, provided, however, that no
decrease in the number of directors shall shorten the term of any
incumbent director. Retiring directors shall be eligible for re-election.
77. Any vacancy on the Board of Directors resulting from death, resignation,
removal or other cause and any newly created directorship resulting from
any increase in the authorised number of directors between meetings of
members shall be filled only by the affirmative vote of a majority of all
the directors then in office (even if less than a quorum) and any
director so appointed shall hold office for the remainder of the full
term of the class of directors in which the vacancy occurred or the new
directorship was created and until a successor is duly elected or until
his earlier death, resignation or removal from office in accordance with
these Articles or any applicable law.
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<PAGE>
78. Nominations of persons for election to the Board of Directors shall be
made only at a meeting of members and only
a) by or at the direction of the directors; or
b) by a member entitled to vote for the election of directors who
complies with the notice procedures set out below.
Such nominations, other than those made by or at the direction of the
directors, shall be made pursuant to timely notice in writing to the
Secretary. To be timely, a member's notice shall be delivered to or
mailed and received at the principal executive offices of the Company not
less than thirty (30) days nor more than sixty (60) days before the
meeting, provided, however, that if less than forty (40) days notice or
prior public disclosure of the date of the meeting is given or made to
members, notice by the member to be timely must be so received not later
than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public
disclosure was made. For the purposes of this Regulation, any adjournment
or postponement of the original meeting whereby the meeting will
reconvene within thirty (30) days from the original date shall be deemed
for the purposes of this notice to be a continuation of the original
meeting and no nominations by a member of persons to be elected directors
may be made at any such reconvened meeting and no nominations by a member
of persons to be elected directors of the Company may be made at any such
reconvened meeting unless pursuant to a notice which was timely for the
meeting on the date originally scheduled. Each such notice shall set out
(i) the name and address of the member who intends to make the
nomination and of the persons to be nominated;
(ii) a representation that the member is a holder of record of
shares in the Company entitled to vote at such meeting and
that he intends to appear in person or by proxy at the
meeting to nominate the persons specified in the notice;
(iii) a description of all arrangements or understandings between
the member and each nominee and any other person (naming
such person) pursuant to which the nominations are to be
made by the member;
(iv) such other information regarding each nominee proposed by
such member as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the
United States Securities and Exchange Commission, had each
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<PAGE>
nominee been nominated, or intended to be nominated, by the
directors;
(v) the consent of each nominee to serve as a director of the
Company if so elected; and
(vi) if the member intends to solicit proxies in support of such
member's nominees, a representation to that effect.
79. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the aforegoing procedure or if the
member solicits proxies in favour of such member's nominees without
having made the representation required by the immediately preceding
sentence. Only such persons as are nominated in accordance with the
procedures set out above shall be eligible to serve as directors of the
Company. If at any meeting of members at which an election of directors
ought to take place, the place of any retiring director is not filled, he
shall, if willing, continue in office until the dissolution of the annual
meeting of members in the next year, and so on from year to year until
his place is filled, unless it shall be determined at such meeting not to
fill such vacancy.
80. The appointment of a director shall take effect upon compliance with the
requirements of the Act.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
81. Subject to the provisions of the Act, a director shall cease to hold
office as such only -
a) if he becomes insolvent, or assigns his estate for the benefit of
his creditors, or suspends payment or files a petition for the
liquidation of his affairs, or compounds generally with his
creditors; or
b) if he becomes of unsound mind; or
c) if (unless he is not required to hold a share qualification) he
has not duly qualified himself within two months of his
appointment or if he ceases to hold the required number of shares
to qualify him for office; or
d) if he is absent from meetings of the directors for six consecutive
months without leave of the directors and is not represented at
any such meetings during such six consecutive months and the
directors resolve that the office be vacated by an alternative
director, provided that the directors shall have power to grant
any director leave of absence for any or an indefinite period; or
e) if he dies; or
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f) one month or, with the permission of the directors earlier, after
he has given notice in writing of his intention to resign; or
g) if he shall, pursuant to the provisions of the Act, be
disqualified or cease to hold office or be prohibited from acting
as director; or
h) if he is removed from office by a resolution signed by all the
other directors; or
i) if he is removed from office for cause by a resolution of members.
For the purposes hereof, "cause" means the willful and continuous
failure by a director to substantially perform his duties to the
Company (other than any such failure resulting from incapacity due
to physical or mental illness) or the willful engaging by the
director in gross misconduct materially and demonstrably injurious
to the Company.
REGISTER OF DIRECTORS
82. The Company may determine by resolution of directors to keep a register
of directors containing
a) the names and addresses of the persons who are directors of the
Company;
b) the date on which each person whose name is entered in the
register was appointed as a director of the Company; and
c) the date on which each person named as a director ceased to be a
director of the Company.
83. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by resolution of directors to register a copy of
the register with the Registrar of Companies.
CHIEF EXECUTIVE OFFICER/MANAGING DIRECTOR
84. The directors may from time to time appoint one or more of their number
to be a chief executive officer, managing director, joint chief
executive officers or joint managing directors of the Company or to be
the holder of any other executive office in the Company, including, for
the purposes of these Articles, the office of chairman and may, subject
to any contract between him or them and the Company, from time to time
terminate his or their appointment and appoint another or others in his
or their place or places.
85. A director appointed in terms of the provisions of Regulation 84 to the
office of chief executive officer or managing director of the Company,
or to any other executive
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office in the Company, may be paid, in addition to the remuneration
payable in terms of Regulation 98 or 99, such remuneration not exceeding
a reasonable maximum in each year - in respect of such office as may be
determined by a disinterested quorum of the directors.
86. The directors may from time to time entrust and confer upon a chief
executive officer, managing director or other executive officer for the
time being such of the powers and authorities vested in them as they
think fit.
POWERS OF DIRECTORS
87. The management of the business and the control of the Company shall be
vested in the directors who, in addition to the powers and authorities by
these Articles expressly conferred upon them, may exercise all such
powers, and do all such acts and things, as may be exercised or done by
the Company and are not hereby or by the Act expressly directed or
required to be exercised or done by meeting of members, but subject
nevertheless to such management and control not being inconsistent with
these Articles or with any resolution passed at any meeting of members,
but no resolution of members shall invalidate any prior act of the
directors which would have been valid if such resolution had not been
passed. The general powers given by this Regulation shall not be limited
or restricted by any special authority or power given to the directors by
any other Regulation.
88. The directors may authorise the payment of such donations by the Company
to such religious, charitable, public or other bodies, clubs, funds or
associations or persons as may seem to them advisable in the interests of
the Company.
89. Every officer or agent of the Company has such powers and authority of
the directors, including the power and authority to affix the Seal, as
are set out in these Articles or in the resolution of directors
appointing the officer or agent, except that no officer or agent has any
power or authority with respect to the matters requiring a resolution of
directors under the Act.
90. Any director which is a body corporate may appoint any person its duly
authorized representative for the purpose of representing it at meetings
of the Board of Directors or with respect to unanimous written consents.
91. The directors may by resolution of directors exercise all the powers of
the Company to borrow money and to mortgage or charge its undertakings
and property or any part thereof, to issue debentures, debenture stock
and other securities whenever money is borrowed or as security for any
debt, liability or obligation of the Company or of any third party.
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92. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as the
case may be, in such manner as shall from time to time be determined by
resolution of directors.
93. The Company may determine by resolution of directors to maintain at its
registered office a register of mortgages, charges and other encumbrances
in which there shall be entered the following particulars regarding each
mortgage, charge and other encumbrance:
a) the sum secured;
b) the assets secured;
c) the name and address of the mortgagee, chargee or other
encumbrancer;
d) the date of creation of the mortgage, charge or other encumbrance;
and
e) the date on which the particulars specified above in respect of
the mortgage, charge or other encumbrance are entered in the
register.
94. The Company may further determine by a resolution of directors to
register a copy of the register of mortgages, charges or other
encumbrances with the Registrar of Companies.
95. The directors may, by resolution of directors, designate one or more
committees, each consisting of one or more directors.
96. Each committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are
set forth in the resolution of directors establishing the committee,
except that no committee has any power or authority to amend the
Memorandum or these Articles, to appoint directors or fix their
emoluments, or to appoint officers or agents of the Company.
97. The meetings and proceedings of each committee of directors consisting of
2 or more directors shall be governed mutatis mutandis by the provisions
of these Articles regulating the proceedings of directors so far as the
same are not superseded by any provisions in the resolution establishing
the committee.
REMUNERATION AND EXPENSES OF DIRECTORS
98. With the prior or subsequent approval by a resolution of members, the
directors may, by a resolution of directors,
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fix the emoluments of directors with respect to services to be rendered
in any capacity to the Company.
99. The directors shall be paid all their travelling and other expenses
properly and necessarily incurred by them in and about the business of
the Company, and in attending meetings of the directors or of committees
thereof, and if any director shall be required to perform extra services
or otherwise shall be specially occupied about the Company's business, he
shall be entitled to receive a remuneration to be fixed by a
disinterested quorum of the directors which may be either in addition to
or in substitution for the remuneration provided for in Regulation 98.
PROCEEDINGS OF DIRECTORS
100. The directors of the Company or any committee thereof may meet at such
times and in such manner and places as the directors may determine to be
necessary or desirable.
101. A director shall be deemed to be present at a meeting of directors if he
participates by telephone or other electronic means and all directors
participating in the meeting are able to hear each other.
102. A director shall be given not less than 3 days notice of meetings of
directors, but a meeting of directors held without 3 days notice having
been given to all directors shall be valid if all the directors entitled
to vote at the meeting who do not attend, waive notice of the meeting and
for this purpose, the presence of a director at a meeting shall
constitute waiver on his part. The inadvertent failure to give notice of
a meeting to a director, or the fact that a director has not received the
notice, does not invalidate the meeting.
103. A director may by a written instrument appoint an alternate who need not
be a director and an alternate is entitled to attend meetings in the
absence of the director who appointed him and to vote or consent in place
of the director.
104. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate
not less than one-half of the total number of directors, unless there are
only 2 directors in which case the quorum shall be 2.
105. If the Company shall have only one director the provisions herein
contained for meetings of the directors shall not apply but such sole
director shall have full power to represent and act for the Company in
all matters as are not by the Act or the Memorandum or these Articles
required to be exercised by the members of the Company and in lieu of
minutes of a meeting shall record in writing and sign a note or
memorandum of all matters requiring a resolution of
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directors. Such a note or memorandum shall constitute sufficient evidence
of such resolution for all purposes.
106. At every meeting of the directors the Chairman of the Board of Directors
shall preside as chairman of the meeting. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of Directors is not
present at the meeting the Vice-Chairman of the Board of Directors shall
preside. If there is no Vice-Chairman of the Board of Directors or if the
Vice-Chairman of the Board of Directors is not present at the meeting the
directors present shall choose some one of their number to be chairman of
the meeting.
107. Any action that may be taken by the directors or a committee of directors
at a meeting may also be taken by a resolution of directors or a
committee of directors consented to in writing or by telex, telegram,
cable, facsimile or other written electronic communication by
three-quarters of all directors or three-quarters of all members of the
committee, as the case may be, provided that a copy of the proposed
resolution will have been sent or delivered to all directors or all
members of the committee, for their consent. The consent may be in the
form of counterparts, each counterpart being signed by one or more
directors.
108. Subject to the provisions of the Act, and provided that he has disclosed
to the directors the nature and extent of any material interest of his, a
director, notwithstanding his office -
a) may be a party to, or otherwise interested in, any transaction or
arrangement with the Company or in which the Company is otherwise
interested;
b) may be a director or other officer of, or employed by, or a party
to any transaction or arrangement with, or otherwise interested
in, any body corporate promoted by the Company or in which the
Company is otherwise interested; and
c) shall not, by reason of his office, be accountable to the Company
for any benefit which he derives from any such office or
employment or from any such transaction or arrangement or from any
interest in any such body corporate and no such transaction or
arrangement shall be liable to be avoided on the ground of any
such interest or benefit.
109. For the purposes of Regulation 108 -
a) a general notice given to the directors that a director is to be
regarded as having an interest of the nature and extent specified
in the notice in any transaction or arrangement in which a
specified person or class of persons is interested shall be deemed
to be a
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disclosure that the director has an interest in any such transaction of
the nature and extent so specified; and
b) an interest of which a director has no knowledge and of which it
is unreasonable to expect him to have knowledge shall not be
treated as an interest of his.
110. The directors shall cause the following corporate records to be kept:
a) minutes of all meetings of directors, members, committees of
directors, committees of officers and committees of members;
b) copies of all resolutions consented to by directors, members,
committees of directors, committees of officers and committees of
members; and
c) such other accounts and records as the directors by resolution of
directors consider necessary or desirable in order to reflect the
financial position of the Company.
111. The books, records and minutes shall be kept at the registered office of
the Company, its principal place of business or at such other place as
the directors determine.
OFFICERS
112. The Company may by resolution of directors appoint officers of the
Company at such times as shall be considered necessary or expedient. Such
officers may consist of a Chairman of the Board of Directors, a
Vice-Chairman of the Board of Directors, a Chief Executive Officer,
Secretaries and Treasurers and such other officers as may from time to
time be deemed desirable. Any number of offices may be held by the same
person.
113. The officers shall perform such duties as shall be prescribed at the time
of their appointment subject to any modification in such duties as may be
prescribed thereafter by resolution of directors or resolution of
members, but in the absence of any specific allocation of duties it shall
be the responsibility of the Chairman of the Board of Directors to
preside at meetings of directors and members, the Vice-Chairman to act in
the absence of the Chairman, the Chief Executive Officer to manage the
day to day affairs of the Company, the Secretaries to maintain the share
register, minute books and records (other than financial records) of the
Company and to ensure compliance with all procedural requirements imposed
on the Company by applicable law, and the Treasurer to be responsible for
the financial affairs of the Company.
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114. The emoluments of all officers shall be fixed by resolution of directors.
115. The officers of the Company shall hold office until their successors are
duly elected and qualified, but any officer elected or appointed by the
directors may be removed at any time, with or without cause, by
resolution of directors. Any vacancy occurring in any office of the
Company may be filled by resolution of directors.
LIMITATION OF LIABILITY
116. To the full extent permitted by the Act or any other applicable laws
presently or hereafter in effect, no director of the Company shall be
personally liable to the Company or its members for or with respect to
any acts or omissions in the performance of his or her duties as a
director of the Company. Any repeal or modification of this Regulation
116 by a resolution of members shall not adversely affect the right or
protection of a director of the Company existing at the time of such
repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification.
INDEMNIFICATION
117. Subject to the limitations hereinafter provided the Company may indemnify
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred in
connection with legal, administrative or investigative proceedings any
person who
a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact
that the person is or was a director, an officer or a liquidator
of the Company; or
b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was
acting for, another company or a partnership, joint venture, trust
or other enterprise.
118. The Company may only indemnify a person if the person acted honestly and
in good faith with a view to the best interests of the Company and, in
the case of criminal proceedings, the person had no reasonable cause to
believe that his conduct was unlawful.
119. The decision of the directors as to whether the person acted honestly and
in good faith and with a view to the best interests of the Company and as
to whether the person had no reasonable cause to believe that his conduct
was unlawful is, in the absence of fraud, sufficient for the purposes of
these Articles, unless a question of law is involved.
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120. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself,
create a presumption that the person did not act honestly and in good
faith and with a view to the best interests of the Company or that the
person had reasonable cause to believe that his conduct was unlawful.
121. If a person to be indemnified has been successful in defence of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
122. The Company may purchase and maintain insurance in relation to any person
who is or was a director, an officer or a liquidator of the Company, or
who at the request of the Company is or was serving as a director, an
officer or a liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other
enterprise, against any liability asserted against the person and
incurred by the person in that capacity, whether or not the Company has
or would have had the power to indemnify the person against the liability
as provided in these Articles.
SEAL
123. The Company may have more than one Seal and references herein to the Seal
shall be references to every Seal which shall have been duly adopted by
resolution of directors. The directors shall provide for the safe custody
of the Seal and for an imprint thereof to be kept at the Registered
Office. Except as otherwise expressly provided herein, the Seal when
affixed to any written instrument shall be witnessed and attested to by
the signature of a director or any other person so authorized from time
to time by resolution of directors. Such authorization may be before or
after the Seal is affixed, may be general or specific and may refer to
any number of sealings. The directors may provide for a facsimile of the
Seal and of the signature of any director or authorized person which may
be reproduced by printing or other means on any instrument and it shall
have the same force and validity as if the Seal had been affixed to such
instrument and the same had been signed as hereinbefore described.
DIVIDENDS
124. The Company may by a resolution of directors declare and pay dividends in
money, shares or other property, but dividends shall only be declared and
paid out of surplus. In the event that dividends are paid in specie, the
directors shall have responsibility for establishing and recording in the
resolution of directors authorizing the dividends, a fair and proper
value for the assets to be so distributed.
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<PAGE>
125. The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of
the Company.
126. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve fund,
and may invest the sum so set aside as a reserve fund upon such
securities as they may select.
127. No dividend shall be declared and paid unless the directors determine
that immediately after the payment of the dividend the Company will be
able to satisfy its liabilities as they become due in the ordinary course
of its business and the realizable value of the assets of the Company
will not be less than the sum of its total liabilities, other than
deferred taxes, as shown in its books of account, and its capital. In the
absence of fraud, the decision of the directors as to the realizable
value of the assets of the Company is conclusive, unless a question of
law is involved.
128. Notice of any dividend that may have been declared shall be given to each
member in the manner hereinafter mentioned and all dividends unclaimed
for 3 years after having been declared may be forfeited by resolution of
directors for the benefit of the Company.
129. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of
which the Company holds, directly or indirectly, shares having more than
50 percent of the vote in electing directors.
130. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
131. In the case of a dividend of authorized but unissued shares with par
value, an amount equal to the aggregate par value of the shares shall be
transferred from surplus to capital at the time of the distribution.
132. In the case of a dividend of authorized but unissued shares without par
value, the amount designated by the directors shall be transferred from
surplus to capital at the time of the distribution, except that the
directors must designate as capital an amount that is at least equal to
the amount that the shares are entitled to as a preference, if any, in
the assets of the Company upon liquidation of the Company.
133. A division of the issued and outstanding shares of a class or series of
shares into a larger number of shares of the same class or series having
a proportionately smaller par value does not constitute a dividend of
shares.
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ACCOUNTS AND AUDIT
134. The Company may by resolution of members call for the directors to
prepare periodically a profit and loss account and a balance sheet. The
profit and loss account and balance sheet shall be drawn up so as to give
respectively a true and fair view of the profit and loss of the Company
for the financial period and a true and fair view of the state of affairs
of the Company as at the end of the financial period.
135. The Company may by resolution of members call for the accounts to be
examined by auditors.
136. The first auditors shall be appointed by resolution of directors;
subsequent auditors shall be appointed by a resolution of members.
137. The auditors may be members of the Company but no director or other
officer shall be eligible to be an auditor of the Company during his
continuance in office.
138. The remuneration of the auditors of the Company
a) in the case of auditors appointed by the directors, may be fixed
by resolution of directors; and
b) subject to the foregoing, shall be fixed by resolution of members
or in such manner as the Company may by resolution of members
determine.
139. The auditors shall examine each profit and loss account and balance sheet
required to be served on every member of the Company or laid before a
meeting of the members of the Company and shall state in a written report
whether or not
a) in their opinion the profit and loss account and balance sheet
give a true and fair view respectively of the profit and loss for
the period covered by the accounts, and of the state of affairs of
the Company at the end of that period; and
b) all the information and explanations required by the auditors have
been obtained.
140. The report of the auditors shall be annexed to the accounts and shall be
read at the meeting of members at which the accounts are laid before the
Company or shall be served on the members.
141. Every auditor of the Company shall have a right of access at all times to
the books of account and vouchers of the Company, and shall be entitled
to require from the directors and officers of the Company such
information and explanations as he thinks necessary for the performance
of the duties of the auditors.
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142. The auditors of the Company shall be entitled to receive notice of, and
to attend any meetings of members of the Company at which the Company's
profit and loss account and balance sheet are to be presented.
NOTICES
143. Any notice, information or written statement to be given by the Company
to members may be served in the case of members holding registered shares
in any way by which it can reasonably be expected to reach each member or
by mail addressed to each member at the address shown in the share
register and in the case of members holding shares issued to bearer, in
the manner provided in the Memorandum.
144. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or by
sending it by registered mail addressed to the Company, at its registered
office, or by leaving it with, or by sending it by registered mail to,
the registered agent of the Company.
145. Service of any summons, notice, order, document, process, information or
written statement to be served on the Company may be proved by showing
that the summons, notice, order, document, process, information or
written statement was delivered to the registered office or the
registered agent of the Company or that it was mailed in such time as to
admit to its being delivered to the registered office or the registered
agent of the Company in the normal course of delivery within the period
prescribed for service and was correctly addressed and the postage was
prepaid.
PENSION AND SUPERANNUATION FUNDS
146. The directors may establish and maintain or procure the establishment and
maintenance of any non-contributory or contributory pension or
superannuation funds for the benefit of, and give or procure the giving
of donations, gratuities, pensions, allowances or emoluments to, any
persons who are or were at any time in the employment or service of the
Company or any company which is a subsidiary of the Company or is allied
to or associated with the Company or with any such subsidiary, or who are
or were at any time directors or officers of the Company or of any such
other company as aforesaid or who hold or held any salaried employment or
office in the Company or such other company, or any persons in whose
welfare the Company or any such other company as aforesaid is or has been
at any time interested, and to the wives, widows, families and dependents
of any such person, and may make payments for or towards the insurance of
any such persons as aforesaid, and may do any of the matters aforesaid
either alone or in conjunction with any such other company as aforesaid.
Subject always to the proposal being approved by resolution of members, a
director holding any such employment or office shall be entitled to
participate
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in and retain for his own benefit any such donation, gratuity, pension
allowance or emolument.
VOLUNTARY WINDING UP AND DISSOLUTION
147. The Company may voluntarily commence to wind up and dissolve by a
resolution of members but if the Company has never issued shares it may
voluntarily commence to wind up and dissolve by resolution of directors.
CONTINUATION
148. The Company may by resolution of members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British Virgin
Islands in the manner provided under those laws.
We, International Trust Company BVI Limited, of PO Box 659, Road Town,
Tortola, British Virgin Islands hereby subscribe our name to these Articles of
Association the day of in the presence of:
Witness Subscriber
- ------------------------- ------------------------------
International Trust Building Authorized Signatory
Wickhams Cay International Trust Company
Road Town, BVI
Tortola
31
EXHIBIT 5.1
[ ] 1999
MIH Limited
P.O. Box 3186
Road Town, Tortola
British Virgin Islands
Dear Sirs,
MIH Limited
We have been asked as counsel to MIH Limited, a British Virgin Islands company
(the "Company") to provide this legal opinion in connection with the
registration under the United States Securities Act of 1933, as amended (the
"Securities Act"), of the unissued Class A Ordinary Shares in the Company (the
"Shares") to be offered by the Company to members of the general public through
certain underwriters. This opinion is given in accordance with the terms of the
Legal Matters section of the Registration Statement (as defined below).
1. For the purpose of this opinion we have reviewed the following documents:-
(a) the Registration Statement on Form F-1 provided to us (the
"Registration Statement") filed by the Company with the United States
Securities and Exchange Commission for the purpose of registering the
Shares;
(b) (i) the Memorandum and Articles of Association and certificate of
incorporation of the Company; and
(ii) a Registered Agent's Certificate dated [ ] 1999 issued by Havelet
Trust Company (BVI) Limited, the Registered Agent of the Company
in the British Virgin Islands.
(c) the public records of the Company as at [ ] 1999 on file with, and
available for inspection at, the Companies Registry in the British
Virgin Islands.
<PAGE>
We have also made such other enquiries and reviewed such matters of law and
examined the originals, photocopies, certified or otherwise identified to our
satisfaction, of such other documents, records, agreements and certificates as
we have considered relevant for the purposes of giving the opinion expressed
below.
2. This legal opinion is confined to and given on the basis of the laws of the
British Virgin Islands at the date hereof and as currently applied by the
courts of the British Virgin Islands. We have not investigated and we do
not express or imply nor are we qualified to express or imply any opinion
on the laws of any other jurisdiction.
3. Based on the foregoing, we are of the opinion that:-
(a) the Company is a company limited by shares, duly incorporated, validly
existing, and in good standing as a separate legal entity under the
laws and regulations of the British Virgin Islands;
(b) the Company has full statutory authority, corporate power and legal
right to own, lease and operate its properties and to conduct its
business as described in the Registration Statement; and
(c) the Shares to be offered and sold by the Company have been legally
authorised and when sold pursuant to the terms described in the
Registration Statement, and paid for at least to the extent of their
par value, will be legally issued, fully paid and non-assessable.
In connection with the above opinion, we hereby consent:-
(a) to the use of our name in the Registration Statement, the prospectus
constituting a part thereof and all amendments thereto under the
caption "Legal Matters"; and
(b) to the filing of this opinion as an exhibit to the Registration
Statement.
This opinion is addressed to you and may be relied upon by you and your counsel.
This opinion is limited to the matters detailed herein and is not to be read as
an opinion with respect to any other matter.
Yours faithfully
HARNEY WESTWOOD & RIEGELS
Exhibit 10.9
DATED February 17, 1999
- --------------------------------------------------------------------------------
(1) MIH LIMITED
(2) MEESPIERSON N.V.
- --------------------------------------------------------------------------------
LOAN AGREEMENT
- --------------------------------------------------------------------------------
TAYLOR
JOYNSON
GARRETT
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y ODX
Telephone 0171-353 1234
Facsimile 0171-936 266
DX 41 London
<PAGE>
Index
Clause No. Page No.
1. Interpretation ..................................................... 1
2. Amount and Purpose of Facility ..................................... 9
3. Conditions Precedent ............................................... 10
4. Advances ........................................................... 10
5. Interest, Default Interest and Interest Periods .................... 11
6. Repayment and Prepayment ........................................... 12
7. Fees and Expenses .................................................. 14
8. Payments ........................................................... 15
9. Security ........................................................... 17
10. Representations and Warranties .................................... 18
11. Covenants ......................................................... 21
12. Default and Acceleration .......................................... 29
13. Change of Circumstances ........................................... 33
14. Indemnity ......................................................... 35
15. Set-off ........................................................... 36
16. Assignment and transfers .......................................... 37
17. Miscellaneous ..................................................... 38
18. Notices ........................................................... 39
19. Law and Jurisdiction .............................................. 39
<PAGE>
THIS LOAN AGREEMENT is made on February 17, 1999
BETWEEN
(1) MIH LIMITED (company number: 47572)) a company incorporated in The British
Virgin Islands whose registered office is at P0 Box 3186, Road Town,
Tortola, The British Virgin Islands (the "Borrower"); and
(2) MEESPIERSON N.V. operating through its London Branch at Camomile Court, 23
Camomile Street, London EC3A 7PP (the "Bank").
INTRODUCTION
The Bank has agreed to make available to the Borrower a short term loan
facility in an aggregate principal amount not exceeding US$50,000,000
(fifty million US Dollars) on the terms and conditions set out in this
agreement.
AGREED TERMS
1. Interpretation
1.1 Definitions
In this agreement:
"ABSA Facility" means the facility made under a credit facility letter
dated 29 September 1998 made between Absa Bank Limited and the Borrower;
"Advance" means an advance made or to be made under the Facility;
"African Group" means Myriad Holdings Africa B.V. and its Subsidiaries but
excluding the Middle East Group;
"Asian Group" means Myriad International Holdings Asia BV and its
Subsidiaries and with effect from its reorganisation as contemplated in
schedule 10, the group as referred to in paragraph 1 of that schedule;
"Borrower's Group" this shall mean each of those companies referred to in
schedule 6 (or any replacement of that schedule 6 in accordance with clause
11.7(f);
"Business Day" means a day (other than a Saturday or Sunday) on which banks
and financial markets are open for business in London;
<PAGE>
"Controlled Borrower's Group" means each of those companies referred to in
schedule 4 or any other company which the Borrower or any other member(s)
of the Controlled Borrower's Group, owns 100% of the issued shares;
"Drawdown Date" means a Business Day on which an Advance is or is proposed
to be made under the terms of this Agreement;
"Drawdown Period" means the period commencing on the date that the
conditions precedent referred to in clause 3.1 (Availability) are satisfied
or waived in accordance with this agreement and ending on a date 270 days
after the date of this agreement;
"Encumbrance" means any mortgage, charge, assignment by way of security,
pledge, lien or any other type of encumbrance or security interest or any
other type of arrangement (including any sale and lease back or sale and
repurchase agreement) having or intended to have a similar effect;
"Event of Default" means any event referred to in clause 12.1 (Events of
Default);
"Facility" means the facility referred to in clause 2 (Amount and Purpose
of Facility);
"Final Repayment Date" means the earlier of:
(a) the date being 360 days from the date of this agreement; and
(b) five Business Days after the receipt of funds under any equity issue,
high yield issue or credit facility (in excess of US$100 million)
raised or borrowed (as the case may be) by the Borrower or any Holding
Company or Subsidiary of the Borrower or any other person the effect
or purpose of which is to raise finance or equity in respect of the
African Group, the Middle East Group, the Mediterranean Group, the
Asian Group and/or the Technology Group; and
(c) five Business Days after a repayment in full and final settlement
takes place of the ABSA Facility and/or that facility is terminated;
"Finance Documents" means this agreement, the Security Documents and any
other agreement, document or deed entered into or executed and delivered
pursuant to the terms of this agreement, the Security Documents or in
connection with this agreement and/or the Security Documents and
"Borrower's Finance Documents" means the Finance Documents to which the
Borrower is a party;
"Guarantors Group" means those companies particulars of which are set out
in schedule 2 including any member of the Borrower's Group that may be
required from time to time to grant a guarantee in favour of the Bank in
accordance with this agreement;
"Group Business Plan" means the business plan dated 1 February 1999 a copy
of which has been signed on behalf of the Bank and the Borrower for the
purposes of identification;
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"Holding Company" means in relation to any company, a company of which it
is a Subsidiary;
"Intercompany Loans" means any loan or other extension of credit made
between one member of the Borrower's Group to another member of the
Borrower's Group;
"Interest Payment Date" means in relation to each Interest Period the last
Business Day of each Interest Period;
"Interest Period" means each period for the calculation of interest
ascertained in accordance with clause 5.4 (Duration of Interest Periods);
"LIBOR" means, in relation to any Advance or any unpaid sum, the annual
percentage rate at which deposits in US Dollars for the amount of the
Advance or unpaid sum and for a period equal to such Interest Period are
offered to the Bank by prime banks in the London Interbank Market at or
about 11.00 am on the first Business Day of such Interest Period for
delivery on such Business Day;
"Licence" means any licence or authorisation in the name of a member of the
Borrower's Group in connection with its business granted by the relevant
regulatory body in the jurisdiction in which that member carries on its
business as at the date of this agreement, evidence as to which has been
provided to the Bank under paragraph (g) of part 1 of schedule 5, in each
case, as modified, varied, amended or replaced from to time;
"Loan" means at any relevant time the principal amount outstanding under
the Facility;
"Margin" means 0.9 per cent per annum;
"Material Contract" means each document or agreement listed in schedule 9;
"Mediterranean Business Plan" means the approved budget and business plan
in respect of the Mediterranean Group a copy of which is attached as
schedule 8;
"Mediterranean Group" means NetMed B.V. and its Subsidiaries and with
effect from its reorganisation as contemplated in schedule 10, the group as
referred to in paragraph 3 of that schedule;
"Merrill Lynch Facility" means the facility intended to be made under a
facility letter from the Standard Bank of South Africa Limited to
MultiChoice Africa (Pty) Limited and under swap agreements to be made
between Merrill Lynch South Africa (Pty) Limited and MultiChoice Africa
(Pty) Limited and between Merrill Lynch International and Villiers
Securities Limited;
"Middle East Group" means MultiChoice Middle East SMS Company Limited and
its Subsidiaries;
"Notice of Drawdown" means a notice substantially in the form set out in
schedule 1;
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"Obligors" means the Borrower, the Guarantors and any person providing
security to the Bank in respect of or in connection with the Facility;
"Open Agreement" means the letter agreement dated 18 December 1998 from
Myriad International Holdings B.V. to Thomson Multimedia S.A. and Thomson
Consumer Electronics, Inc. relating to the acquisition by the Borrower of
shares in Open T.V., Inc.;
"Operational Rights and/or Leases" means film and/or programme rights
agreements and transponder leases;
"Permitted Borrowings" means:
(a) the borrowings or other financial obligations specified in schedule 8;
(b) financial obligations under Operational Rights and/or Leases on the
part of the Borrower's Group existing as at 31 December 1998 and any
further amounts permitted under clause 11.7(c);
(c) financial obligations secured by a Permitted Encumbrance;
(d) financial obligations incurred in the ordinary course of business in
connection with the purchase of tangible property, personal property
or the leasing of tangible property (in the case of any leases the
amount of such financial obligations shall be calculated by reference
to the amount attributable to capital in accordance with generally
accepted accounting principles) or services provided and in all such
cases up to an aggregate maximum amount of US$5,000,000 (or its
equivalent in any relevant currency) in any period of 12 months, the
first such period commencing on the date of this agreement); and
(e) the borrowings or other financial obligations in respect of
Intercompany Loans permitted under this agreement;
"Permitted Encumbrance" means:
(a) Encumbrances existing as at the date of this agreement (or as
contemplated by schedule 8) and securing borrowings or other financial
obligations referred to in paragraph (a) of the definition of
"Permitted Borrowings";
(b) Encumbrances arising under this agreement or any of the Finance
Documents;
(c) any Encumbrance which the Bank has at any time in writing agreed shall
be a Permitted Encumbrance;
(d) any Encumbrance arising in the ordinary course of business and solely
by the operation of law and not as a result of any default;
(e) Encumbrances in respect of financial obligations referred to in
paragraphs (b) and (d) of the definition of "Permitted Borrowings",
securing indebtedness not
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exceeding, at any one time, in aggregate the amounts specified in such
paragraphs (or its equivalent in any relevant currency);
"Potential Event of Default" means any event or circumstance which with the
giving of notice and/or lapse of time and/or the fulfilment of any other
condition will, if unremedied, constitute an Event of Default;
"Security Documents" means the documents specified in clause 9 and any
other document which grants security rights or rights by way of guarantee
in respect of any liabilities of the Borrower under this agreement;
"Subsidiary" means in relation to any company or corporation any of:
(a) a company or corporation which is controlled, directly or indirectly,
by the first mentioned company or corporation; or
(b) a company or corporation of which more than half of the nominal value
of its equity share capital is beneficially owned, directly or
indirectly, by the first mentioned company or corporation; or
(c) a company or corporation which is a subsidiary of another subsidiary
of the first mentioned company or corporation;
"Technology Group" means Irdeto BV and its Subsidiaries and with effect
from its reorganisation as contemplated in schedule 10, the group as
referred to in paragraph 2 of that schedule;
"Tranche A" means that part of the Facility for the purpose set out in
clause 2.2(a) in an amount of US$45,000,000;
"Tranche A Available Commitment" means, save as otherwise provided in this
agreement, the amount of Tranche A less:
(a) the aggregate amount of Tranche A which has been advanced by the Bank
under this agreement;
(b) any reduction in Tranche A which will occur prior to the proposed
Advance under Tranche A consequent upon a cancellation or reduction of
the whole or any part of Tranche A pursuant to the terms of this
agreement; and
(c) the amount of any Advance under Tranche A which the Bank is then
obliged to make on or before the date of the proposed Advance;
"Tranche B" means that part of the Facility to be advanced for the purpose
set out in clause 2.2(b) in an amount of US$5,000,000;
"Tranche B Available Commitment" means, save as otherwise provided in this
agreement, the amount of Tranche B less:
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(a) the aggregate amount of Tranche B which has been advanced by the Bank
under this agreement;
(b) any reduction in Tranche B which will occur prior to the proposed
Advance under Tranche B consequent upon a cancellation or reduction of
the whole or any part of Tranche B pursuant to the terms of this
agreement; and
(c) the amount of an Advance under Tranche B which the Bank is then
obliged to make on or before the date of the proposed Advance;
"US Dollars" and "US$" means the lawful currency for the time being of the
United States of America; and
"Value Added Tax" means value added tax or any other tax substituted for
that tax or in respect of supplies, turnover or value added sales.
1.2 Further definitions
Any reference in this agreement to:
"certified copy" and "copy certified" means a copy certified as true and up
to date by a director or executive officer (being the Chairman, Chief
Executive Officer, President or Secretary) of the relevant person;
"control" of one person by another means that the other (whether directly
or indirectly and whether by the ownership of share capital, the possession
of voting power, contract or otherwise) has the power to appoint and/or
remove the majority of the members of the governing body of that person or
otherwise controls or has the power to control the affairs and policies of
that person (and "controlled" shall be construed accordingly);
"financial obligations" of any person includes any indebtedness of that
person for or in respect of:
(a) money borrowed or raised;
(b) any acceptance credit or guarantee facility;
(c) any loan stock, bond, note or other debt security;
(d) leases or hire purchase contracts which would, in accordance with
generally accepted accounting principles be treated as finance or
capital leases;
(e) any purchase price for assets or services, the payment of which is
deferred for a period in excess of 90 days;
(f) redeemable preference shares;
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(g) any receivables discounting or sale arrangements;
(h) any other agreement or arrangement having the commercial effect of
borrowing or raising money;
(i) any currency and/or interest swap agreement, interest rate cap collar
or floor or similar arrangement in relation to interest rate or
currency movements;
(j) option or future; and
(g) any guarantee, indemnity or other assurance against loss entered into
by that person in relation to the indebtedness of another person which
would fail within any of the above categories;
"generally accepted accounting principles" means generally accepted
accounting principles as recommended by the International Accounting
Standards and generally adopted and accepted;
"guarantee" includes any obligation (however called) of any person to
guarantee, pay, purchase, or provide funds for the payment of any
indebtedness of any other person, or to indemnify against the consequence
of default in the payment of such indebtedness, or otherwise be responsible
for such indebtedness (and for this purpose the provisions of funds
includes advancing money, purchasing or subscribing for shares or other
securities and purchasing assets or services);
"law" includes:
(a) common law;
(b) any statute, by-law, regulation, instrument; and
(c) any kind of subordinate legislation,
and any order, requirement, code of practice, circular, guidance note,
licence, consent or permission made or given pursuant to any of the
foregoing and having the force of law (and "lawful" and "unlawful" will be
construed accordingly);
"material adverse effect" means in relation to any event or circumstance
that in the reasonable opinion of the Bank such event or circumstance may
have a material adverse effect on the financial condition, business, assets
or undertaking of the Borrower's Group taken as a whole which has the
effect of materially impairing the ability of an Obligor duly to perform
its payment or other material obligations under the Finance Documents to
which it is a party provided that the failure of the listing of the
Borrower on Nasdaq and/or the Amsterdam Stock Exchange shall not in itself
constitute an event or circumstance constituting a material adverse effect;
"month" or a period of one or more "months" is a reference to:
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(a) a period which ends on the date (the "corresponding day") in the
relevant calendar month numerically corresponding to the day of the
calendar month on which the period started; or
(b) if the corresponding day is not a Business Day, a period which ends on
the first Business Day after the corresponding day; or
(c) if there is no Business Day after the corresponding day in the
relevant calendar month, a period which ends on the last Business Day
before the corresponding day; or
(d) if the period started on the last Business Day in a calendar month or
if there is no corresponding day, a period which ends on the last
Business Day of the relevant calendar month;
"official requirement" means any requirement, directive, request, guideline
or notice (general or specific) whether or not having the force of law of
or issued by any applicable fiscal, monetary or banking authority of any
kind;
"person" shall include any individual, company, corporation, limited
liability company, association, partnership (whether with limited liability
or otherwise), joint venture, trust or estate, an unincorporated
organisation, a government or any agency or political subdivision thereof,
or any other entity (whether or not having a separate legal personality);
"shares" includes any share (whether registered or bearer) in the capital
of a company, corporation, limited liability company or association or
other entity howsoever described;
"statute or statutory provision" includes that statute or statutory
provision as amended, extended or re-enacted and any by-law, regulation,
order, instrument or subordinate legislation made under the relevant
statute or statutory provision; and
"tax(es)" includes any tax, levy, impost, duty, charge, fee, deduction or
withholding of any nature and however called, levied, collected, withheld
or assessed by any person.
1.3 Interpretation
In this agreement:
(a) the expression "Bank" includes its permitted successors, transferees
and assigns immediate or derivative;
(b) references to any agreement or document are to such agreement or
document as from time to time amended, modified, novated, supplemented
or replaced by a document having a similar effect;
(c) the singular includes the plural and vice versa;
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(d) references to clauses and sub-clauses and to schedules are to the
clauses and sub-clauses of and to the schedules to this agreement;
(e) the words "including" and "in particular" are to be construed as being
by way of illustration and are not to be construed so as to limit the
generality of any preceding words;
(f) the words "other" and "otherwise" are not to be construed as being
limited by any words preceding them;
(g) the headings to clauses and sub-clauses are to be ignored in
construing this agreement; and
(h) references to time are to London time unless otherwise specified.
2. Amount and Purpose of Facility
2.1 Facility
Subject to the terms of this agreement the Bank agrees to grant to the
Borrower a short term loan facility in two tranches, Tranche A and Tranche
B, in the following amounts:
(a) Tranche A shall be in a principal amount of US$45,000,000 (forty five
million US Dollars); and
(b) Tranche B shall be in a principal amount of US$5,000,000 (five million
US Dollars).
2.2 Purpose
The proceeds of the Facility will be used by the Borrower as follows:
(a) Tranche A will be used by the Borrower to part fund general corporate
requirements of the Borrower's Group including, without limitation,
for the acquisition of assets and shares in accordance with this
agreement; and
(b) Tranche B will be used by the Borrower to pay interest, commissions,
fees, costs, expenses and duties payable by the Borrower under this
agreement.
2.3 No responsibility for application
The Bank is not obliged to concern itself with or be responsible for the
application of any of the proceeds of the Facility.
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3. Conditions Precedent
3.1 Availability
Advances under Tranche A and Tranche B will be available to the Borrower
only when the Bank has notified the Borrower that the conditions precedent
in parts I and II of schedule 5 have been satisfied or waived with or
without conditions.
3.2 Final date for satisfaction of conditions precedent
The conditions precedent in parts I and II of schedule 5 must be satisfied
no later than 12 March 1999 (or in the case of the Security Documents
referred to in clause 9.1(d), no later than 31 March 1999) or, in each
case, such later date as the Bank, may at its option, stipulate. The Bank
shall within 24 hours after satisfaction or waiver, as is the case may be,
of all such conditions precedent, notify the Borrower thereof in writing.
3.3 Automatic cancellation
Any part of the Facility remaining undrawn and uncancelled at the end of
the Drawdown Period shall be automatically cancelled.
3.4 Direct payment
Where the terms of this agreement or any Notice of Drawdown provides for an
Advance or part of an Advance to be applied by the Bank otherwise than by
payment to the Borrower, such application will satisfy the obligation of
the Bank to make the Advance or the relevant part of it as if the proceeds
of such Advance or the relevant part of it had been paid direct to the
Borrower.
4. Advances
4.1 The Facility
The Borrower may from time to time during the Drawdown Period utilise the
Facility by delivering to the Bank by no later than 11.00 a.m. on the
second Business Day prior to the date on which a proposed Advance is to be
made a Notice of Drawdown requesting an Advance only if the conditions in
clause 4.2 (Conditions) have been satisfied.
4.2 Conditions
The conditions referred to in clause 4.1 (The Facility) are that:
(a) the Bank has notified the Borrower that the conditions precedent
referred to in clause 3.1 (Availability) have been either satisfied or
waived with or without conditions;
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(b) the aggregate of the Advances requested to be made under Tranche A
does not exceed the Tranche A Available Commitment and which if less
than the Tranche A Available Commitment is an amount or integral
multiple of US$1,000,000;
(c) the aggregate of the Advances requested to be made under Tranche B
does not exceed the Tranche B Available Commitment;
(d) an Advance under Tranche B to fund the payment of costs, commissions,
fees, expenses and duties under this agreement shall only be permitted
if the Bank considers in its reasonable discretion having regard to
anticipated movement in interest rates that after such payment the
amount of the Tranche B Available Commitment after such Advance would
be sufficient to meet interest as and when it falls due under this
agreement;
(e) Advances under Tranche B shall not be available to meet any costs,
fees or expenses due under clause 7.3(b);
(f) no more than four Advances under Tranche A may be requested in any one
month; and
(g) the conditions precedent referred to in part III of schedule 5 are
satisfied at the proposed Drawdown Date.
5. Interest, Default Interest and Interest Periods
5.1 Interest
The Borrower will pay interest on each Advance in respect of each Interest
Period on each Interest Payment Date at the rate per annum determined by
the Bank to be the aggregate of:
(a) LIBOR; and
(b) the Margin.
5.2 Default interest
If the Borrower fails to pay any amount due under this agreement on its due
date (whether at stated maturity, by acceleration or otherwise), the
Borrower will on written demand from the Bank pay interest on that amount
from the due date of actual payment (before and after judgment) at the rate
per annum determined by the Bank from time to time to be two per cent per
annum above:
(a) where the unpaid amount is principal which becomes due during an
Interest Period, the rate applicable to the amount immediately before
it became due but only for the remaining part of that Interest Period;
or
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(b) in the case of any other amount a rate in respect of successive
periods being treated as Interest Periods of such duration as the Bank
may select equal to:
(i) LIBOR and all unpaid amounts being treated as Advances for this
purpose; and
(ii) the Margin.
So long as such non-payment continues such rate will be recalculated on the
same basis at the end of each period for which interest has previously been
calculated. Interest will be payable and, if not paid, compounded at the
end of each period of one month.
5.3 Notification of rate by Bank
The Bank will promptly upon each determination of an interest rate notify
the Borrower of such rate.
5.4 Duration of Interest Periods
Subject to the restrictions referred to in clause 5.5 (Restrictions on
duration), each Interest Period will have a duration of three months.
5.5 Restrictions on duration
The restrictions on the duration of Interest Periods are that:
(a) the first Interest Period in respect of each Advance will commence on
the date of drawdown of that Advance and each subsequent Interest
Period in respect of that Advance will commence on the date
immediately following the date of the expiry of the previous Interest
Period;
(b) if the first Interest Period with respect to any Advance begins during
an existing Interest Period, it shall end at the same time as such
existing Interest Period to ensure consolidation of Interest Periods;
and
(c) if any Interest Period would otherwise extend beyond the Final
Repayment Date that Interest Period will end on the Final Repayment
Date.
6. Repayment and Prepayment
6.1 Repayment
The Borrower will repay the Loan and all other amounts owing to the Bank
under the Borrower's Finance Documents in full on the Final Repayment Date.
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6.2 Prepayment
The Borrower will be entitled on any Interest Payment Date to prepay
(without penalty or premium) all or any part of the Loan if:
(a) the Borrower first gives the Bank not less than seven days' written
notice of its intention to prepay;
(b) (in the case of a partial prepayment) it is in respect of a minimum of
US$5,000,000 and integral multiples of US$500,000; and
(c) the Borrower pays to the Bank any amount due under clause 14
(Indemnity) at the same time as the prepayment.
6.3 Mandatory Prepayment
If a prepayment is made under the Merrill Lynch Facility, the Borrower
shall at the same time as that prepayment, prepay to the Bank an amount
equal to the prepayment made under the Merrill Lynch Facility, together
with any amounts under clause 14 (Indemnity). The Borrower shall keep the
Bank informed of any proposed prepayment intended to be made under the
Merrill Lynch Facility.
6.4 Interest and other amounts
The Borrower will, at the time of any prepayment of the Loan, pay to the
Bank accrued interest on the amount prepaid to the date of actual payment
and if the whole of the Loan is prepaid all other amounts payable by the
Borrower pursuant to this agreement.
6.5 No withdrawal of notices or reborrowing
A notice of prepayment may not be withdrawn and no amount prepaid or repaid
may be reborrowed.
6.6 Cancellation
The Borrower will be entitled to cancel the unutilised balance of the
Facility if the conditions in clause 6.7 are satisfied. A notice of
cancellation may not be withdrawn.
6.7 Conditions applicable to cancellation
The conditions referred to in clause 6.6 (Cancellation) are that:
(a) the Borrower first gives to the Bank not less than seven days written
notice of its intention to cancel specifying the amount to be
cancelled and the date on which such cancellation shall take effect;
and
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(b) a partial cancellation is in respect of a minimum amount of
US$5,000,000 and integral multiples of US$500,000.
7. Fees and Expenses
7.1 Facility fee
The Borrower will pay a facility fee in accordance with the following
terms:
(a) US$75,000 shall be paid by the Borrower on 12 March 1999 in the event
that an Advance has not been made by that date and at the same time as
such payment the Borrower shall pay to the Bank all reasonable legal
and out-of-pocket expenses and any related Value Added Tax incurred by
the Bank in connection with the preparation and negotiation of each
Finance Document; and
(b) if an Advance is made, the fee referred to in sub clause (a) above
shall be increased to US$350,000 and that amount shall be paid on the
date that the first Advance is made and may be paid by the Borrower
out of the proceeds of an Advance under Tranche B.
If the Bank permits an Advance after having received the fee referred to in
sub clause (a), the fee in paragraph (b) shall be reduced by the amount so
received by the Bank.
7.2 Commitment fee
The Borrower will pay to the Bank (whether or not an Advance is made) a
commitment fee calculated during the period from the date of this agreement
and ending on the Final Repayment Date at the rate of 0.45 % per annum on
the daily unutilised amount of the Facility. Such commitment fee shall be
paid by the Borrower to the Bank at the end of each successive three month
period, the first such period commencing on the date of this agreement.
7.3 Costs and expenses
The Borrower will pay to the Bank on demand:
(a) all reasonable costs and expenses (including reasonable legal and
out-of-pocket expenses and any related Value Added Tax) incurred by
the Bank in connection with the preparation, negotiation and execution
of each Finance Document and any amendment or extension of, or the
granting of any waiver or consent under any Finance Document; and
(b) all costs and expenses (including legal and out-of-pocket expenses,
accountancy fees, consultancy fees and any related Value Added Tax)
incurred by the Bank in contemplation of, or otherwise in connection
with, the enforcement of, or the preservation of any rights under, any
Finance Document or otherwise in respect of any liabilities of the
Obligors under the Finance Documents.
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7.4 Stamp and other duties
The Borrower will pay all stamp duties, documentation and registration fees
or other like taxes imposed on or in connection with any Finance Document
and will indemnify the Bank against any liability arising by reason of any
delay or omission by the Borrower to pay such duties, fees or taxes.
7.5 Authority to debit accounts
The Borrower authorises the Bank to debit (after having given prior notice
to the Borrower setting out the details thereof) any loan or other account
of the Borrower with the Bank in order to pay fees, costs, charges or
expenses for which the Borrower is liable under any Finance Document,
irrespective of whether any such action taken by the Bank might cause the
maximum amount available under the Facility to be exceeded.
8. Payments
8.1 Payments
All payments by the Borrower under this agreement must be made to such
account as the Bank notifies to the Borrower and must be in the currency in
which they are due and received in cleared funds (or in such other funds as
shall be customary for the settlement of that currency) no later than 12.00
noon on the due date.
8.2 Business Day
When any payment under this agreement would otherwise be due on a day which
is not a Business Day payment will be made on the Business Day immediately
preceding that day.
8.3 Basis of calculating annual payments
All interest, fees, and other payments of an annual nature under this
agreement will accrue from day to day and be calculated on the basis of
actual days elapsed and a 360 day year.
8.4 Certification by Bank
Any certificate or determination of the Bank as to any amount payable by
the Borrower under this agreement will, in the absence of manifest error,
be prima facie evidence of the amount so payable by the Borrower.
8.5 Part payments
If the Bank receives a payment insufficient to discharge an amount then due
from the Borrower then notwithstanding any appropriation by the Borrower
the Bank will apply that payment:
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(a) first, in or towards payment of any unpaid costs and expenses of the
Bank under this agreement;
(b) secondly, in or towards payment pro rata of any accrued interest due
but unpaid under this agreement;
(c) thirdly, in or towards payment pro rata of any principal due but
unpaid under this agreement; and
(d) fourthly, in or towards payment pro rata of any other amount due but
unpaid under this agreement,
or in such other order as the Bank may direct.
8.6 Payments to be made in full
All payments by the Borrower under this agreement will be made in full
without set-off or counterclaim and free and clear of any deduction or
withholding for or on account of any taxes unless the Borrower is required
by applicable law to make any withholding or deduction from any payment due
under this agreement for or on account of any taxes. In this event, the
Borrower will:
(a) promptly notify the Bank;
(b) pay such additional amounts as are necessary to ensure that the Bank
receives the amount which it would have received if there had been no
such deduction;
(c) promptly pay the tax deducted to the appropriate tax authority before
any fine or penalty becomes payable; and
(d) indemnify the Bank in respect of any such taxes.
8.7 Tax credits
If the Borrower makes a payment pursuant to clause 8.6 (Payments to be made
in full) for the account of the Bank and the Bank determines that it has
received or has been granted a credit against or relief, refund, return or
remission for or repayment of, any tax paid or payable by it in respect of
or calculated with reference to the deduction or withholding giving rise to
such payment (each a "tax credit") and the Bank has received value for such
credit or repayment the Bank will promptly pay to the Borrower such amount
as the Bank determines to be attributable to such deduction or withholding
or payment and which leaves the Bank (after such payment) in no better or
worse position than it would have been in if the Borrower had not been
required to make such deduction or withholding or payment.
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8.8 Tax affairs of the Bank
Nothing in clause 8.7 (Tax Credits) will interfere with the right of the
Bank to arrange its tax affairs in whatever manner it thinks fit or oblige
the Bank to claim any tax credit in priority to any other credit against or
relief or remission for or repayment of any tax paid or payable by it or to
disclose to the Borrower any information regarding its tax affairs or tax
computations.
8.9 Reimbursement
If any payment is made to the Borrower under clause 8.7 (Tax Credits) by
the Bank and the Bank later determines that the tax credit in respect of
which such payment was made was not available to it or has been withdrawn
or that it was unable to use such tax credit in full, the Borrower will pay
the Bank such amount as the Bank determines to be required to put it in the
same after tax position as it would have been if such tax credit had been
obtained, fully used and retained by the Bank but not exceeding the amount
paid by the Borrower under clause 8.6 (Payments to be made in full).
8.10 Tax receipts
As soon as practical, but in any event prior to the date on which any fine
or penalties become payable, after any deduction or withholding of any such
taxes pursuant to clause 8.6 (Payments to be made in full) the Borrower
will forward to the Bank official tax receipts and any other documents or
evidence reasonably required by the Bank that such taxes have been remitted
to the appropriate taxation authority.
8.11 Tax indemnity
Without prejudice to the provisions of clause 8.6 (Payments to be made in
full) if the Bank is required to make any payment on account of tax or
otherwise on or in relation to any amount received or receivable by the
Bank under the Finance Documents (other than tax on its overall net income)
(including any amount received or receivable under this clause 8) or any
liability in respect of the Bank is asserted, imposed, levied or assessed
against the Bank as a result of the transactions contemplated by the
Finance Documents (other than tax on its overall net income) the Borrower
will upon written demand of the Bank promptly indemnify the Bank against
such payment or liability together with any interest, penalties and
reasonable expenses payable or incurred in connection therewith.
9. Security
9.1 Security Documents
The Borrower will:
(a) enter into a charges in respect of the issued share capital in the
name of the Borrower of the following companies:
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(i) Parowan Limited;
(ii) MIH Holdings S.A. (Luxembourg); and
(iii) Paltech Limited;
(b) procure that each Guarantor enters into a pledge over the shares which
it owns in its Subsidiaries set opposite its name in schedule 3 in
favour of the Bank, in form and substance satisfactory to the Bank;
(c) procure that each Guarantor enters into a guarantee and indemnity in
favour of the Bank in respect of all of amounts from time to time
outstanding under this agreement, in form and substance satisfactory
to the Bank;
(d) by no later than 31 March 1999:
(i) enter into or procure that the relevant member of the Borrower's
Group enters into a pledge in respect of the issued share capital
in its name in United Broadcasting Corporation Public Company
Limited, such pledge ranking behind the share pledge granted in
connection with the ABSA Facility; and
(ii) procure that Parowan Limited enters into a pledge over the whole
of the issued share capital of TV/Com International Inc,
together with legal opinions from lawyers in the relevant
jurisdiction, in each such case, in form and substance satisfactory to
the Bank; and
(e) procure that MIH Finance S.A. shall if so requested by the Bank, enter
into a pledge over shares (subject to the arrangements with MP
Communications B.V. and MPC Sport Licencing B.V. entered into on 29
June 1997 and 3 September 1997) in NetMed B.V. as and when MIH Finance
S.A. is entitled to such shares or otherwise such shares are returned
to MIH Finance S.A..
9.2 Consents and documentation
The Borrower shall ensure that all consents and all documents, regulations
and licences and other matters and things required by the Bank to perfect
the security to be created pursuant to the Security Documents are produced,
executed, obtained or made as required by the Bank.
10. Representations and Warranties
10.1 Representations and Warranties
The Borrower represents and warrants to the Bank as set out in this clause.
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10.2 Duration and Scope
Save for the representation and warranty in clause 10.18 in respect of
information provided before the date of this agreement, the
representations and warranties set out in this clause will be deemed to be
repeated by the Borrower on each Interest Payment Date in relation to the
then existing circumstances.
10.3 Status
The Borrower is a company duly incorporated and validly existing in all
respects under the laws of The British Virgin Islands and has the power
and authority to own its assets and to carry on its business as it is now
being conducted.
10.4 Power and authority
The Borrower has the power to borrow and to perform its obligations under
the Borrower's Finance Documents and it has taken all necessary corporate
and other action to authorise the borrowing contemplated by this agreement
on the terms of this agreement and to enter into and perform its
obligations under the Borrower's Finance Documents.
10.5 Enforceability
The terms of the Borrower's Finance Documents constitute legal, valid and
binding obligations of the Borrower enforceable in accordance with their
respective terms.
10.6 No violation
The execution and delivery by the Borrower of the Borrower's Finance
Documents and the performance of their respective terms by the Borrower
does not and will not exceed any power granted to it by, or violate any
provision of:
(a) any law to which it is subject;
(b) its memorandum and articles of association; and
(c) any mortgage, charge, deed, contract or other undertaking or
instrument to which it is a party or which is binding upon it or any
of its assets.
10.7 Approvals
No approvals, authorisations, licences or consents and filings or
registrations other than as may be required in respect of the registration
of the Security Documents or other acts or things are required for:
(a) the due execution and delivery by the Borrower of the Borrower's
Finance Documents;
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(b) the utilisation of the Facility; and
(c) the performance and observance by the Borrower of the provisions of
the Borrower's Finance Documents or to render the Borrower's Finance
Documents legal, valid, enforceable and admissible in evidence.
10.8 Audited Accounts
The most recent annual audited consolidated accounts of the Borrower's
Group produced to the Bank have been prepared in accordance with generally
accepted accounting principles consistently applied and present fairly in
all respects the results of its operations for that financial period and
no significant liabilities (contingent or otherwise) existed at the end of
such financial period which were not properly and fully (in accordance
with generally accepted accounting principles consistently applied)
disclosed or reserved against in such financial statements.
10.9 Management Accounts
The most recent unaudited consolidated management accounts of the
Borrower's Group produced to the Bank in accordance with clause 11.3(b)
present fairly in all material respects the financial condition of the
Borrower's Group as at the end of the financial period to which they
relate and the results of its operations for that financial period.
10.10 No change in financial condition
There has been no change in the financial condition of the Borrower's
Group from that set out in its annual audited consolidated accounts, or
unaudited consolidated management accounts most recently delivered to the
Bank which is likely to have a material adverse effect, other than changes
that have been or will be brought about as a result of the entering into
of Permitted Borrowings.
10.11 No default or litigation
No member of the Borrower's Group is in default under any agreement to
which it is a party or by which it may be bound which default is likely to
have a material adverse effect and no litigation, arbitration or
administrative proceedings are presently current, pending or, to the
knowledge of the Borrower, threatened against any member of the Borrower's
Group which are likely to have a material adverse effect.
10.12 No Event of Default
No Potential Event of Default or Event of Default has occurred and is
continuing.
10.13 Taxes
No stamp, registration or similar tax is payable on or in relation to any
of the Finance Documents.
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10.14 Encumbrances
There is no Encumbrance over any of the property, rights and assets of any
member of the Borrower's Group other than the Permitted Encumbrances.
10.15 Withholding taxes
Payments to be made under the Borrower's Finance Documents by the Borrower
may be made in full without any deduction or withholding for or on account
of any taxes.
10.16 Group structure
The structure of the Borrower's Group set out in schedule 6 is true,
complete and accurate in all material respects and not misleading,
provided to the extent that the structure of the Group is altered with the
consent of the Bank in accordance with clause 11.7(t), this representation
and warranty shall be deemed to be made by reference to the revised
structure chart provided in accordance with clause 11.7(t).
10.17 Group external debt structure
The debt structure of the Borrower's Group as set out in schedule 8 is
true, complete and accurate in all material respects (which for the
purpose of this clause 10.17, "material" shall be construed as 2 1/2% or
greater difference) and not misleading.
10.18 Information
All information and all other material supplied by or on behalf of the
Borrower to the Bank was true in all material respects when supplied.
Neither the Borrower nor any person supplying such information on the
Borrower's behalf has omitted to supply any information which, if
disclosed, would be likely to adversely affect the decision of any person
to enter into this agreement and nothing has occurred since the date on
which any information or other material was supplied to the Bank which
makes the information supplied untrue or misleading and which if
disclosed would be likely to adversely affect the decision of any person
to enter into this agreement.
10.19 Regulatory
The Licences are in full force and effect and no other official
requirement is required to enable each member of the Borrower's Group to
carry on its business.
11. Covenants
11.1 Undertaking
The Borrower undertakes with the Bank that so long as the Bank has any
obligations under this agreement or any amount remains outstanding or
payable under this agreement
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the Borrower will comply with the covenants in this clause 11.
11.2 Consents
The Borrower will and will procure that each member of the Controlled
Borrower's Group will:
(a) obtain, maintain in full force, and comply in all material respects
with any conditions imposed in connection with, every authorisation
of governmental or public bodies or courts, do all other acts or
things which may from time to time be necessary under applicable law
for the continued due performance of their respective businesses the
absence of which is likely to have a material adverse effect and in
respect of each Obligor the continued performance of its obligations
under the Finance Documents to which it is a party;
(b) comply with all material applicable laws, rules, regulations,
agreements, orders, licences and concessions (including, without
limitation, all material environmental laws and the Licences in its
name) and obtain and maintain all material governmental and
regulatory consents and approvals required for the operation of
their respective business (the absence of which is likely to have
material adverse effect) and shall:
(i) promptly pay, when due, all and any registration, renewal and
licence fees and any fees and other additional payments
required under any Licence or under any law;
(ii) use its best endeavours to ensure that all notices and
registrations reasonably necessary for the protection by it of
its respective rights and interest therein are promptly given
and/or made by it in the appropriate forms; and
(iii) upon becoming aware of an infringement or potential
infringement which is likely to have a material adverse effect
of any Licence and/or any law, promptly take such action as
may be required to remove such infringement or prevent the
occurrence of such potential infringement.
11.3 Information
The Borrower will:
(a) provide the Bank as soon as they are available but in any event by
no later than 31 July 1999 with copies of the annual audited
consolidated accounts of the Borrower's Group (prepared in
accordance with generally accepted accounting principles
consistently applied) in respect of the financial year ending on 31
March 1999;
(b) provide the Bank with quarterly unaudited consolidated management
accounts of the Borrower's Group as soon as they are available but
in any event within
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60 days of the end of the quarter to which they relate, the first
such management accounts to be provided in respect of the three
month period ending on 30 June 1999 which will include, inter alia,
cash flow reports, operating and performance data and management
commentary reports with respect to the ongoing business operations
of the Borrower's Group in a form to be agreed by the Bank and the
Borrower;
(c) promptly provide and procure that the Bank is promptly provided with
any relevant information regarding the Borrower's Group or regarding
any security provided in connection with this agreement, which the
Bank may reasonably request in writing;
(d) upon becoming aware of the same promptly notify the Bank of the
occurrence of any Event of Default or Potential Event of Default and
at the same time inform the Bank of any action taken or proposed to
be taken by it or the relevant member of the Borrower's Group in
connection with such Event of Default or Potential Event of Default;
(e) promptly notify the Bank of any litigation, arbitration or
administrative proceedings which to its knowledge are threatened,
pending or have been commenced against it or any member of the
Borrower's Group which is likely to have a material adverse effect;
(f) upon becoming aware of the same notify the Bank of the occurrence of
any event which would entitle any party to a Material Contract to
terminate that Material Contract and at the same time inform the
Bank in writing of any action taken or proposed to be taken by the
Borrower or the relevant member of the Controlled Borrower's Group
in connection with any such event;
(g) ensure that all information supplied to the Bank by it or any other
member of the Borrower's Group is at the time of supply accurate in
all material respects;
(h) on the written request of the Bank inform the Bank as to the
progress being made in respect of the proposed equity issue, high
yield issue or credit facilities referred to in paragraph (a) of the
definition of Final Repayment Date;
(i) on the written request of the Bank inform the Bank as to the
progress being made in respect of the listing of NetMed B.V. on the
Athens Stock Exchange or the proposed restructuring of the
Mediterranean Group in order to admit as shareholders in the company
which will own the Greek digital platform (which may be MultiChoice
Hellas S.A, or an other company incorporated in Greece (in which
NetMed B.V. or Myriad Development B.V. will have or will acquire a
shareholding of not less than 30%)) and/or into NetMed Hellas S.A.,
any or all of Greek Radio-Television S.A. ("ERT"),
Telecommunications Organisation of Greece S.A, ("OTE"), Teletypos
Television Programme Societe Anomyme ("Mega") and Antenna TV S.A,
("Antenna");
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(j) notify the Bank immediately upon becoming aware of the removal or
relaxation of exchange control provisions in The Republic of South
Africa, which would enable the African Group to give guarantees
and/or security in favour of the Bank without any approval of the
South African Reserve Bank, and if so requested by the Bank after
receiving notice from the Borrower as aforesaid and the Borrower
shall procure that, the African Group provides guarantees and/or
share pledges in form and substance satisfactory to the Bank,
subject to any prior guarantees and/or share pledges which at that
time may already have been given by the African Group;
(k) on the written request of the Bank inform the Bank as to the
progress of the acquisition of the shares in Open TV, Inc. pursuant
to the Open Agreement, including whether the Borrower is obliged to
issue a promissory note or otherwise; and
(1) on the written request of the Bank inform the Bank regarding the
arrangements involving the shares referred to in clause 9.1(e) and
in any event the Borrower shall inform the Bank immediately of MIH
Finance S.A. calling for a return of such shares and the Borrower
shall procure that the arrangements relating to such shares (as
provided to the Bank prior to the date of this agreement) shall not
be amended in any way.
11.4 Consents
The Borrower will obtain, maintain in full force and comply in all
material respects with any conditions imposed on it in connection with,
every authorisation of governmental or public bodies or courts, and do all
other acts or things which may from time to time be reasonably necessary
under any applicable law for the continued due performance of its
obligations under the Borrower's Finance Documents.
11.5 Finance Documents
The Borrower will observe and perform the obligations, terms and
conditions of the Borrower's Finance Documents.
11.6 Insurance
The Borrower will maintain and will procure the maintenance of such
insurance at such levels as a prudent person carrying on a business
similar to that of the Borrower's Group would consider reasonably
necessary.
11.7 Negative covenants
The Borrower will not and will procure that no member of the Controlled
Borrower's Group will, without first obtaining the Bank's written consent:
(a) make (whether by acquisition or otherwise) any material alteration
to the nature of its business which is likely to have a material
adverse effect as carried on at the
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date of this agreement or change its auditors, its accounting
reference date or make, in the opinion of the Bank, any significant
changes to its accounting policies from those in force at the date
of this agreement, except for such changes as may be necessary to
comply with generally accepted accounting principles in the United
States or to comply with generally accepted international accounting
standards;
(b) sell any Subsidiary or sell, transfer or lend or otherwise dispose,
whether by a single transaction or a number of transactions (related
or not) the whole or a substantial part of its undertaking or assets
unless, in each case, in respect of tangible property such property
becomes unusable or obsolete provided that the whole of the proceeds
of such sale (after the deduction of all of the reasonable costs
fees and expenses relating to such sale of a type and amount that
would be incurred in a typical transaction with a third party on an
arms length basis) or other disposal are used to acquire replacement
property or unless further, the proceeds of any such sale, transfer,
loan or disposal is retained by that member of the Controlled
Borrower's Group;
(c) unless otherwise permitted or envisaged by the terms of this
agreement make any acquisition of assets or capital expenditure or
undertake any investment of any nature in any person (which shall
include the creation of any Subsidiary, the purchase or subscription
of any shares in any other company and the forming of any
partnership or any other entity) in each case the monetary
consideration of which exceeds the amount of US$30,000,000 and in
aggregate US$50,000,000 in any period of 12 months the first such
period commencing on the date this agreement provided that:
(i) for the purposes of calculating whether the limits in this
sub-clause (c) have been exceeded, the acquisition by the
Borrower of shares in Open TV, Inc. pursuant to the Open
Agreement shall not be taken into account;
(ii) to the extent that new monies are available for investment
purposes within the Borrower's Group, such monies can be used
to make investments up to an additional amount of
US$25,000,000 provided that the Borrower can demonstrate to
the Bank that such investment will not adversely prejudice the
Bank (whether as to the repayment of this Facility or the
security in favour of the Bank under the Security Documents).
The amount of any monies advanced pursuant to clause
11.7(m)(v) to Open T.V., Inc. shall reduce the amount of
further investments that may be made under this sub-clause;
and
(iii) for the purposes of construing what is or is not an
investment, the performance by the relevant member of the
Controlled Borrower's Group of its general corporate treasury
function (which excludes speculative or high risk investments)
shall be disregarded;
(d) enter into, create or permit to subsist any Encumbrance over any of
its property, rights and assets other than any Permitted
Encumbrance;
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(e) incur any financial obligations or enter into any arrangement in the
nature of financial obligations other than Permitted Borrowings and
for these purposes in respect of Operational Rights and/or Leases,
the Borrower or any member of the Controlled Borrower's Group may
enter into further financial obligations thereunder (which shall
exclude a substitution of existing Operational Rights and/or Leases
where the relevant member of the Controlled Borrower's Group is
under no greater liability that it was immediately before the
substitution) following 31 December 1998, without the consent of the
Bank if the annual payments do not exceed US$5,000,000 in respect of
any one transaction, but otherwise consent must be obtained from the
Bank which consent shall not be unreasonably withheld and such
amounts shall be construed as "Permitted Borrowings";
(f) undertake any amendment to the structure of the Borrower's Group
(other than as set out in respect of the Asia Group, the Technology
Group and the Mediterranean Group in schedule 10 to which amendments
the Bank shall be deemed to have consented to, subject to the
provision of security and legal opinions (in each case in form and
substance satisfactory to the Bank and in the case of the
reorganisation of the Technology Group, the Bank being satisfied
that Mindport (as and when incorporated) will be a member of the
Controlled Borrower's Group), provided that if the Bank consents
(which, in respect of an amendment relating to a member of the
Borrower's Group in respect of which the Bank does not have a pledge
of shares, consent shall not be unreasonably withheld or delayed
provided that after such amendment the Bank is satisfied with its
security) to such reorganisation, the Borrower shall provide to the
Bank a revised structure chart, replacing the structure chart
contained in schedule 6;
(g) amend materially the terms of the Permitted Borrowings as in force
at today's date, nor otherwise agree any extension or variation of
their repayment terms, margin, amount or interest rate;
(h) redeem or purchase its own shares or provide financial assistance
therefor;
(i) pay any management, consultancy or similar fees howsoever described
(other than legal and accounting fees and fees payable on an arms
length basis with a third party) nor pay any dividend, return on
capital or make any other payment of any nature in respect of any
class of its shares or part of any class of its shares directly or
indirectly;
(j) materially amend the Business Plan or the Mediterranean Business
Plan;
(k) agree to any material amendments to any Material Contract
(1) make any prepayments or repayments of Intercompany Loans, nor make
any payments of interest thereunder save that this restriction shall
not:
(i) prevent such payments being made by one member of the
Guarantor Group to another member of the Guarantor Group or:;
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(ii) such payments being made by one member of the African Group to
another member of the African Group or to a member of the
Guarantor Group; or
(iii) prevent such payments being made in respect of Intercompany
Loans permitted under clause 11.7(m);
(m) make and will procure that no member of the Controlled Borrower's
Group makes any Intercompany Loans to any other member of the
Borrower's Group provided that this restriction shall not prevent:
(i) the making of an Intercompany Loan by the Borrower to the
Middle East Group in a maximum amount of US$2,200,000 (which
the Borrower undertakes will not be way of subscription of
shares in any member of the Middle East Group and will be on
terms that provide for such loan to be repaid on demand and
which will not otherwise be written off or waived); and
(ii) a member of the Guarantor Group making Intercompany Loans to
another member of the Guarantor Group;
(iii) such Intercompany Loan made pursuant to clause 11.7(c);
(iv) such Intercompany Loan made by a member of the Controlled
Borrower's Group in the ordinary course of its business and is
made to another member of the Controlled Borrower's Group; or
(v) any Intercompany Loan to Open T.V., Inc., in an amount not
exceeding US$10,000,000 in any period of 12 months, the first
such period commencing on the date of this agreement.
11.8 New assets and rights
Following the date of this agreement if new assets and/or rights (whether
tangible or intangible are acquired by the Borrower or a member of the
Controlled Borrower's Group for the purpose of or in connection with its
business, the Borrower shall procure that such new assets and/or rights
are in its name or in the name of that member of the Controlled Borrower's
Group and are used by it or that member of the Controlled Borrower's Group
for its business.
11.9 Open TV
If pursuant to the acquisition of shares in Open T.V., Inc. by the Borrower
from Thomson Electronics, the Borrower issues a promissory note in
favour of Thomson Electronics, the Borrower shall at all times ensure
that it has sufficient amounts available but undrawn under Tranche A and
under the Merrill Lynch Facility and the ABSA Facility and/or
sufficient cash (or government or equivalent securities) (available for the
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purpose of honouring such promissory note and not otherwise required by
the Borrower's Group for the conduct of its businesses) to honour its
obligations under such promissory note on its due date and shall if
requested by the Bank authorise Merrill Lynch International to disclose
such information to the Bank.
11.10 Change of Status
If after 28 December 1998 any member of the Borrower's Group (excluding
the African Group) changes the nature of its business or commences trading
after having been dormant (which shall be given its widest meaning), the
Borrower shall inform the Bank of the change in that company's business or
status and give full particulars thereof to the Bank. The Bank shall be
entitled to require:
(a) the Borrower or the relevant member of the Borrower's Group or the
Controlled Borrower's Group to charge the shares in that company;
and/or
(b) if that company is within the Controlled Borrower's Group to procure
that such company enters into a guarantee in favour of the Bank. Any
pledge and/or guarantee required under this clause shall be in form
and substance satisfactory to the Bank,
Provided that if a company ceases to be within the Controlled Borrower's
Group with the consent of the Bank, the Bank shall release any guarantee
given by that company.
11.11 New Companies
If the Borrower or any member of the Controlled Group (other than the
African Group unless the provisions of clause 11.3(j) apply) acquires
shares in any company after the date of this agreement, the Bank shall be
entitled to require the Borrower to or to procure that:
(a) such shares are pledged in favour of the Bank; and/or
(b) to the extent that such new company would itself become part of the
Controlled Borrower's Group, such new company shall enter into a
guarantee in favour of the Bank. Any such pledge and/or guarantee to
be in form and substance satisfactory to the Bank.
11.12 Proceeds of dilution of Mediterranean Group
The proceeds of:
(a) the listing of NetMed B.V. on the Athens Stock Exchange; and/or
(b) the sale of shares in NetMed B.V. by Myriad Development B.V. or MIH
Finance Limited; and/or
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(c) the dilution (whether pursuant to a sale of shares or the
subscription for shares by a third party) of Myriad Development
B.V.'s shareholding in MultiChoice Hellas S.A. to between 30% and
40% from the 51% shareholding as at the date of this agreement,
shall:
(i) in the case of proceeds arising from a sale of shares by
Myriad Development B.V. and/or MIH Finance Limited be retained
by the relevant selling company; and
(ii) in the case of proceeds from any other sale or dilution be
retained by either the relevant selling entity or entity whose
shares have been subscribed for,
and in each such case, the Borrower shall procure that the proceeds so
retained of not less than US$15,000,000 shall be invested in the
Mediterranean Group to meet its funding requirements (save that prior to
such application, the proceeds of such dilution or listing may be used by
the relevant entity to acquire Greek government securities or similar
securities within normal treasury functions, but so that such monies shall
always be available for the Mediterranean Group), provided that if it is
demonstrated to the Bank's satisfaction that the funding requirements of
the Mediterranean Group are less than US$15,000,000 for a period of 13
months following such sale or dilution and the Mediterranean Group has
sufficient funds to meet such funding requirements the excess portion of
such proceeds may be utilised within the Controlled Borrower's Group
(other than the African Group).
11.13 Certain Mediterranean companies
The Borrower agrees that in relation to MultiChoice Cyprus Limited, NetMed
Hellas S.A. and MultiChoice Hellas S.A. (the "Medcos"), it shall not and
shall procure that any company within the Controlled Borrower's Group
which is interested in the shares of any Medco or otherwise has
representation in the management of any Medco, does not exercise any
rights or approve any transaction by a Medco which would be a breach of
the terms of this agreement were that Medco a member of the Controlled
Borrower's Group.
12. Default and Acceleration
12.1 Events of Default
The occurrence of any of the events set out below (whether or not by
reason of circumstances beyond the control of the Borrower or any other
person) will constitute an Event of Default, namely:
(a) any Obligor fails to pay any amount due to the Bank under the terms
of any Finance Document provided that when such failure is due to
technical or
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administrative difficulty in payment of funds by the bank making the
transfer and the relevant Obligor gave instructions to transfer such
amount on or before the due date an Event of Default shall be deemed
not to have occurred if payment is received by the Bank within two
Business Days of the due date;
(b) the Borrower commits any breach of any provision of this agreement
(other than a breach covered by clause (a) above) unless it is a
breach which is s capable of remedy, and it has been remedied to the
satisfaction of the Bank within fourteen days after the earlier of
the date on which the Borrower is aware or ought to have been aware
of the occurrence of such breach and the date on which the Bank
gives the Borrower notice thereof;
(c) any party to a Finance Document commits any breach of any provision
of that Finance Document (other than one covered by clauses (a) or
(b) above) unless, in the case of a breach which the Bank considers
is capable of remedy, the breach has been remedied to the
satisfaction of the Bank within fourteen days after the earlier of
the date on which the Borrower is aware or ought to have been aware
of the occurrence of such breach and the date on which the Bank
gives the Borrower notice thereof;
(d) any representation or warranty made by any Obligor in or pursuant to
any Finance Document or in any notice, certificate or statement
referred to in or delivered pursuant to any such Finance Document
is, or proves to be, untrue or incorrect in any material respect in
the context of the Group's business or its financial condition as of
the date on which it is made or deemed to be made;
(e) any financial obligation of a member of the Borrower's Group in
excess of US$5,000,000 (or in the equivalent amount in any relevant
currency) is not paid when due or within any applicable grace period
or (if payable on demand) is not paid when demanded or becomes
payable or is capable of being made payable before its due date by
reason of default or any facility under which financial obligations
can arise ceases to be available (other than by the expiration of
its term) or becomes capable of being terminated by reason of any
event of default, or cash collateral is required in respect of such
a facility;
(f) any Encumbrance securing financial obligations in excess of
US$5,000,000 over property, assets or undertaking of the Borrower's
Group's becomes enforceable;
(g) any member of the Borrower's Group commits material breach of any
provision of the Licence granted to it, or of any Material Contract
and such breach is not remedied to the satisfaction of the Bank
acting in good faith within ten days after the occurrence of such
breach or in respect of a Licence within any shorter time limit
specified by the relevant regulatory authority issuing such licence;
(h) any member of the Borrower's Group begins negotiations with one or
more classes of its creditors with a view to the readjustment or
rescheduling of any of its financial obligations;
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(i) a petition is presented, an order is made or a resolution passed for
winding-up of any member of the Borrower's Group (other than (i) for
the purposes of an amalgamation or reconstruction previously agreed
to in writing by the Bank (which agreement of the Bank may not be
unreasonably withheld or delayed provided that the Bank is
reasonably satisfied with its security following such amalgamation
or reconstruction); and (ii) in case of a petition issued in the
course of a dispute being contested on reasonable grounds and in
good faith and such petition is dismissed, stayed or vacated within
seven days of its presentation and in any event prior to the
advertisement of such petition) or a notice is issued convening a
meeting for the purpose of passing any such resolution;
(j) any member of the Borrower's Group is dissolved or ceases or
threatens to cease to carry on its business or any substantial part
of it or becomes or is deemed to be unable to pay its debts as and
when they fall due or stops payment of its debts;
(k) a receiver, administrative receiver, trustee or similar officer is
appointed in respect of any property or assets of a member of the
Borrower's Group;
(1) a notice is issued convening a meeting (for the purpose of
considering a composition or moratorium in respect of its debts) of,
or a member of the Borrower's Group proposes or enters into any
arrangement or composition with, its creditors or agrees or declares
a moratorium in respect of any of its debts;
(m) a petition is presented applying for an administration order or
other form of moratorium against a member of the Borrower's Group or
an administration order or other form of order for a moratorium is
made against a member of the Borrower's Group;
(n) any judgment or order made against a member of the Borrower's Group
is not complied with within ten days of the date the judgment or
order or any execution, distress, sequestration or other process is
levied or enforced upon or against any of the a member of the
Borrower's Group property or assets (the value of which in
aggregate, exceeds US$5,000,000 (or in the equivalent amount in any
relevant currency));
(o) any event occurs or proceedings taken in relation to a member of the
Borrower's Group in any jurisdiction which has a similar, equivalent
or analogous effect to any of the events detailed in paragraphs
(i)-(n) inclusive;
(p) there is a change of direct or indirect control of the Borrower
(other than where the proceeds of such change results in the
repayment of all amounts due or owing under this agreement);
(q) it becomes unlawful for any Obligor to perform its obligations under
any Finance Document or any rights conferred upon the Bank by any
provisions of the Finance Documents in any respect cease to be
legal, valid, binding and enforceable,;
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(r) any Licence or any authority is revoked such that a member of the
Borrower's Group cannot legally operate its business and any such
revocation is likely to have a material adverse effect provided that
any revocation of the analogue licence in respect of the business
carried out by NetMed BV or its Subsidiaries shall constitute a
material adverse effect;
(s) any Material Contract referred to in paragraph 4 of schedule 9 is
terminated or notice is given to the relevant member of the
Borrower's Group to terminate such contract in circumstances where
that member of the Borrower's Group is not able to enter into a
replacement contract which is satisfactory to the Bank within 90
days;
(t) any government authority in a jurisdiction in which a member of the
Borrower's Group carries on its business takes any steps (including
the passing of any law) to nationalise that member of the Borrower's
Group's business or to expropriate any of its assets and such action
has a material adverse effect provided that any such action in
respect of the business carried out by the Mediterranean Group on
the one hand, or in South Africa, on the other hand, shall each
constitute a material adverse effect; or
(u) an event occurs which has a material adverse effect.
12.2 Acceleration
On or at any time after the occurrence of an Event of Default, the Bank
may, by notice in writing to the Borrower:
(i) declare the Loan to be immediately due and payable (whereupon it
will become so payable together with accrued interest and any other
amounts then owed by the Borrower under this agreement) or declare
the Loan to be due and payable on demand of the Bank; and/or
(ii) declare that any undrawn portion of the Facility will be cancelled
whereupon the same will be cancelled and the Tranche A Available
Commitment and the Tranche B Available Commitment will be reduced to
zero; and/or
(iii) exercise all or any of its rights under any of the Security
Documents.
12.3 Subsequent demand
If pursuant to clause 12.2 the Bank declares the Loan to be due and
payable on demand then and at any time thereafter the Bank may by written
notice to the Borrower:
(a) call for repayment of the Loan on such date as it may specify in
such notice (whereupon the same shall become due and payable on such
date together with accrued interest and on any other sums then owed
by the Borrower under this
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agreement) or withdraw its declaration with effect from such date as
it may specify in such notice; and/or
(b) select as the duration of any Interest Period which begins whilst
such declaration remains in effect a period of less than one month.
13. Change of Circumstances
13.1 Increased costs
If, by reason of any change in law or its official interpretation or
administration or complying with any requirement, directive, request,
guideline or notice whether or not having the force of law of any banking
or other authority (a "regulatory requirement") (including any law or
regulatory requirement relating to taxation, reserve asset, special
deposit, cash ratio, liquidity or capital adequacy requirements) the Bank
(or any member of Bank's Group) incurs:
(a) a cost directly or indirectly as a result of the Bank making
available, funding or maintaining the Facility; or
(b) any reduction in the amount of any payment to the Bank under this
agreement or in the effective return which such payment represents
to the Bank or on its capital; or
(c) a cost in funding or maintaining all or any of the Advances
comprised in a class of advances formed by or including the
Facility; or
(d) a liability to make a payment, or the loss of a return, calculated
by reference to any amounts received or receivable by the Bank under
this agreement,
then, subject to clause 13.2 (Excepted costs), the Bank will then promptly
notify the Borrower in writing and the Borrower will on demand pay to the
Bank such amounts as the Bank certifies as will compensate the Bank for
such increased cost (or such proportion of such increased costs as is
attributable to the Bank funding or maintaining the Facility), reduction,
liability or loss.
13.2 Excepted costs
Clause 13.1 (Increased costs) will not apply to any cost, reduction or
liability arising from a tax on the overall net income of the Bank.
13.3 Illegality
If it has become or with effect from a specified date shall become:
(a) unlawful as a result of any change in law or any change in its
official interpretation or administration; or
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(b) contrary to or inconsistent with any regulatory requirement,
for the Bank to maintain or give effect to its obligations under this
agreement, the Bank will promptly notify the Borrower in writing and the
Facility will be cancelled immediately and, if the Bank is requires, the
Borrower will, within the time required by the relevant law or regulation,
repay to the Bank the Loan in full as provided for in clause 13.5
(Prepayment).
13.4 Substitute basis
If the Bank is unable to determine or ascertain LIBOR for any Interest
Period then:
(a) the Bank will promptly notify the Borrower in writing stating the
circumstances which have caused it to give such notice;
(b) the Bank's obligations under this agreement will be suspended while
the circumstances specified in the Bank's notice continue;
(c) the Borrower and the Bank will use reasonable efforts to agree on an
alternative interest rate for the relevant Interest Period;
(d) any alternative interest rate or basis on which the Borrower and the
Bank have agreed will take effect according to its terms;
(e) if an alternative interest rate is not agreed on by the Borrower and
the Bank within ten Business Days of the date of the Bank's notice
under sub clause (a) above then the Bank will set an Interest Period
and an interest rate representing the cost to the Bank of funding in
US Dollars the Loan or the relevant Advance or together with the
Margin; and this procedure will be repeated at the end of each
Interest Period for as long as the circumstances specified in the
Bank's notice continue; and
(f) if the Borrower does not agree with an interest rate set by the Bank
under sub clause (e) above the Borrower may on giving not less than
10 Business Days notice to the Bank prepay the Loan as provided for
in clause 13.5 (Prepayment), and the Facility and the Available
Commitment will terminate and be reduced to zero.
13.5 Prepayment
Where the obligations of the Bank are to be cancelled and the Loan is to
be prepaid by the Borrower pursuant to clause 13.1 (Increased costs) or
13.3 (Illegality) or 13.4 (Substitute basis):
(a) the Borrower will simultaneously with such prepayment pay to the
Bank of accrued interest on the Loan to the date of actual payment
and all other amounts payable by the Borrower to or for the account
of the Bank pursuant to this agreement; and
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(b) the Tranche A Available Commitment and the Tranche B Available
Commitment will be reduced to zero.
13.6 Certification
The certificate of the Bank as to the amount of any additional cost,
interest, compensation or expense payable pursuant to clause 13.1
(Increased costs) or 13.3 (Illegality) or 13.4 (Substitute basis) shall,
save for manifest error, be prima facie evidence thereof.
14. Indemnity
14.1 Default and early repayment
The Borrower will on demand indemnify the Bank against every loss or
expense which the Bank may suffer as a result of:
(a) its funding an Advance or making arrangements to fund an Advance
requested by the Borrower not being made on its Drawdown Date as a
result of any act or omission on the part of the Borrower; or
(b) the occurrence of an Event of Default (giving credit for any
interest paid under clause 5.2 (Default interest); or
(c) from any accelerated repayment under clauses 12.2 or 12.3 (Events of
Default); or
(d) the whole or part of the Loan being repaid or prepaid by the
Borrower for any reason other than on an Interest Payment Date;
including:
(i) any loss or expense suffered by the Bank in liquidating or
re-employing deposits from third parties acquired or arranged
to effect or maintain the Loan; and
(ii) any loss or expense incurred in closing out, terminating or
utilising for different purposes any swap agreements or other
hedging transactions entered into by the Bank or the Borrower
in connection with this agreement.
14.2 Currency indemnity
(a) If any sum due from the Borrower under any Finance Document to which
it is a party or any order or judgment given or made in relation
thereto has to be converted from the currency (the "first currency")
in which the same is payable
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under any Finance Document or (under such order or judgment into
another currency (the "second currency") for the purpose of:
(i) making or filing a claim or proof against the Borrower;
(ii) obtaining an order or judgment in any court or other tribunal;
or
(iii) enforcing any order or judgment given or made in relation
thereto
the Borrower shall indemnify and hold the Bank harmless from and
against any loss suffered as a result of any discrepancy between:
(A) the rate of exchange used for such purpose to convert
the sum in question from the first currency into the
second currency; and
(B) the rate or rates of exchange at which the Bank may in
the ordinary course of business purchase the first
currency with the second currency upon receipt of a sum
paid to it in satisfaction, in whole or in part of any
such order, judgment, claim or proof.
(b) The Borrower shall indemnify the Bank on demand against any loss
incurred by it as a result of any judgment or order being given or
made for the payment of any amount due under any Finance Document to
which it is a party and such judgment or order being expressed in a
currency other than that in which such amount is payable under such
Finance Document and as a result of any variation having occurred in
rates of exchange between the date of any such amount becoming due
under such Finance Document and the date of actual payment thereof.
The foregoing indemnity shall constitute a separate and independent
obligation of the Borrower and shall apply irrespective of any
indulgence granted to the Borrower from time to time and shall
continue in full force and effect notwithstanding any such judgment
or order as aforesaid.
15. Set-off
15.1 Set-off
Following the occurrence of an Event of Default or Potential Event of
Default, the Bank may at any time without further notice to the Borrower:
(a) combine or consolidate any accounts of the Borrower of any nature;
and/or
(b) set-off or transfer any monies standing to the credit of any such
accounts in or towards satisfaction of the Borrower's obligations
under the Borrower's Finance Documents,
provided that nothing in this clause shall constitute an Encumbrance.
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15.2 Time deposits
The Bank may exercise its rights under clause 15.1 (Set-off) even if such
monies have been deposited with the Bank for a specific period and that
period has not expired.
15.3 Conversion of currencies
Where such combination or set-off requires the conversion of one currency
into another, such conversion will be calculated at the Bank's spot rate
of exchange between the currencies at the time of the combination or
set-off.
16. Assignment and transfers
16.1 Transfers
After having obtained the prior written consent of the Borrower (such
consent not to be unreasonably withheld or delayed) the Bank may at any
time assign or otherwise transfer in accordance with this clause all or
any of its rights, benefits and obligations (or any combination of them)
under the Finance Documents to another bank or other lending institution
(a "New Bank") in consideration of the agreement of such New Bank to
perform the Bank's obligation, under this agreement.
16.2 Effect of assignment/transfer
If the Bank assigns or transfers its rights, benefits and obligations, all
references in this agreement to the Bank shall thereafter be construed as
references to the New Bank and the Borrower shall thereafter only look to
the New Bank (to the exclusion of the Bank) in respect of the Bank's
obligations under this agreement.
16.3 Sub participations
The Bank may enter into sub participations in respect of this agreement
without restriction.
16.4 Disclosure of information
The Bank may disclose to any actual or potential transferee, assignee or
to any person who may otherwise enter into contractual relations with the
Bank in relation to the Finance Documents such information about the
Borrower as the Bank reasonably considers appropriate provided that the
Bank obtains from any actual or potential transferee, assignee or from
any person with whom the Bank proposes to enter into contractual
relations an undertaking in favour of the Borrower to keep all
information disclosed to it confidential.
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17. Miscellaneous
17.1 Time of the essence
Time will be of the essence of the performance of the obligations of the
parties hereto under or in connection with the Finance Documents.
17.2 Delay
The rights of a party under this agreement will not be prejudiced by any
delay in exercising them or by any other act done or omitted by the party
which but for this clause might have been deemed a waiver of such rights
nor will any exercise of any such right preclude any further exercise of
such right or any other right.
17.3 Severability
Each of the provisions of each of the Borrower's Finance Documents is
severable and distinct from the others and if at any time one or more of
such provisions is invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of each of the
Borrower's Finance Documents will not in any way be affected or impaired.
17.4 Rights cumulative
All rights of the Bank are cumulative and any express right conferred on
the Bank under the Borrower's Finance Documents may be exercised without
prejudicing or being limited by any other express or implied right of the
Bank.
17.5 Inconsistencies
If there is any conflict or inconsistency between this agreement and any
other Finance Document, this agreement will prevail.
17.6 Entire agreement
The Borrower's Finance Documents sets out the entire agreement between the
Borrower and the Bank in connection with the subject matter of the
Borrower's Finance Documents and supersedes and replaces all previous
agreements and arrangements relating thereto.
17.7 Counterparts
This agreement may be entered into in any number of counterparts and by
the parties to it on each separate counterpart, each of which when so
executed shall be an original, but all the counterparts shall together
constitute one and the same instrument.
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18. Notices
18.1 Method of giving notices
Any demand for payment or any other demand, notice, consent or
communication made or given to a party under or in connection with this
agreement must be in writing and may be hand delivered to or sent by first
class post to any address for service of that party or sent by facsimile
to any facsimile number for service of that party referred to in this
clause. Any such demand will be validly made whether or not it contains a
statement as to the amount of the liabilities of the Borrower under this
agreement or an inaccurate or incomplete statement of such liabilities.
18.2 Borrower's address for notices
The address for service of the Borrower referred to in clause 18.1 (Method
of giving notices) are either of:
Jupiter Straat 13-15, 2132
HC Hoofddorp
The Netherlands
Attention: Mr Allan Rosenzweig
Fax number: 31 23 556 2880
or at such other address or fax number as the Borrower may have been
notified by the Bank.
18.3 Bank's address for notices
The address and facsimile number for service of the Bank referred to in
clause 18.1 (Method of giving notices) are Camomile Court, 23 Camomile
Street, London EC3A 7PP.
Attention: Miss Debbie Bardwell
Fax: 0171 444 8810
or such other address or facsimile number from time to time notified by
the Bank.
19. Law and Jurisdiction
19.1 Law
This agreement is governed by English law.
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19.2 Courts of England
Without limiting clause 19.3 (Other courts), the courts of England will
have jurisdiction to settle any disputes which may arise out of or in
connection with this agreement.
19.3 Other courts
Clause 19.2 (Courts of England) is for the exclusive benefit of the Bank
which reserves the right to bring proceedings in respect of any matter
which arises out of or in connection with this agreement in the courts of
any country which have or claim jurisdiction in relation to that matter.
19.4 Waiver of objection
The Borrower or any other party not resident in England waives any
objection on the ground of inconvenient forum to any proceedings which
relate to this agreement being brought:
(a) in the courts of England; and
(b) in any other courts by virtue of clause 19.3 (Other courts).
19.5 Service of process
The Borrower agrees:
(a) that any process or other document connected with proceedings in the
English courts which relate to this agreement will be treated for
all purposes as having been duly served on the Borrower if it is
received by Mallinicks presently of 25 Saville Row, London W1X 1AA;
and
(b) that if, at any time, the Borrower fails to maintain a process agent
in London authorised to receive such process and documents, the Bank
may, on the Borrower's behalf, appoint any person whom the Bank
thinks appropriate to be the Borrower's process agent in London and
that appointment will be, in every respect, as effective as if made
by the Borrower itself.
19.6 No exclusion or limitation of rights
Nothing in this clause 19 excludes or limits any right which the Bank may
have (whether under the law of any country, an international convention or
otherwise) with regard to the bringing of proceedings, the service of
process, the recognition or enforcement of a judgment or any similar or
related matter in any jurisdiction.
19.7 Proceedings in more than one jurisdiction
If the Bank commences proceedings in any one jurisdiction in connection
with this
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agreement that will not prevent the Bank from commencing proceedings
(whether concurrently or not) with respect to this agreement in another
jurisdiction.
This agreement has been entered into on the date shown at the beginning of this
agreement.
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SCHEDULE 1
Notice of Drawdown
To: MeesPierson N.V.
Camomile Court
23 Camomile Street
London EC3A 7PP
1999
Dear Sirs
US$50,000,000 Short Term Loan Facility (the "Facility")
We refer to the loan agreement (the "Agreement") dated ___________ 1999 relating
to the Facility made between the Borrower and the Bank.
Terms defined in the Agreement will have the same meaning when used in this
Notice.
We give you notice that we wish to make a drawing of US$[_________] under
[Tranche A/Tranche B](1) on [____________] 1999.
The funds should be [remitted to [__________] in the case of Tranche A/retained
by the Bank to satisfy our obligation to pay interest to the Bank under clause
5. 1](2).
We confirm that:
(a) no Event of Default or Potential Event of Default has occurred;
(b) the representations and warranties contained in clause 10 of the Agreement
are true and accurate in all material respects as of the date hereof and
the undertakings contained in clause 11 of the Agreement have at all times
been complied with in all respects; and
- ----------
(1) Delete as applicable
(2) Delete as applicable
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(c) the borrowing to be effected by such drawing is within our powers, has
been validly authorised by all appropriate action and will not cause any
limit on our borrowing (whether imposed by our articles of association or
by-laws or any law, regulation, agreement or otherwise) to be exceeded.
Yours faithfully
for and on behalf of
MIH LIMITED
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SCHEDULE 2
Guarantor Group
MIH Holdings SA (Lux)
Paltech Limited
MIH Investments S.A. (Lux)
MIH Finance S.A. (Lux)
Myriad International Holdings BV
Myriad Holdings Africa BV
Myriad International Holdings Asia BV
Irdeto BV
Irdeto Consultants BV
NetMed BV
Myriad Development BV
Synergistic Network Development SA
Parowan Limited
Talisman Enterprises Limited
TV/Com International Inc.
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SCHEDULE 3
Guarantor Security Referred to in Clause 9.1 (b)
Guarantor Subsidiary
- --------- ----------
MIH Investments S.A.
1. MIH Holdings S.A. MIH Finance S.A.
Myriad International Holdings B.V.
2. MIH Investments S.A.
Villiers Securities Limited
3. MIH Finance S .A.
4. Myriad International Holdings B.V. Myriad Holdings Africa B.V.
Myriad International Holdings Asia B.V.
Irdeto B.V.
Irdeto Consultants B.V.
NetMed B.V.
5. NetMed B.V. MultiChoice Cyprus Limited
NetMed Hellas S.A.
Myriad Development B.V.
Synergistic Network Development S.A.
6. Myriad Development B.V. NetMed Hellas S.A.
MultiChoice Hellas S.A.
7. Parowan Limited TV/Com International Inc.
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SCHEDULE 4
Controlled Borrower's Group
MIH Intelprop Holdings Limited
Myriad Services Limited
Parowan Limited
Talisman Enterprises Limited
TV/Com International Inc
MIH Holdings S.A.
MIH Investments S.A.
MIH Finance S.A.
Myriad International Holdings B.V.
SWL Lisenz Verwaltungs Gmbh
Villiers Securities Limited
Paltech Limited
Myriad Holdings Africa B.V.
Intervision (Services) Holdings B.V.
Intervision (Services) B.V.
Myriad International Programming Services B.V.
Myriad International Holdings Asia B.V.
MIH Clina Limited
Irdeto B.V.
Irdeto Consultants Inc
Irdeto Consultants (Pty) Limited
Irdeto Consultants B.V.
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NetMed B.V.
Myriad Development B.V.
Synergistic Network Development S.A.
NeMed Mediterranean S.A.
Each member of the Africa Group (other than Myriad Holdings Africa B.V.)
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SCHEDULE 5
Conditions Precedent
The conditions precedent referred to in clause 3.1 (Conditions Precedent)
are set out in parts I and II below.
Part I
The receipt by the Bank of the following documents and evidence in form and
substance satisfactory to the Bank and any other conditions referred to below:
(a) a certified copy of the constitutional documents (including certificates of
incorporation) of each Obligor including copies of all resolutions required
to be embodied in or annexed to them under the provisions of the laws of
the jurisdiction of its incorporation;
(b) a copy of a resolution of the board of directors of the Borrower approving
the Borrower's Finance Documents, the borrowing of the Facility by the
Borrower and the obligations of the Borrower entered into under the
Borrower's Finance Documents and authorising an appropriate person or
persons to execute and deliver the Borrower's Finance Documents on its
behalf together with any other notice, letter or other communication to be
given by the Borrower pursuant to the Borrower's Finance Documents and
attaching to such resolutions specimen signatures authenticated by the
secretary of the Borrower of the person or persons so authorised;
(c) copies of such authorisations as the Bank may require from each of the
parties to the Finance Documents (other than the Borrower) approving the
Finance Document to which it is a party, the obligations of such party
under the relevant Finance Document and authorising an appropriate person
or persons to execute and deliver the relevant Finance Document on such
party's behalf together with any other notice, letter or other
communication or document to be given or entered into in connection with
the relevant Finance Document and attaching to such authorisation specimen
signatures authenticated on behalf of each party;
(d) such legal opinions from the legal advisers to the Bank in the jurisdiction
of where each Obligor is incorporated;
(e) evidence that the person referred to in each of the Finance Documents
expressed to be governed by English law as being appointed as the agent for
service of process on behalf of the relevant Obligor has agreed to act as
that Obligor's agent for the service of process in England;
(f) the Finance Documents executed by the parties to the Finance Documents
other than the Bank;
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(g) evidence as to the Licences in force at the date of this agreement in
respect of the members of the Borrower's Group and of compliance with
regulatory matters for the conduct of the business of the Borrower's Group;
(h) the latest annual audited consolidated accounts of the Borrower's Group
(for the year ending 31 March 1998) evidencing that the aggregate share
capital and share premium of the Borrower is equal to or greater than
US$585,000,000;
(i) copies certified by a director of the Borrower of the
management/shareholder agreements in place in respect of NetMed B.V. and
its Subsidiaries and United Broadcasting Corporation Public Company
Limited/Material Contracts;
(j) all necessary consents and authorisations (whether under any Permitted
Borrowings, any law to which it is subject or constitutional documents) for
the relevant Obligor to enter into and perform this obligations under the
Finance Documents to which each Obligor is a party;
(k) confirmation that 310 million South African Rand has been deposited by
MultiChoice Africa (Pty) Limited in a cash collateral account with Merrill
Lynch South Africa(Pty) Limited;
(1) confirmation from Merrill Lynch International addressed to the Bank
confirming that the Merrill Lynch Facility is available for utilisation by
the Borrower without condition and further is not capable of revocation or
non-utilisation by Merrill Lynch International for any reason whatsoever;
and
(m) copy bank statements as at 31 December 1998 showing a minimum credit
balance of US$65,000,000 in the name of United Broadcasting Corporation
Public Company Limited.
Part II
Payments
(a) The payment to the Bank of all costs and expenses incurred by the Bank
in connection with the preparation, negotiation and execution of the
Finance Documents including all legal and other out-of-pocket expenses
and any related Value Added Tax in accordance with clause 7.3(a).
(b) The payment to the Bank of the fees referred to in clause 7.1.
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Part III
(a) All representations and warranties set out in clause 10
(Representations and Warranties) are true and accurate in all respects
as of the proposed Drawdown Date of an Advance and will be true and
accurate in all material respects immediately after that Advance is
made (except for any representation or warranty limited by its terms
to a specific date);
(b) no change in the financial condition of the Group has occurred since
the date of this agreement which may have a material adverse effect;
(c) no Event of Default or Potential Event of Default having occurred or
no other event having occurred which, with the giving of notice or
lapse of time, would constitute an Event of Default.
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THE BORROWER
SIGNED for and on behalf of ) /s/ LESLEY R. PENFOLD
MIH LIMITED )
THE BANK
SIGNED for and on behalf of ) /s/ MICHAEL DUNNING
MEESPIERSON N.V. )
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
USA
MIH Limited
Registration Statement on Form F-1
We are aware that our report dated November 30, 1998 (except with respect
to Note 9, as to which the date is March 23, 1999) on our review of interim
financial information of MIH Limited as of September 30, 1998 and for the six
month periods ended September 30, 1998 and 1997 is included in this registration
statement. Pursuant to Rule 436(c) under the Securities Act of 1933, this report
should not be considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of the Act.
/s/ PricewaterhouseCoopers Inc. Johannesburg
Republic of South Africa
PricewaterhouseCoopers Inc. March 25, 1999
Chartered Accountants (SA)
Registered Accountants and Auditors
EXHIBIT 23.6
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form F-1 (File
No. 333-74227) of our reports dated June 15, 1998 (except with respect to Note
28, as to which the date is March 23, 1999) on our audits of the financial
statements of MIH Limited and the Acquired MIH Businesses (predecessor to MIH
Limited). We also consent to the reference to our firm under the caption
"Experts".
/s/ Coopers & Lybrand Johannesburg,
Republic of South Africa
Coopers & Lybrand March 25, 1999
Chartered Accountants (SA)
Registered Accountants and Auditors
