<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 2000
REGISTRATION NO. 333-32736
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
------------------------------
<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>
------------------------------
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)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
KRIS F. HEINZELMAN, ESQ. ALLAN ROSENZWEIG GARY L. SELLERS, ESQ.
CRAVATH, SWAINE & MOORE MYRIAD INTERNATIONAL HOLDINGS B.V. SIMPSON THACHER & BARTLETT
WORLDWIDE PLAZA JUPITERSTRAAT 13-15 425 LEXINGTON AVENUE
825 EIGHTH AVENUE 2132 HC HOOFDDORP NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10019 THE NETHERLANDS (212) 455-2000
(212) 474-1000 (31) 23 568 1500
</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
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(1)(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Class A Ordinary Shares, no par value....... 7,475,000 shares $65.625 $490,546,875 $129,504
</TABLE>
(1) Includes 975,000 Class A Ordinary Shares issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 based upon the
average of the high and low sale prices per Class A Ordinary Share on the
Nasdaq National Market on March 29, 2000.
(3) $89,451 of such fee was previously paid.
------------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: 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", "United States
Federal Income Tax Consequences" and "Certain Netherlands Tax Consequences".
Those sections or pages that will appear only in the International Prospectus
appear immediately following the back cover page of the U.S. Prospectus in this
Registration Statement. 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
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS DATED APRIL 3, 2000
PROSPECTUS
[LOGO]
6,500,000 SHARES
MIH LIMITED
CLASS A ORDINARY SHARES
---------------
We are offering 2,972,208 of our Class A Ordinary Shares and a selling
stockholder is offering 3,527,792 of our Class A Ordinary Shares. We will not
receive any of the proceeds from the selling stockholder's sale of its shares.
The U.S. underwriters will offer 1,300,000 shares in the United States and
Canada and the international managers will offer 5,200,000 shares outside the
United States and Canada. Our shares are listed on the Nasdaq National Market
and the Amsterdam Stock Exchange under the symbol "MIHL." On March 30, 2000, the
last reported sale price for our shares was $60 1/2 on the Nasdaq National
Market and $74 on the Amsterdam Stock Exchange.
INVESTING IN THE SHARES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to MIH Limited.............. $ $
Proceeds, before expenses, to the selling
stockholder.......................................... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 195,000 shares
from us at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an aggregate of an
additional 780,000 shares from us.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------------
MERRILL LYNCH & CO.
---------------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 9
Cautionary Notice Regarding Forward-Looking Statements...... 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Price Range of Our Ordinary Shares.......................... 22
Dilution.................................................... 23
Summary Organizational Chart................................ 24
Organizational and Operational Structure.................... 25
Capitalization.............................................. 28
Unaudited Pro Forma Financial Data.......................... 29
Selected Financial and Operational Data..................... 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 39
Business.................................................... 57
Regulation.................................................. 85
Management.................................................. 92
Transactions with Related Parties........................... 98
Principal Stockholders and Selling Stockholder.............. 100
Description of Capital Stock................................ 101
Shares Eligible for Future Sale............................. 106
United States Federal Income Tax Consequences............... 108
British Virgin Islands Taxation............................. 111
Underwriting................................................ 112
Legal Matters............................................... 115
Experts..................................................... 115
Additional Information...................................... 116
Index to Financial Statements............................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
"M-Net", "SuperSport", "DStv", "MultiChoice", "Irdeto", "Mindport",
"OpenTV", "M-Web", "Computicket", "K-T.V.", "IBS", "Irdeto Access", "Nova",
"MultiChoice Hellas" and "Sanook!.com" are trademarks, service marks or trade
names of MIH Limited or our affiliates. All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
Our 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 that are not derived from
our financial statements 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
i
<PAGE>
rate. Translations appearing in this prospectus of: (1) rand to dollars have
been conducted at a rate of $1.00 = ZAR6.51; (2) drachmae to dollars have been
conducted at a rate of $1.00 = GRD351.40; and (3) baht to dollars have been
conducted at a rate of $1.00 = Baht 37.79. These rates of exchange reflect the
noon buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York as of
March 29, 2000, except as otherwise provided.
Unless otherwise indicated, the information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
ii
<PAGE>
SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL
DATA AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION. THE TERMS "MIH",
"OUR COMPANY", "WE", "US" AND "OUR" AS USED IN THIS PROSPECTUS REFER TO MIH
LIMITED TOGETHER WITH ITS SUBSIDIARIES AND JOINT VENTURES, EXCEPT WHERE THE
CONTEXT REQUIRES OTHERWISE. ALL REFERENCES TO "U.S. DOLLARS", "DOLLARS" AND "$"
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.
MIH LIMITED
From our origin as the leading provider of pay-television services in South
Africa, we have grown into a multinational provider of pay-television and
interactive technology services. We are now creating multimedia platforms in the
markets we serve by leveraging our core media-based competencies of content
aggregation, subscriber management, platform development and marketing and
branding to expand our Internet operations.
Our company is divided into three principal business segments:
- pay-television platforms,
- technology and
- the Internet.
Through our subsidiaries and joint ventures, we now provide terrestrial and
cable analog, digital satellite and other pay-television services to over
2.0 million households in Africa, the Mediterranean and Asia. Our extensive
pay-television experience forms the basis of our approach to our technology and
Internet operations. Through our Mindport technology division, we develop and
acquire technologies that support and enhance the services provided by pay-media
companies. Mindport, through its majority-owned subsidiary OpenTV, is the
leading provider of software that enables digital interactive television. In
addition, Mindport currently provides pay-media companies worldwide with
proprietary software solutions for subscriber management, conditional access and
other pay-media related services. We believe the Internet is a natural extension
of our core media-based competencies. We have invested in leading Internet
operations in South Africa and Thailand, and have recently begun investing in
Internet operations in China.
PAY-TELEVISION PLATFORMS
We operate our pay-television businesses in three major regions:
- the African continent (South Africa, sub-Saharan Africa, Egypt and the
Middle East),
- the Mediterranean (Greece and Cyprus) and
- Asia (Thailand and development operations based out of Beijing and Hong
Kong).
In each region, we have implemented a strategy that emphasizes being the
leading supplier of pay-television services, offering exclusive programming,
continually improving our customer care and offering new services and
technology. With the exception of Cyprus, where only analog service is offered,
we provide both analog and digital platform services in each of these three
regions.
We believe that two of the reasons we are the leading pay-television
operator in each of the markets we serve--South Africa, the rest of sub-Saharan
Africa, Greece, Cyprus and Thailand--are our exclusive, high quality content and
our early introduction of emerging technologies such as digital television. In
most markets in which we operate, we have exclusive pay-television rights to
transmit premium movies, major sporting events and popular children's
programming. We believe that access to
1
<PAGE>
this programming gives us the content necessary to attract and retain
subscribers and grow successful pay-media services.
We have experienced significant growth in the number of our subscribers,
revenue per subscriber and total pay-television revenue. From the fiscal year
ended March 30, 1996 to December 31, 1999, we increased our number of
subscribers under management from 1,137,167 to 2,078,505. Over the same period,
our digital subscribers as a percentage of our total subscribers increased from
2.0% to 39.1%, which significantly impacted our revenue per subscriber as
digital subscription fees are approximately two-thirds higher than analog fees.
As a result, we have increased our monthly revenue per subscriber, excluding
Asia and the Middle East, which are not consolidated, by 9.0% annually, from
$18.63 for the fiscal year ended March 31, 1996 to $24.11 for the fiscal year
ended March 31, 1999. Over the same period, subscription revenues increased
23.8% annually, from $233.3 million to $442.7 million.
TECHNOLOGY
We have developed a reputation as an early mover in key pay-media
technologies, such as conditional access and interactive broadcast operating
systems. We believe that our ability to apply our operating knowledge has been
an important factor in our successful design, development and marketing of new
pay-media technologies. Our 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+, Galaxy Latin America, Television Par
Satellite (TPS), Television Broadcasting Limited (TVB) and Foxtel, as well as
our own pay-television businesses. We also have an agreement to provide
Mindport's pay-television technology to the China Broadcasting Film and
Television Satellite Co. Ltd., a subsidiary of China Central Television, which
is currently using Mindport technology to distribute digital television signals
to rural villages in the People's Republic of China. The Mindport product line
includes pay-television and Internet subscriber management systems (marketed
under the IBS brand name), conditional access systems (Mindport's Irdeto Access
unit), operating software for interactive television (OpenTV), set-top box
design and specification and systems integration and consulting services.
OpenTV is the leading worldwide provider of software that enables digital
interactive television. OpenTV's software is running on more than 6.1 million
set-top boxes worldwide, with 25 network operators in 20 countries having
selected OpenTV as their interactive platform. In November 1999, OpenTV raised
$172.5 million, before expenses, in an initial public offering of 8.625 million
of its Class A Ordinary Shares. We now own 30,631,746 of OpenTV's Class B
Ordinary Shares (representing approximately 46.3% of the economic interest, and
74.7% of the voting rights, of OpenTV's fully diluted ordinary shares). OpenTV
has recently entered into strategic agreements with America Online, News
Corporation, Time Warner, General Instrument Corp. and EchoStar Communications
Corporation.
INTERNET
We believe that the Internet business is a natural extension of our core
media-based competencies of content aggregation, subscriber management,
marketing and branding and platform management. By leveraging these
competencies, we plan to offer a range of Internet services, including Internet
access, local content, e-commerce and subscriber management, both within our
current pay-television markets and in new markets.
We are currently developing leading Internet operations in South Africa and
Thailand, and have begun making investments in Internet operations in China. We
believe that what differentiates our approach, and what will be an important
component of the success of our Internet operations, is our
2
<PAGE>
experience in creating and aggregating linguistically and culturally tailored
local content. We plan to continue to pursue this strategy both as we develop
our current Internet content portals and as we establish content portals in new
markets. While our initial Internet initiatives were located in countries where
we own pay-television platforms, we are now actively pursuing opportunities in
other markets throughout Africa and Asia, such as China.
AFRICA
Our first Internet venture began with the successful development and
subsequent spin-off, in 1997, of M-Web Holdings, the leading Internet service
provider and content portal in South Africa. We continue to manage M-Web
Holdings, which is 48.4% owned by our parent company, Naspers Limited, and 16.8%
owned by us, and are entitled to direct the voting of Naspers's shares pursuant
to a voting pool agreement between us and Naspers. As of December 31, 1999,
M-Web Holdings had 195,775 subscribers and logged approximately 18 million page
views per month. Recently, we have expanded our African Internet business to
include Internet service provider operations in several sub-Saharan African
countries, including Namibia, Zambia and Botswana.
ASIA
In May 1999, we commenced operations in Thailand through a new subsidiary,
M-Web (Thailand) Limited. In July 1999, M-Web (Thailand) acquired the Thai
language portal Sanook.com, the leading Internet content portal in Thailand.
M-Web (Thailand) is currently developing other content portals in Thailand.
Through a company that we control, we have recently acquired a 75% interest in a
holding company that has a majority stake in KSC Commercial Internet Co. Ltd.,
or KSC Comnet. We believe that KSC Comnet is the largest Internet service
provider in Thailand, with more than 300,000 customers.
Through our M-Web China subsidiary, we are currently developing and
investigating several business operations in the Chinese Internet market. Since
opening our Asia representative office in Beijing in 1998, our Chinese
operations have expanded significantly and M-Web China currently has over 170
employees.
M-Web China is currently focused on establishing MWEB.COM.CN as a
comprehensive horizontal portal with focused vertical categories of content,
including a personal finance site being developed in conjunction with the owner
of EEFOO.COM, the fourth largest financial portal in China. M-Web China and the
owner of the leading private Chinese ISP, A-1 Net, have entered into strategic
agreements for the development of a Chinese-language, subscription-based
Internet content and information service. This service is intended to be bundled
with Internet access services offered by A-1 Net. MIH Limited has also
established a joint venture with an affiliate of Tsinghua University to develop
and produce online information systems to be used for the delivery of
educational services over the Internet in China.
RECENT DEVELOPMENTS
On March 26, 2000, OpenTV announced that it had signed a definitive merger
agreement with Spyglass, Inc., a leading provider of Internet consulting,
software and professional services and products. Spyglass's technologies include
Spyglass Prism, a server-based product that reorganizes and reformats standard
Web content to display on set-top boxes, mobile phones and other non-PC devices.
These technologies provide a platform for OpenTV to expand into the wireless
communications market. Spyglass has provided its technologies and consulting
services to companies such as GTE, Microsoft, Motorola, NEC, Nokia and Sony.
Under the terms of the agreement, OpenTV will acquire all of Spyglass's
outstanding stock in a tax-free, stock-for-stock transaction. Spyglass
stockholders will receive 0.7236 OpenTV Class A Ordinary Shares in exchange for
each share of Spyglass common stock. Based on OpenTV's closing
3
<PAGE>
price on March 24, 2000, the last trading day before the announcement of the
transaction, the transaction has a value of approximately $2.5 billion on a
fully diluted basis. Spyglass stockholders and option holders will receive
approximately 15.0 million OpenTV Class A Ordinary Shares and own approximately
18% of the combined company's stock on a fully diluted basis. After giving pro
forma effect to the Spyglass transaction, MIH Limited will own shares
representing approximately 37.7% of the economic rights and 72.0% of the voting
rights of OpenTV's shares on a fully diluted basis. Subject to certain customary
closing conditions, including regulatory approvals and the approval of the
stockholders of both companies, the transaction is expected to close within
three to four months.
CORPORATE INFORMATION
Our corporate headquarters are located at Abbot Building, Mount Street,
Tortola, Road Town, British Virgin Islands, and our telephone number is
(284) 494-5471. Our registration number under the BVI International Business
Companies Ordinance is 47572. The address of our web site is WWW.MIH.COM.
Information contained in our web site is not a part of this prospectus.
4
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Class A Ordinary Shares offered by us:
U.S. offering.............................. 594,442 shares
International offering..................... 2,377,766 shares
Total.................................... 2,972,208 shares
Class A Ordinary Shares offered by the
selling stockholder:
U.S. offering.............................. 705,558 shares
International offering..................... 2,822,234 shares
Total.................................... 3,527,792 shares
Ordinary Shares to be outstanding after the
offerings:
Class A Ordinary Shares.................... 25,436,664 shares(1)
Class B Ordinary Shares.................... 30,787,319 shares
Total.................................... 56,223,983 shares(1)
Use of proceeds.............................. We intend to use these net proceeds as follows:
- to finance potential strategic investments in and
acquisitions of pay-television, Internet services
and pay-media technology businesses in both new and
existing markets;
- to fund the expansion of our Internet businesses,
with a focus on Asian development opportunities,
including those in Thailand and China; and
- to fund the growth of our other existing
businesses.
We will also retain some cash proceeds for general
working capital purposes.
We will not receive any of the proceeds from the sale
by the selling stockholder of its shares.
Risk factors................................. See "Risk Factors" for a discussion of important
factors that you should carefully consider before
deciding whether to invest in our Class A Ordinary
Shares.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Voting and certain other rights.............. The rights of holders of Class A Ordinary Shares and
holders of Class B Ordinary Shares are identical in
most respects, including as to dividends. However,
holders of Class B Ordinary Shares are entitled to
three votes per share while holders of Class A
Ordinary Shares are entitled to one vote per share.
Holders of Class A Ordinary Shares and Class B
Ordinary Shares vote together as a single class,
except as otherwise required by British Virgin
Islands law or our Memorandum and Articles. A more
complete description of these rights can be found
under the heading "Description of Capital
Stock--Class A Ordinary Shares and Class B Ordinary
Shares".
Nasdaq National Market and Amsterdam
Exchanges N.V.'s stock market ("Amsterdam
Stock Exchange") symbol.................... "MIHL".
</TABLE>
- ------------------------------
(1) Does not include (i) up to 975,000 shares that may be issued upon exercise
of over-allotment options granted to the underwriters, (ii) 1,944,415 shares
issuable under the MIH Limited Share Scheme upon exercise of employee share
options at a weighted average exercise price of $16.01 per share and
(iii) 20,000 shares issuable under our Directors' Stock Option Plan upon
exercise of share options at an exercise price of $28.75 per share.
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following tables contain summary historical information for each of the
fiscal years ended March 31, 1999, 1998, 1997, as of September 30, 1999 and for
the six months ended September 30, 1999 and 1998. The information for the fiscal
years ended March 31, 1999, 1998 and 1997 has been derived from our audited
consolidated and combined financial statements and the notes to those financial
statements included elsewhere in this prospectus, and the information as of
September 30, 1999 and for the six months ended September 30, 1999 and 1998 has
been derived from our unaudited condensed consolidated interim financial
statements and the notes to those financial statements included elsewhere in
this prospectus. This summary financial information should be read in
conjunction with those financial statements and related notes.
All of our financial statements have been prepared in accordance with
International Accounting Standards ("IAS"), which differ in certain significant
respects from generally accepted accounting principles in the United States ("US
GAAP"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--US GAAP Reconciliation" and Note 19 of the notes to our
unaudited condensed consolidated interim financial statements and Note 29 of the
notes to our consolidated financial statements for a description of the relevant
differences.
The combined financial statements have eliminated all accounts among the
Acquired MIH Businesses, but they do not eliminate amounts due from the Acquired
MIH Businesses to MIH Limited, which the consolidated financial statements do
eliminate, nor do they include purchase accounting adjustments that occurred as
a result of the Canal+ Transaction described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Presentation of
Financial Information".
<TABLE>
<CAPTION>
ACQUIRED MIH
BUSINESSES
COMBINED
COMPANY CONSOLIDATED(1) (PREDECESSOR)(1)
------------------------------------------------- ----------------
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------- ------------------------------------------
1999 1998 1999 1998 1997
---------- ---------- ---------- ---------- ----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH IAS:
Revenues:
Subscriptions.................................... $245.7 $205.4 $442.7 $404.5 $315.5
Decoder sales and repair......................... 41.9 44.1 72.0 63.1 60.2
Technology and other............................. 65.6 35.1 93.2 32.9 16.2
---------- ---------- ---------- ---------- ----------------
Total revenues, net.......................... 353.2 284.6 607.9 500.5 391.9
Operating expenses:
Cost of providing services....................... (203.2) (187.4) (390.5) (308.8) (259.4)
Selling, general and administrative.............. (145.0) (76.6) (203.8) (175.2) (140.4)
Depreciation and amortization(2)................. (37.1) (25.0) (51.4) (58.0) (16.2)
---------- ---------- ---------- ---------- ----------------
Operating loss................................... (32.1) (4.4) (37.8) (41.5) (24.1)
Financial results, net(3)........................ (8.4) (8.8) (9.1) (5.5) (5.3)
Equity results in joint ventures and
associates..................................... (20.0) (14.2) (43.3) (7.9) 3.8
Profit on sale of joint ventures and
associates..................................... 18.0 31.1 31.1 -- --
---------- ---------- ---------- ---------- ----------------
(Loss)/profit before taxation.................. (42.5) 3.7 (59.1) (54.9) (25.6)
(Loss)/profit from continuing operations......... (40.5) 0.1 (59.0) (58.5) (26.0)
Net loss....................................... (47.9) (0.7) (68.8) (63.8) (26.0)
Net (loss)/profit per share from continuing
operations(4).................................. $(0.81) $0.01 $(1.54) $(1.53)
Net loss per share(4)............................ (0.95) (0.02) (1.80) (1.67)
Dividends(5)..................................... -- -- -- 1.36
Weighted average shares outstanding.............. 50,230,474 38,235,000 38,235,000 38,235,000
AMOUNTS IN ACCORDANCE WITH US GAAP:
Loss from continuing operations.................. $(51.2) $(5.0) $(64.1) $(74.1) $(26.0)
Net loss......................................... (58.6) (5.9) (74.0) (79.3) (26.0)
Net loss per share from continuing
operations(4).................................. (1.02) (0.13) (1.68) (1.94)
Net loss per share(4)............................ (1.17) (0.16) (1.94) (2.07)
</TABLE>
7
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
-----------------------
AS
ACTUAL ADJUSTED(6)
-------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH IAS:
Cash and cash equivalents................................... $167.3 $ 337.9
Total assets................................................ 948.5 1,119.1
Total debt(7)............................................... 275.1 275.1
Minority Interests...................................... 0.4 0.4
Total shareholders' equity.................................. 343.3 514.0
AMOUNTS IN ACCORDANCE WITH US GAAP:
Cash and cash equivalents................................... $167.3 $ 337.9
Total assets................................................ 918.6 1,089.2
Total debt(7)............................................... 275.1 275.1
Minority interest....................................... 0.4 0.4
Total shareholders' equity.................................. 311.2 481.9
</TABLE>
- ------------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Presentation of Financial Information".
(2) The operating results of MIH Limited for the years ended March 31, 1999 and
1998 and the six-month periods ended September 30, 1999 and 1998 include
amortization of $43.8 million, $33.3 million, $29.4 million and
$14.2 million, respectively, attributable to goodwill that was recorded as a
result of the acquisition of the Acquired MIH Businesses and subsequent
acquisitions. Amortization of film and sports rights is included in the cost
of providing services.
(3) Includes interest expense, interest income, dividend income, foreign
exchange gains and losses, and gains on disposal of investments.
(4) Per share amounts are not applicable to the results of the Acquired MIH
Businesses.
(5) Dividend paid in 1998 to facilitate the capitalization of M-Web Holdings
Limited. We do not expect to pay dividends in the near future.
(6) The As Adjusted column reflects the proceeds from the sale of 2,972,208
Class A Ordinary Shares by MIH Limited in these offerings after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, based on an assumed offering price of $60.50 per share (the last
reported sale price on the Nasdaq National Market on March 30, 2000).
(7) Includes bank overdrafts, current portion of long-term debt, long-term debt
and other long-term debt (see Note 12 to our condensed consolidated
financial statements).
8
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RISK FACTORS
INVESTING IN OUR CLASS A ORDINARY SHARES WILL PROVIDE YOU WITH AN EQUITY
OWNERSHIP INTEREST IN OUR COMPANY. AS AN MIH SHAREHOLDER, YOU WILL BE SUBJECT TO
ALL THE RISKS INHERENT IN OUR BUSINESS. THE MARKET VALUE OF YOUR SHARES WILL
REFLECT THE PERFORMANCE OF OUR BUSINESS RELATIVE TO, AMONG OTHER THINGS, THAT OF
OUR COMPETITORS AND GENERAL ECONOMIC, MARKET AND INDUSTRY CONDITIONS. THE VALUE
OF YOUR INVESTMENT MAY INCREASE OR MAY DECLINE AND COULD RESULT IN A LOSS. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN OUR CLASS A
ORDINARY SHARES.
RISKS RELATED TO OUR OPERATIONS
WE HAVE A HISTORY OF LOSSES THAT WILL CONTINUE FOR THE FORESEEABLE FUTURE, AND
WE MAY NEVER BE PROFITABLE
We have incurred significant net losses since inception and, at
September 30, 1999, had an accumulated deficit of $463.8 million (including
foreign currency translation adjustments). In addition, we currently intend to
incur substantial operating expenses over the next several years to fund the
expansion of our businesses and to attempt to increase our subscriber base and
develop our Internet and technology businesses. As a result, we expect to incur
substantial operating and net losses for the foreseeable future. We cannot
assure you that we will ever be profitable.
FAILURE TO MAINTAIN OUR RELATIONSHIPS WITH LOCAL PARTNERS AND LOCAL GOVERNMENTS
COULD HURT OUR BUSINESS IN SOME REGIONS
Many of our operations have been developed in cooperation or partnership
with key local parties. With regard to these operations, we are dependent on our
local partners to provide knowledge of the local market conditions and to
facilitate the acquisition of necessary licenses and permits. Any failure by us
to form or maintain alliances with local partners, or the preemption or
disruption of these alliances by our competitors or otherwise, could adversely
affect our ability to penetrate and compete successfully in many important
markets. Some of our businesses may also 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 us. Adverse developments with respect to our relationships with our local
partners or with local governmental or quasi-governmental entities could
adversely affect our business strategy and operating results in important
markets.
OUR BUSINESSES ARE HIGHLY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE THE
VALUE OF AN INVESTMENT IN OUR COMPANY
PAY-TELEVISION. Although we are currently the only major provider of
pay-television services in each of our markets, we compete 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 we operate are in a constant state of change due to technological,
economic and regulatory developments. We are unable to predict what forms of
competition will develop in the future, the extent of such competition or its
possible effects on our businesses.
INTERACTIVE TELEVISION. The interactive television business is a highly
competitive industry and increased competition could reduce the value of our
investment in OpenTV. OpenTV's current and potential competitors in one or more
aspects of its business include interactive television technology companies,
such as Liberate Technologies, Canal+ Technologies and Microsoft and its
wholly-owned subsidiary, WebTV, Internet-related companies, such as America
Online, Yahoo! and Real Networks,
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and broadband interactive service providers, such as Excite@Home and RoadRunner.
These companies and many of OpenTV's other current and potential competitors
have significantly greater financial, technical and marketing resources and
better recognized brand names than OpenTV does.
INTERNET. The market for Internet access and related services is extremely
competitive. We anticipate that competition will continue to intensify as the
use of the Internet grows. The tremendous growth and potential market size of
the Internet services market has attracted many start-up companies as well as
existing businesses from different industries. The African and Asian Internet
markets, where we plan to expand our operations, are characterized by an
increasing number of entrants because start up costs are so low. In addition,
the Internet industry in Africa and Asia is relatively new and subject to
continuing definition and, as a result, our competitors may better position
themselves to compete in these markets as they mature. These 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 online service providers. Many of these competitors have longer
operating histories and substantially greater financial, technical, marketing
and personnel resources as well as greater name recognition than we do.
OTHER TECHNOLOGY. The market for the products and services offered by our
Mindport division is highly competitive. We compete with numerous other
entities, including other pay-television providers, many of which have
substantially greater financial resources than we do. 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 providers of authoring tools and integration services for
pay-media and interactive technology solutions. There are also numerous
businesses with the expertise and financial resources necessary to enter the
markets in which Mindport operates.
RAPID TECHNOLOGICAL ADVANCES OR THE ADOPTION OF NEW STANDARDS COULD RENDER OUR
PRODUCTS OBSOLETE OR NON-COMPETITIVE
The rate of technological change currently affecting the television and
Internet industries is particularly rapid compared to other industries. Emerging
trends, such as the migration of television from analog to digital transmission
and the convergence of television, the Internet, communications and other media,
are creating a dynamic and unpredictable environment in which to operate. New
technologies or industry standards have the potential to replace or provide
lower-cost alternatives to our products and services, particularly those of our
Mindport division. Our ability to anticipate industry trends and adapt to new
technologies is critical to our success.
Technological advances by our competitors could render our existing products
and services obsolete or less competitive. We may also have to incur substantial
expenditures to modify, enhance or adapt our products or services as a result of
changes in technology. Any delay or failure on our part to respond quickly,
cost-effectively and sufficiently to these developments could have a material
adverse effect on our business, financial condition and results of operations.
OUR MULTINATIONAL OPERATIONS EXPOSE US TO CERTAIN FINANCIAL, OPERATIONAL, SOCIAL
AND POLITICAL RISKS
FOREIGN CURRENCY RISKS. Although a substantial portion of our revenue is
denominated in the currencies of the countries in which we operate, a
significant portion of our cash obligations, including the payment obligations
under our satellite transponder leases and our contracts for programming and
channels for our pay-television platforms, are denominated in U.S. dollars. In
those areas where our revenue is denominated in local currency, a depreciation
of that currency against the U.S. dollar could adversely affect our earnings and
our ability to meet our cash obligations. Similarly, where we price our products
and services in U.S. dollars or U.S. dollar equivalents, a depreciation of the
local currency would make our products more expensive for our customers and
could have an adverse impact on our
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sales. Many of our 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 our operating entities hedge a substantial portion of
their currency risks, we cannot assure you that this hedging will fully protect
us against currency fluctuations or that we will be able to hedge effectively
against these risks in the future.
Our reporting currency is the U.S. dollar. We conduct and will continue to
conduct business transactions in currencies other than our reporting currency.
Accordingly, appreciation or depreciation in the value of other currencies as
compared to our reporting currency will result in translation gains or losses
which, if the appreciation or depreciation is significant, could be material.
SOCIAL, ECONOMIC AND POLITICAL FACTORS. Many of the countries in which we
operate are subject to social, political or economic pressures that may
materially adversely affect our 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 impeded foreign investment and prompted an
emigration of skilled workers. Many countries in Asia have in the past few years
experienced significant economic downturns and related difficulties. As a result
of the decline in the value of the region's currencies, many Asian governments
and companies have had difficulties servicing foreign currency-denominated debt
and many corporate borrowers have defaulted on their payments. As the economic
crisis spread across the region, governments raised their interest rates to
defend their weakening currencies, which adversely impacted domestic growth
rates. In addition, liquidity was substantially reduced as foreign investors
curtailed investments in the region and domestic and foreign banks restricted
additional lending activity. The currency fluctuations, higher interest rates,
increases in corporate bankruptcies, stock market declines, government-imposed
austerity measures and other factors have materially and adversely affected the
economies of many countries in Asia, including China and Thailand. These adverse
economic developments in Asia could materially adversely affect our business. In
addition, we currently do and may begin to do business in other countries that
are subject to political, social or economic pressures that could adversely
affect our business. Although governments in many of these countries have taken
steps toward addressing these problems, 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.
GOVERNMENT REGULATIONS MAY ADVERSELY AFFECT OUR BUSINESS
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. Changes in applicable laws and regulations could cause
us to incur additional costs of compliance or otherwise adversely affect our
business. We cannot assure you that material and adverse changes in the
regulation of our 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 our ability to offer some or all of our services. In most
countries in which we do or may do business, we operate or may operate pursuant
to licenses obtained from governmental or quasi-governmental agencies, which
licenses are generally subject to periodic renewal. Our inability to obtain or
retain any required licenses could have a material adverse effect on our
business.
BECAUSE MUCH OF OUR SUCCESS AND VALUE LIES IN OUR OWNERSHIP AND USE OF
INTELLECTUAL PROPERTY, OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY OR TO
DEVELOP NEW PROPRIETARY TECHNOLOGY MAY NEGATIVELY AFFECT US
Our success depends in part on our ability to protect and maintain the
proprietary nature of our technology through a combination of patents, trade
secrets, trademarks, copyrights, licenses and other
11
<PAGE>
intellectual property arrangements. We have issued and pending patents,
trademark registrations and computer program copyrights in the United States and
other countries. It may be possible, however, for a third party to copy or
otherwise obtain and use our technology without authorization, or to develop
similar technology independently. Furthermore, the laws of some of the countries
in which we sell our products do not protect our intellectual property rights to
the same extent as do the laws of the United States. If unauthorized copying or
misuse of our products were to occur to any substantial degree, our business
could be materially adversely affected. We cannot assure you that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology.
In the future, we may receive notices of claims of infringement of other
parties' proprietary rights or claims for indemnification resulting from
infringement claims. We expect that software developers will increasingly be
subject to these types of claims as the number of products and competitors
providing software and services to the pay-media industries increases and
overlaps occur. The emerging enhanced-television industry, of which we are
involved in the development, is also highly litigious with regard to
intellectual property matters, particularly in the area of on-screen program
guides. Any such claim, with or without merit, could result in costly litigation
or might require us to enter into royalty or licensing agreements. These royalty
or licensing agreements, if required, may not be available on terms acceptable
to us or at all. As a result of such infringement claims, a court could also
issue an injunction preventing us from distributing certain of our products. Any
of these types of problems relating to intellectual property matters could cause
us to incur substantial costs and could result in a significant diversion of
managerial resources, which in turn could materially adversely affect our
business, operating results and financial position.
WE DEPEND ON KEY PERSONNEL TO MANAGE AND GROW OUR BUSINESS
Our operating performance depends on the efforts and abilities of our senior
management. The loss of the services of any of these individuals could have a
material adverse effect on our business. We believe that the success of our
technology and Internet businesses will depend in large part on our ability to
attract and retain highly skilled information technology professionals and
software programmers. There is intense competition among technology and Internet
companies for these types of employees. We cannot assure you that we will be
able to attract and retain the personnel necessary for the development and
integration of these businesses. Delays in hiring key personnel could delay the
achievement of our 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 our business or financial
condition.
THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT OUR BUSINESS
We rely on computer software programs and operating systems across our
entire organization, including applications used in distributing our
pay-television and Internet services, rendering bills to our customers and
various other functions. Similarly, our vendors, suppliers and customers rely on
computer systems to conduct their operations and to receive our services. Year
2000 issues affecting our business could have a number of negative consequences,
including, for example, interruptions of the services of network operators using
our products, damage to our reputation and claims asserting liability, any of
which could materially adversely affect our business and results of operations.
To date, we have not experienced any problems relating to Year 2000 issues.
We did not suffer any systems interruptions or failures on January 1, 2000, and
we have not suffered from these or any similar problems since that date.
However, it is still too early to assess whether we will experience any of the
potential Year 2000 information processing problems. Significant Year 2000
information processing problems that may yet be encountered by us or our
customers or suppliers could have an adverse affect on our business and
financial condition.
12
<PAGE>
WE MAY HAVE DIFFICULTY CONSUMMATING OR INTEGRATING ACQUISITIONS, AND SOME OF THE
CONSEQUENCES OF THOSE ACQUISITIONS THAT WE DO COMPLETE COULD ADVERSELY AFFECT
OUR OPERATING RESULTS
Part of our growth strategy includes 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 these offerings may be used to finance these acquisitions and
investments. We cannot assure you that we will be able to identify and acquire
new businesses on satisfactory terms, if at all, or that the funds necessary to
finance these acquisitions or investments will be available to us.
The magnitude, timing and nature of future acquisitions will depend upon
various factors (some of which are beyond our control), including the
availability of suitable acquisition candidates, the negotiation of acceptable
terms, our 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 us will involve risks, including the risk that they will require increased
capital and operating expenditures associated with upgrading acquired systems to
our standards and the risk that the costs of integrating these businesses may
have a material adverse effect on our operating results.
The integration of acquired businesses may also lead to diversion of
management attention from our other ongoing business concerns. The consummation
of certain acquisitions may lead to our recognizing goodwill, which would be
subject to amortization that would in turn have the effect of delaying future
profits, if any, in subsequent financial reporting periods.
OUR INABILITY TO PROPERLY MANAGE OUR GROWTH COULD ADVERSELY AFFECT US
We have experienced rapid growth in a relatively short period of time. If we
are able to implement our business strategy successfully, we will experience
additional growth and expansion. The management of this growth will require,
among other things, the continued development of our financial and management
controls, the stringent control of costs and the increased employment and
retention of qualified personnel. If our potential growth is not adequately
managed, our business will suffer.
ADDITIONAL RISKS RELATED TO OUR PAY-TELEVISION BUSINESS
IF THE COST OF RECEIVERS DOES NOT DECREASE, OUR GROWTH MAY BE ADVERSELY AFFECTED
Our growth depends, in part, upon our 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 our transmissions. The cost of
this equipment may discourage potential subscribers. Our market penetration and
growth may be impeded if the cost of the equipment necessary to receive our
broadcasts does not decrease. As a result, we cannot assure you that we will be
able to establish a substantial customer base in new markets or grow or maintain
a substantial customer base in our existing markets.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO OBTAIN ATTRACTIVE PROGRAMMING,
PARTICULARLY IF WE ARE UNABLE TO CONTINUE TO OBTAIN EXCLUSIVE RIGHTS TO THIS
PROGRAMMING
The continued success of our pay-television business will be dependent on
our ability to continue to obtain attractive programming at commercially
reasonable costs. We are dependent on third party suppliers for substantially
all of our programming. A large portion of our 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 our contracts are canceled or
not renewed, we would be required to seek alternative programming from other
sources. We cannot assure you that alternative programming would be
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available to us on acceptable terms or at all or, if so available, that this
programming would appeal to our subscribers. Our strategy also depends on our
ability to offer attractive programming on an exclusive basis. We cannot assure
you that we will continue to obtain exclusive rights to attractive programming.
SATELLITE FAILURES OR OUR INABILITY TO OBTAIN RIGHTS TO USE SATELLITES COULD
HAVE A SERIOUS ADVERSE IMPACT ON OUR BUSINESS
Our digital programming is transmitted to customers through different
satellites around the world, and in some regions our terrestrial analog signal
is also transmitted to regional broadcast points through satellites. In
addition, we receive a significant amount of our 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
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, our lease agreements relating to
transponders, which are microwave repeaters on a satellite that can retransmit a
signal or set of signals, do not guarantee the minimum useful life of any
satellites. Although we have not experienced any significant disruption of our
transmissions, the operation of satellites is beyond our control. Future launch
failures or disruption of the transmissions of satellites that are already
operational could have a material adverse effect on our business and financial
results. In addition, our ability to transmit our programming following the
expected useful lives of the satellites in respect of which we currently have
use arrangements in place and to broadcast additional channels will depend upon
our ability to obtain rights to utilize transponders on other satellites. We do
not currently have alternative satellite contracts in place, and in the event of
a satellite failure, we would need to procure transponder capacity on other
satellites. We cannot assure you that we will be able to obtain alternative
capacity rights or that the cost of these rights will be commercially acceptable
to us.
A NATURAL DISASTER AFFECTING OUR INFRASTRUCTURE THAT CAUSES A PROLONGED
SUSPENSION OF OUR SERVICES COULD ADVERSELY AFFECT OUR REVENUES AND FINANCIAL
CONDITION
We are dependent on our own transmission and production facilities as well
as those of our programming suppliers and affiliates to provide our
pay-television services. If a natural disaster or other event, such as a
lightning strike, were to result in the operations at any of these facilities
being disrupted for any significant period of time or inventory located there
being damaged, a prolonged suspension of our pay-television services could occur
and our results of operations and financial condition could be materially
adversely affected. Although we maintain insurance coverage on our own
transmission and production facilities, we cannot assure you that insurance
proceeds would be available on a timely basis or be sufficient to fully offset
any losses that we may incur.
UNAUTHORIZED ACCESS TO OUR PROGRAMMING SIGNALS IS DIFFICULT TO PREVENT AND MAY
ADVERSELY AFFECT OUR REVENUES AND PROGRAMMING ARRANGEMENTS
We face the risk that our 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". We currently utilize encryption technology supplied to
us by our Mindport division. We cannot assure you that this encryption
technology is, or will remain, effective in preventing unauthorized access. If
we determine that our current encryption technology is not sufficiently
effective in preventing piracy, we may need to incur substantial expenditures to
replace or upgrade this technology. In addition, encryption technology cannot
prevent the illegal retransmission or sharing of a television signal once it has
been decrypted. If we fail to control unauthorized access to
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our transmissions, our revenues and our ability to contract for programming
services could be adversely affected.
ADDITIONAL RISKS RELATED TO OUR INTERNET BUSINESS
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE INTERNET AS A COMMERCIAL
MEDIUM, WHICH IS ESPECIALLY UNCERTAIN IN THE COUNTRIES IN WHICH WE HAVE ENTERED
OR MAY ENTER THE INTERNET BUSINESS
A significant part of our strategy is to develop our 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 we have entered or may
in the future enter the Internet business, such as China, Thailand and other
countries in Southeast Asia, because they have a less developed Internet culture
and infrastructure. For example, the cost of access may prevent many potential
users in Asia from using the Internet. If, in the areas in which we have
launched or may launch an 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 offered by us
are not broadly accepted, our growth strategy could be materially adversely
affected.
WE MUST MAINTAIN ACCESS TO QUALITY CONTENT PROVIDED BY THIRD PARTIES IN ORDER TO
DEVELOP OUR INTERNET SUBSCRIBER BASE
Although we seek to produce or edit a substantial portion of the content for
our web sites, we continue to rely upon third parties to provide content to
complement our own content and thus make our web sites more attractive to users
and, by extension, advertisers and e-commerce partners. Many of our arrangements
with third-party providers of content are not exclusive, are short-term and may
be terminated at the discretion of the other party. The termination of our
arrangements with some of these providers of content could have an adverse
effect on our company.
WE MUST FURTHER DEVELOP STRATEGIC RELATIONSHIPS TO STRENGTHEN OUR COMPETITIVE
POSITION IN OUR INTERNET OPERATIONS
In the initial stage of our Internet operations, we have focused upon
understanding our target markets and delivering high-quality services and
products designed for these markets. More recently, we have sought to establish
strategic relationships with leading content providers, e-commerce partners and
technology and infrastructure providers. The future growth of our Internet
businesses will depend upon maintaining our existing strategic relationships as
well as our ability to establish new relationships.
WE RELY ON SOFTWARE AND HARDWARE SYSTEMS THAT ARE SUSCEPTIBLE TO FAILURE
Any system failure or inadequacy that causes interruptions in the
availability of our Internet services, or increases the response time of our
services, as a result of increased traffic or otherwise, could reduce user
satisfaction, future traffic and our attractiveness to advertisers and
consumers. In addition, as the amount of web pages and Internet traffic
increases, there can be no assurance that we will be able to scale our systems
proportionately. We are also dependent upon web browsers, telephone systems and
other aspects of the Internet infrastructure which have experienced significant
system failures and electrical outages in the past, and our users may experience
difficulties due to system failures unrelated to our systems and services. Our
operations are susceptible to outages due to fire, floods, power loss,
telecommunications failures, break-ins and similar events. Despite our
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implementation of network security measures, our servers are vulnerable to
computer viruses, break-ins and similar disruptions from unauthorized tampering
with our computer systems. Such events could have a material adverse effect on
our business, operating results and financial condition.
THE TELECOMMUNICATIONS STRUCTURE AND THE REGULATION OF THE INFORMATION INDUSTRY
IN CHINA MAY ADVERSELY AFFECT OUR ABILITY TO DEVELOP A SUCCESSFUL INTERNET
SERVICES BUSINESS IN THAT COUNTRY
The telecommunications structure in the People's Republic of China is not
well developed and access to the Internet is accomplished primarily by means of
the government's backbone of separate national interconnecting networks that
connect with the international gateway to the Internet. This backbone is owned
by the Chinese government and is the only channel through which the domestic
Chinese Internet network can connect to the international Internet network.
Although private sector Internet service providers, or ISPs, exist in China,
almost all access to the Internet is accomplished through ChinaNet, China's
primary commercial network, which is owned and operated by the Chinese
government. We rely on this backbone and China Telecom to provide data
communications capacity primarily through local telecommunications lines. As a
result, we will continue to depend on the Chinese government to establish and
maintain a reliable Internet infrastructure to reach a broader base of Internet
users in China. We will have no means of getting access to alternative networks
and services, on a timely basis or at all, in the event of any disruption or
failure. We cannot assure you that the Internet infrastructure in China will
support the demands associated with continued growth.
The People's Republic of China has enacted regulations governing Internet
access and the distribution of news and other information. Periodically, the
Ministry of Public Security has stopped the distribution of information over the
Internet that it believes to be socially destabilizing by blocking web sites
maintained outside of China. The Chinese government has also expressed its
intention to closely control possible new areas of business presented by the
Internet such as Internet telephony. If the Chinese government were to take any
action to limit or eliminate the distribution of information through Internet
portal networks or to limit or regulate any current or future applications
available to users on Internet portal networks, such action could adversely
affect our ability to develop a profitable Internet business in China.
The Chinese government also regulates access to the Internet by imposing
strict licensing requirements and requiring ISPs in China to use the
international inbound and outbound Internet backbones. We cannot assure you that
we will be able to obtain or maintain all necessary licenses required in the
future or that future changes in Chinese government policies affecting the
provision of information services, including the provision of online services
and Internet access, will not impose additional regulatory requirements on the
Internet operations that we are developing in China. These types of regulatory
requirements may make it difficult or impossible for us to build a successful
Internet business in China.
RISKS RELATED TO OUR CORPORATE AND OWNERSHIP STRUCTURE
WE ARE DEPENDENT ON ACCESS TO CASH FLOWS FROM OUR SUBSIDIARIES AND JOINT VENTURE
INVESTMENTS TO FUND OUR BUSINESS OPERATIONS, WHICH COULD RENDER US UNABLE TO
MEET OUR CASH REQUIREMENTS
Our company is structured as a holding company and we have no significant
business operations or assets other than our interests in our subsidiaries,
joint ventures and other investments. Accordingly, we must rely entirely upon
distributions and repayment of advances from our subsidiaries, joint ventures
and other investments to generate the funds necessary to meet our obligations
and our other cash flow needs, including for working capital, capital
expenditures and acquisitions. Our subsidiaries and joint ventures are separate
and distinct legal entities that have no obligation to make any funds available
to us, whether by dividends, loans or other payments. In addition, the ability
of our subsidiaries and joint ventures to make distributions to us is subject,
in certain jurisdictions, to foreign investment and
16
<PAGE>
exchange laws and the availability of foreign exchange in sufficient quantities
in those countries. The amount of distributions we receive from these entities
is also affected by the regulatory systems in these jurisdictions, primarily the
provisions relating to exchange controls. In addition, because the consent of
our joint venture partners is required in some of our joint ventures for
distributions from these joint ventures, our ability to receive distributions
from these joint ventures is dependent on the cooperation of our joint venture
partners. Accordingly, we cannot assure you that we will be able to realize
benefits from our subsidiaries, joint ventures and other investments through the
receipt of distributions at the times and in the amounts we desire. Any failure
by us to receive distributions from our subsidiaries, joint ventures or other
investments would restrict our ability to pay dividends on our Class A Ordinary
Shares in the future and could otherwise have a material adverse effect on our
business and financial condition. In the event that we are unable to meet our
working capital needs and capital expenditure requirements with cash generated
from our subsidiaries, joint ventures or other investments, we would have to
consider various options, such as incurring indebtedness, obtaining additional
equity capital or selling our assets. We cannot assure you that we will be able
to raise new equity capital, refinance our outstanding indebtedness or obtain
new financing in the future or that, if we are able to do so, the terms
available will be favorable to us.
OUR INABILITY TO UNILATERALLY CONTROL OUR JOINT VENTURES COULD HURT OUR BUSINESS
IN SOME REGIONS
Significant actions by most of our joint ventures, such as approving budgets
and business plans, declaring and paying dividends and entering into significant
transactions, effectively require the approval of our local partners.
Accordingly, we do not have unilateral control over the operations of many of
our joint ventures, which limits our flexibility and could adversely affect our
business strategy and operating results in some important regions.
SOUTH AFRICAN EXCHANGE CONTROL REGULATIONS SIGNIFICANTLY RESTRICT OUR ABILITY TO
RECEIVE CASH DISTRIBUTIONS FROM OUR SOUTH AFRICAN SUBSIDIARIES
Our 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. Transactions between South African
residents and residents of countries outside the common monetary area 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, 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. While these 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. These exchange
control regulations effectively prevent us from receiving distributions from our
South African subsidiaries.
THE INTERESTS OF OUR MAJORITY OWNER MAY DIFFER FROM YOUR INTERESTS AND MAY
RESULT IN OUR ACTING IN A MANNER INCONSISTENT WITH YOUR GENERAL INTERESTS
Immediately following these offerings, MIH Holdings Limited will indirectly
own all of our outstanding Class B Ordinary Shares, representing 78.4% of the
voting rights with respect to our ordinary shares. MIH Investments (Proprietary)
Limited owns 53.0% of the voting stock of MIH Holdings, and Naspers Limited owns
all the voting stock of MIH Investments, directly owns 2.8% of MIH Holdings and
directly owns 1.2% of MIH Limited. As a result of their ownership of our
Class A Ordinary Shares and Class B Ordinary Shares, MIH Holdings and its parent
companies effectively control us and have sufficient voting power, without the
vote of any other shareholders, to determine the outcome of any action requiring
shareholder approval, including amendments of our Memorandum
17
<PAGE>
and Articles for any purpose (which could include increasing or reducing our
authorized capital or authorizing the issuance of additional shares). We engage
in transactions with MIH Holdings and its parent companies in the ordinary
course of business. The interests of MIH Holdings and its parent companies may
diverge from your interests, and they may be in a position to require us to act
in a way that is inconsistent with the general interests of the holders of our
Class A Ordinary Shares, including through transactions with related companies.
For a more complete description of our relationships with MIH Holdings and its
parent companies and these companies' ownership of our ordinary shares, see
"Management", "Transactions with Related Parties" and "Principal and Selling
Stockholders".
BECAUSE WE ARE A BRITISH VIRGIN ISLANDS COMPANY, YOU MAY HAVE DIFFICULTY
PROTECTING YOUR INTERESTS IN RESPECT OF DECISIONS MADE BY OUR BOARD OF DIRECTORS
Our corporate affairs are governed by our 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 our shareholders may differ
from those that would apply if we were incorporated in the United States or
another jurisdiction. The rights of shareholders under BVI law are not as
clearly established as are the rights of shareholders in many other
jurisdictions. Thus, you may have more difficulty protecting your interests in
the face of actions by our board of directors or our principal shareholders than
you would have as shareholders of a corporation incorporated in another
jurisdiction.
BECAUSE WE ARE A BRITISH VIRGIN ISLANDS COMPANY, YOU MAY NOT BE ABLE TO ENFORCE
JUDGMENTS AGAINST US THAT ARE OBTAINED IN U.S. COURTS
We are incorporated in the British Virgin Islands and our business
operations are located in several countries, principally South Africa, the
Netherlands, Greece, Thailand and China. All of our directors and officers
reside outside the U.S., and nearly all of our assets and the assets of these
persons are located outside the United States. As a result, it may be difficult
or impossible for investors to effect service of process on us or these persons
within the United States or to enforce against us or these persons judgments
obtained in U.S. courts, including judgments predicated upon the civil liability
provisions of the federal securities laws of the United States.
We have been advised by Harney Westwood and Riegels, our British Virgin
Islands counsel, that judgments of U.S. courts predicated upon the civil
liability provisions of the federal securities laws of the United States may be
difficult to enforce in BVI courts and that there is substantial doubt as to
whether BVI courts will enter judgments in original actions brought in BVI
courts predicated solely upon the civil liability provisions of the federal
securities laws of the United States.
RISKS RELATED TO THESE OFFERINGS
THE NET PROCEEDS FROM THESE OFFERINGS MAY BE ALLOCATED IN WAYS WITH WHICH YOU
MAY NOT AGREE
Our business plan is general in nature and is subject to change based upon
changing conditions and opportunities. Our management has significant
flexibility in applying the net proceeds we receive in these offerings. Because
the net proceeds are not required to be allocated to any specific investment or
transaction, you cannot determine at this time the value or propriety of our
application of the proceeds and you and other shareholders may not agree with
our decisions. See "Use of Proceeds" for a more detailed description of how
management intends to apply the proceeds of these offerings.
18
<PAGE>
OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY AND YOU MAY NOT BE ABLE TO RESELL
YOUR SHARES AT OR ABOVE THE OFFERING PRICE
The market price of our Class A Ordinary Shares could fluctuate
significantly as a result of:
- variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations
- general economic and stock market conditions
- changes in financial estimates by securities analysts
- changes in business or regulatory conditions affecting us
- announcements by us or our competitors of technological innovations or new
products or services
- the trading activity of our Class A Ordinary Shares.
In addition, we own interests in several publicly traded companies,
including OpenTV (listed on the Nasdaq National Market and the Amsterdam Stock
Exchange), UBC (listed on the Stock Exchange of Thailand), M-Web Holdings
(listed on the Johannesburg Stock Exchange) and M-Net/SuperSport International
(linked shares listed on the Johannesburg Stock Exchange). Changes in the
underlying market prices of shares of these companies, particularly OpenTV (the
publicly traded company in which we have the largest interest), could cause the
market price of our Class A Ordinary Shares to fluctuate significantly.
The securities of many companies in the technology and emerging growth
sectors, particularly those of companies in Internet-related businesses, have
experienced extreme price and volume fluctuations in recent years, often
unrelated to the operating performance of these companies. This type of
volatility may adversely affect the market price of our Class A Ordinary Shares.
Accordingly, we cannot assure you that the market price of our Class A Ordinary
Shares will not decline below the offering price or that you will be able to
resell your shares at or above the offering price.
WE DO NOT ANTICIPATE PAYING DIVIDENDS
We anticipate that all of our earnings in the foreseeable future will be
retained to finance the continued growth and expansion of our business.
Accordingly, we do not anticipate paying cash dividends on our ordinary shares
in the foreseeable future.
THE SALE OF SUBSTANTIAL AMOUNTS OF OUR CLASS A ORDINARY SHARES COULD ADVERSELY
AFFECT ITS MARKET PRICE
Sales of substantial amounts of our Class A Ordinary Shares in the public
market after the completion of these offerings, or the perception that such
sales could occur, could adversely affect the market price of our Class A
Ordinary Shares and could materially impair our future ability to raise capital
through offerings of our Class A Ordinary Shares. In connection with our
April 13, 1999 initial public offering, we and our officers and directors and
SuperSport International Holdings Limited, Johnnic (IOM) Limited, a wholly owned
subsidiary of Johnnies Industrial Corporation Limited ("Johnnic"), MIH
Holdings's subsidiary MIH (BVI) Limited and Thomson Consumer Electronics Inc.
entered into "lock-up" agreements pursuant to which we and these persons agreed
to certain restrictions on our and their ability to sell our ordinary shares for
a period of one year after our IPO without the consent of the representative of
the underwriters in the IPO. These lock-up agreements, from which Johnnic has
been released in order to participate in these offerings, will expire on
April 13, 2000. In addition, in connection with these offerings, we and our
officers and directors and SuperSport International Holdings and MIH (BVI)
Limited have entered into similar lock-up agreements for a
19
<PAGE>
period of 180 days after the date of these offerings. Finally, several of our
principal shareholders, including SuperSport International Holdings Limited,
Johnnic and MIH (BVI) Limited, have agreed to certain restrictions on their
ability to sell our ordinary shares for three years after the date of our IPO
pursuant to requirements for listing on the Amsterdam Stock Exchange. We cannot
predict what effect, if any, market sales of shares held by these shareholders
or any of our other shareholders or the availability of these shares for future
sale will have on the market price of our Class A Ordinary Shares. For a more
detailed description of the restrictions on selling ordinary shares after these
offerings, see "Shares Eligible for Future Sale".
THE ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER COULD DETER A CHANGE IN
CONTROL
Some of the provisions of our Memorandum and Articles may discourage
attempts by other companies to acquire or merge with us, which could reduce the
market value of our Class A Ordinary Shares. The low voting rights of our
Class A Ordinary Shares (relative to our Class B Ordinary Shares), as well as
other provisions of our Memorandum and Articles, may delay, deter or prevent
other persons from attempting to acquire control of us. These provisions
include:
- our classified board of directors
- the authorization of our board of directors to issue undesignated
preference shares in one or more series without the specific approval of
the holders of ordinary shares
- the establishment of advance notice requirements for director nominations
and actions to be taken at shareholder meetings
- the requirement that two-thirds of the shareholders entitled to vote at a
meeting are required to approve any change to certain provisions of our
Memorandum and Articles.
In addition, our Memorandum and Articles permit special meetings of the
shareholders to be called only by our chief executive officer or upon request by
a majority of our board of directors and deny shareholders the ability to call
such meetings or to act by shareholder consent. The low voting rights of our
Class A Ordinary Shares (relative to our Class B Ordinary Shares) and these
provisions in our Memorandum and Articles, as well as provisions of BVI law to
which we are subject, could impede a merger, takeover or other business
combination involving us or discourage a potential acquiror from making a tender
offer or otherwise attempting to obtain control of us. Our anti-takeover
provisions are more fully described under the heading "Description of Capital
Stock--Certain Anti-Takeover Matters".
20
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All statements
other than statements of historical fact in this prospectus, including
statements regarding our competitive strengths, business strategy, future
financial position, projected costs and plans and objectives of management are
forward-looking statements. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may", "will",
"expect", "should", "intend", "estimate", "anticipate", "believe", "continue" or
similar terminology. Although we believe that the expectations reflected in any
such forward-looking statements are reasonable, we can give no assurance that
these expectations will prove to be correct. Important factors that could cause
actual results to differ materially from our expectations are disclosed under
"Risk Factors" and elsewhere in this prospectus and expressly qualify all
written and oral forward-looking statements attributable to us.
21
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $170.6 million from these
offerings ($227.3 million if the over-allotment options granted to the U.S.
underwriters and international managers are fully exercised). This estimate is
computed based on an assumed offering price of $60.50 per share (the last
reported sale price on the Nasdaq National Market on March 30, 2000), after
deducting underwriting discounts and offering expenses. We intend to use these
net proceeds to fund the following:
- potential strategic investments in and acquisitions of pay-television,
Internet services and pay-media technology businesses in both new and
existing markets,
- the expansion of our Internet businesses, with a focus on Asian
development opportunities, including those in Thailand and China,
- the growth of our other existing businesses and
- our working capital needs.
Our management will have substantial discretion in investing the net
proceeds we receive in these offerings. See "Risk Factors--The net proceeds from
these offerings may be allocated in ways with which you may not agree". Pending
the use of the net proceeds from these offerings as described above, we intend
to invest the net proceeds in short-term, interest-bearing, investment-grade
securities.
We will not receive any of the proceeds from the sale by the selling
stockholder of its shares.
DIVIDEND POLICY
We anticipate that all our earnings, if any, in the foreseeable future will
be retained to finance our continued growth and expansion, and we have no
current intention to pay cash dividends on our ordinary shares. The decision to
pay dividends is within the discretion of our board of directors and will be
dependent upon, among other factors, our results of operations, financial
condition, capital requirements, restrictions imposed by our financing
arrangements and legal requirements.
PRICE RANGE OF OUR ORDINARY SHARES
Prior to April 13, 1999, there was no public market for our Class A Ordinary
Shares. Since our initial public offering on April 13, 1999, our Class A
Ordinary Shares have traded on the Nasdaq National Market and the Amsterdam
Stock Exchange under the symbol "MIHL". The following table sets forth the range
of the high and low closing sales prices of our Class A Ordinary Shares on the
Nasdaq National Market and the Amsterdam Stock Exchange for the periods
indicated:
<TABLE>
<CAPTION>
NASDAQ AMSTERDAM
------------------- -------------------
CALENDAR YEAR ENDING DECEMBER 31, 1999 HIGH LOW HIGH LOW
- -------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Second quarter (from April 13, 1999)........................ $30.88 $18.31 $30.25 $18.25
Third quarter............................................... $30.38 $24.63 $30.00 $25.50
Fourth quarter.............................................. $69.25 $28.88 $70.00 $30.25
CALENDAR YEAR ENDING DECEMBER 31, 2000
- ------------------------------------------------------------
First quarter (through March 30, 2000)...................... $89.00 $52.38 $95.00 $55.00
</TABLE>
On March 30, 2000, the last reported sale price of our Class A Ordinary
Shares was $60.50 per share on the Nasdaq National Market and $74.00 per share
on the Amsterdam Stock Exchange.
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<PAGE>
DILUTION
If you invest in our Class A Ordinary Shares in these offerings, your
interest will be diluted to the extent of the difference between the public
offering price per share of our Class A Ordinary Shares and the net tangible
book value per share of our ordinary shares immediately after completion of
these offerings. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of Class A Ordinary
Shares in these offerings and the net tangible book value per ordinary share
immediately after completion of these offerings.
At September 30, 1999, our net tangible book value was approximately
$133.7 million, or $2.52 per ordinary share. Net tangible book value is
calculated as shareholders' equity less intangible assets. After giving effect
to the sale by us in these offerings of 2,972,208 Class A Ordinary Shares at an
assumed public offering price of $60.50 per share and after deducting the
estimated underwriting discounts and offering expenses payable by us, our pro
forma net tangible book value as of September 30, 1999 would have been
approximately $304.4 million, or $5.44 per ordinary share. This represents an
immediate increase in net tangible book value of $2.92 per share to the existing
shareholders and an immediate dilution of $51.97 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $60.50
Net tangible book value per share as of September 30,
1999.................................................... $2.52
Increase attributable to net proceeds of these offerings
to MIH Limited.......................................... 2.92
-----
Pro forma net tangible book value per share after completion
of these offerings........................................ (5.44)
------
Dilution per share to new investors......................... $51.97
======
</TABLE>
23
<PAGE>
[CHART]
24
<PAGE>
ORGANIZATIONAL AND OPERATIONAL STRUCTURE
OVERVIEW
We are incorporated in the British Virgin Islands and conduct our businesses
through subsidiaries and joint ventures. After giving effect to these offerings,
MIH Holdings, which is quoted on the Johannesburg Stock Exchange under the
symbol "MIHH", will indirectly own shares representing 54.8% of the economic
interest and 78.4% of the voting interest with respect to our ordinary shares.
MIH Investments (Proprietary) Limited owns 53.0% of the voting stock of MIH
Holdings, and Naspers Limited owns all the voting stock of MIH Investments,
directly owns 2.8% of MIH Holdings and directly owns 1.2% of MIH Limited. The
diagram on the preceding page summarizes our group structure and ownership.
SUBSIDIARIES AND JOINT VENTURES
PAY-TELEVISION
In many of our markets, our pay-television businesses utilize similar
corporate structures. These structures generally include a content management
company that 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 AND THE MIDDLE EAST. We operate our South African business through
our indirect wholly owned subsidiary, MultiChoice Africa (Proprietary) Limited.
MultiChoice Africa obtains channels from and conducts transmission and
distribution through certain of our affiliates. MultiChoice Africa in turn has
ownership interests in subsidiaries and joint ventures operating in Kenya,
Ghana, Uganda, Nigeria, Tanzania, Zambia, Namibia, Botswana and Lesotho. In
Africa, we consider several factors when determining the countries within which
to establish joint venture investments, 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, we operate through agents or franchisees. These
parties conduct marketing and advertising to build our subscriber base and
collect subscription revenues on our behalf. They retain a minor portion of
these subscription revenues as compensation for their services and remit the
balance to us.
MultiChoice Middle East Inc. is a 90.0% owned subsidiary of MultiChoice
Middle East Holdings Inc., which in turn is 50.0% indirectly owned by us. The
other shareholders in MultiChoice Middle East Holdings and MultiChoice Middle
East are strategic regional investors. In Egypt, we indirectly own 10.0% of
Cable Network Egypt, which provides terrestrial analog service, and 75.0% of
MultiChoice Egypt Limited, which provides subscriber management services to
Cable Network Egypt.
MEDITERRANEAN. We operate our Mediterranean businesses through our interest
in a holding company, NetMed B.V. We own 52.0% of NetMed B.V., and Fintage House
B.V., a subsidiary of MeesPierson N.V., owns the remaining 48.0%. We hold an
option to purchase Fintage House's 48.0% interest on demand at a fixed,
pre-arranged price that is slightly greater than the price at which Fintage
House purchased that interest from us. Pursuant to a shareholders agreement
between us and Fintage House, NetMed does not pay dividends. Changes in the
Greek regulatory environment may lead to a change in the ownership structure of
our Greek subsidiaries and joint ventures, and we are currently reviewing
several alternatives.
NetMed manages its pay-television business through the following operating
subsidiaries:
- MultiChoice Hellas S.A. and MultiChoice Cyprus Limited manage our
subscriber base and market and sell pay-television services in Greece and
Cyprus, respectively. NetMed, 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
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<PAGE>
company that operates Mega Channel, the second largest Greek free-to-air
television channel, and 7.0% owned by Lumiere Television Limited, a
Cypriot investor. Lumiere Television 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., Lumiere Television and Alfa TV, a
Cypriot pay-television company that produces the Alfa Channel.
- NetMed Hellas is 96.0% owned by NetMed. NetMed Hellas operates the
FilmNet, SuperSport and K-T.V. pay-television channels in Greece and
provides programming to Lumiere Television and Alfa TV in Cyprus. The
remaining 4.0% ownership is held by Lumiere Services Limited.
- Synergistic Network Development S.A. is 100.0% owned by NetMed and is
responsible for signal transmission and distribution.
- SOE International SA (trading as Enic Hellas) is 40% owned by NetMed B.V.
Enic Hellas owns 78.4% of PAE AEK, one of the three largest professional
soccer clubs in Greece, and 100% of Basic Hellas SA, the merchandising
associate of PAE AEK.
ASIA. We have a joint venture interest in the United Broadcasting
Corporation Public Company Limited ("UBC"), formerly the International
Broadcasting Corporation Public Company Limited, and its subsidiaries 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 25.4 billion
($671.4 million) on March 29, 2000. We became an investor in UBC in
January 1997 and have gradually increased our total share of ownership of UBC to
approximately 31.1%. The remaining shares in UBC are beneficially owned 41.0% by
Telecom Holding Company Limited, a subsidiary of Telecom Asia Public Company
Limited, 0.4% by the Mass Communications Organization of Thailand, which is one
of the two primary media regulators in Thailand, and 27.5% by other private
investors and the public.
The UBC group's pay-television business is managed through four operating
entities. UBC operates the digital satellite services and acts as a holding
company for the remaining parts of the business. UBC Cable Network Public
Company Limited, formerly UTV Cable Network Public Company Limited, which is
98.6% owned by UBC, operates the analog cable television services business for
the UBC group. Cineplex Company Limited, 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,
which is 97.2% owned by UBC, provides certain services used by the UBC group in
its pay-television systems, including signal transmission and distribution.
TECHNOLOGY
Our Mindport division is a leading provider of pay-television software and
hardware solutions and services both to our pay-media businesses and to
third-party pay-media operators. We operate our Mindport technology division
mainly through our wholly owned subsidiaries, Irdeto Access B.V. and Mindport
IBS B.V. In addition, we own 30,631,746 of OpenTV's Class B Ordinary Shares
(representing approximately 46.3% of the economic interest and 74.7% of the
voting rights of OpenTV's ordinary shares, in each case on a fully diluted
basis). OpenTV produces operating systems for interactive television. We have
formed a subsidiary, Mindport (BVI) Limited, to act as a holding company for all
of our technology assets.
INTERNET
M-Web Holdings was formed in 1997 through a series of transactions whereby
we contributed our Internet related business to a new entity, M-Web Holdings
Limited, and subsequently capitalized it with
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<PAGE>
a special dividend to MIH Holdings. M-Web Holdings was subsequently spun off,
but we have reacquired an ownership interest since the spin-off. We currently
own 16.8% of M-Web Holdings, which we acquired through a private placement in
August 1999 and additional share purchases and share subscriptions since that
time, and continue to manage M-Web Holdings pursuant to a voting pool agreement
between us and Naspers Limited, M-Web Holdings' principal shareholder.
M-Web (Thailand) commenced operations in May 1999. We have a 95% stake in
M-Web (Thailand) through a company that we control. Pursuant to a share swap
agreement dated January 14, 2000, our affiliate Myriad International Holdings
Asia BV, or MIH Asia, transferred 5% of the total issued share capital of M-Web
(Thailand) to AD Venture Company Limited, the Internet subsidiary of Shin
Corporations Public Company Limited, a Thai telecommunications group, and
received, in return, 5% of the total issued share capital of Shinee.com Company
Limited. We recently acquired, through a company that we control, a 75% interest
in Internet Knowledge Service Center Co. Ltd., or IKSC, a Thai holding company
that has a majority stake in KSC Comnet, which we believe is the largest ISP in
Thailand.
M-Web China was established in July 1999. In connection with the strategic
agreements that M-Web China entered into with respect to the establishment of an
online service provider in China, the owners of A-1 Net will receive 35% of the
issued share capital of M-Web China and MIH Limited's interest will be reduced
to 65%. This transaction is expected to close in early April 2000. Wisdom Online
is a joint venture with an affiliate of Tsinghua University formed to develop
online educational services in China, including the Education Online portal. We
have a 41% interest in this joint venture.
AFFILIATES
We have several non-subsidiary affiliates, including Electronic Media
Network Limited (which we refer to as M-Net Ltd.), SuperSport International
Holdings and M-Web Holdings. M-Net Ltd. is a publicly traded South African
company that provides the premium film channels carried by us on our
pay-television platforms in Africa. SuperSport International is a publicly
traded South African company that provides the sports channels carried by us on
our pay-television systems in Africa and the Middle East. Shares of SuperSport
International are linked with those of M-Net Ltd., and as of March 29, 2000,
their market capitalization was approximately ZAR2.2 billion ($343.4 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 a declaration of each company's board.
We currently own 19.8% of each of M-Net Ltd. and SuperSport International and,
after giving effect to these offerings, will be 5.8% owned by SuperSport
International.
Orbicom (Proprietary) Limited, which was recently sold to M-Cell Limited,
the investment holding company of a leading cellular telephony provider in South
Africa, was formerly owned 80% by MIH Holdings and 20% by us. Orbicom provides
the uplink, which refers to the signal that travels from the earth transmitting
station up to the satellite receiving station, and backhaul facility for our
operations in Africa. Prior to its acquisition by M-Cell, Orbicom was not
operated as a profit center as it provided its services at cost to various
subsidiaries of MIH Holdings, including us. Under the arrangements for the
acquisition of Orbicom by M-Cell, Orbicom's services will continue to be
provided to us at cost for a minimum period of two years from April 1, 1999.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of MIH Limited as of
September 30, 1999:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale by us in these
offerings of 2,972,208 Class A Ordinary Shares at an assumed public
offering price of $60.50 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
This table is based upon our condensed consolidated financial statements, which
have been prepared in accordance with IAS. This information should be read in
conjunction with our condensed consolidated financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 167.3 $ 337.9
======= =======
Long-term debt:
Long-term debt, including current portion but excluding
program and film rights................................. 22.2 22.2
Lease obligations(1)...................................... 196.2 196.2
------- -------
Total long-term debt...................................... 218.4 218.4
------- -------
Shareholders' equity:
Class A Ordinary Shares, no par value; 103,468,878
shares authorized, 22,224,513 issued and outstanding,
actual; 25,196,721 shares issued and outstanding, as
adjusted.............................................. 331.5 502.2
Class B Ordinary Shares, no par value; 55,920,509 shares
authorized; 30,787,319 shares issued and outstanding,
actual and as adjusted................................ 475.6 475.6
Accumulated loss.......................................... (430.3) (430.3)
Foreign currency translation adjustment................... (33.5) (33.5)
------- -------
Total shareholders' equity.............................. 343.3 514.0
------- -------
Total capitalization.................................. $ 561.7 $ 732.4
======= =======
</TABLE>
- ------------------------
(1) Lease obligations include obligations under satellite transponder leases.
28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed financial statements of MIH
Limited have been prepared to illustrate the estimated effects of:
- the issuance by OpenTV of 8,625,000 Class A Ordinary Shares in its
November 1999 initial public offering, and the conversion, as part of the
initial public offering, of certain of OpenTV's convertible preference
shares into Class A Ordinary Shares; and
- the acquisition by OpenTV of all of the shares of Spyglass, Inc. in
exchange for 12,453,707 Class A Ordinary Shares of OpenTV.
These statements have not given effect to the sale of shares by MIH Limited in
these offerings.
Pro forma amounts have been derived by applying pro forma adjustments to the
historical consolidated financial information of MIH Limited and Spyglass.
The purchase price of Spyglass has been estimated based upon the average
market price of OpenTV shares, as quoted on the Nasdaq National Market, for the
four trading days immediately prior to, and the four trading days immediately
after, the announcement of the transaction. This estimate does not include the
effect of direct acquisition costs. The final cost of the acquisition will be a
different amount. The excess of the estimated purchase price over the recorded
amount of net assets has been preliminarily allocated to goodwill and amortized
over five years. The ultimate allocation of the purchase price will depend on
the results of fair value appraisals.
The unaudited pro forma condensed statements of operations for the year
ended March 31, 1999 and the six month period ended September 30, 1999 have been
prepared as if the OpenTV initial public offering and the Spyglass acquisition
had occurred on April 1, 1998. The unaudited pro forma condensed balance sheet
as of September 30, 1999 has been prepared as if the OpenTV initial public
offering and the Spyglass acquisition had occurred on September 30, 1999. The
pro forma adjustments are described in the accompanying notes.
Certain assets, liabilities and shareholders' equity balances in the
consolidated balance sheets for MIH Limited and Spyglass have been reclassified
to conform to the line item presentation in the pro forma balance sheet. Certain
revenues, costs and other deductions in the consolidated income statements of
MIH Limited and Spyglass have been reclassified in order to conform to the line
item presentation in the pro forma income statement. There are no significant
conforming differences between the accounting policies adopted by MIH Limited
and the accounting policies adopted by Spyglass.
The unaudited pro forma financial information should not be considered
indicative of actual results that would have been achieved had the OpenTV intial
public offering and the Spyglass acquisition been consummated on the dates
indicated and does not purport to indicate balance sheet data or results of
operations as of any future date or any future period. The unaudited pro forma
financial information should be read in conjunction with the historical
consolidated financial statements of MIH Limited and Spyglass and the related
notes thereto included elsewhere in this prospectus.
29
<PAGE>
PRO FORMA BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MIHL SPYGLASS ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 167.3 $ 18.6 $ 188.3 (1) $ 374.2
Accounts and other receivables...................... 100.1 9.6 -- 109.7
Program and film rights............................. 38.0 -- -- 38.0
Short term investments.............................. -- 10.7 -- 10.7
Inventories......................................... 24.6 -- -- 24.6
Other............................................... -- 2.4 -- 2.4
------- ------ --------- --------
Total current assets.............................. 330.0 41.3 188.3 559.6
NON-CURRENT ASSETS
Tangible fixed assets............................... 235.1 3.9 -- 239.0
Intangible assets, net.............................. 209.6 -- 1,725.3 (3) 1,922.3
(12.6)(5)
Long-term investments............................... 68.7 0.6 -- 69.3
Investment in Spyglass.............................. -- -- 1,764.5 (2) --
-- -- (1,764.5)(3)
Program and film rights............................. 105.1 -- -- 105.1
------- ------ --------- --------
Total non-current assets.......................... 618.5 4.5 1,712.7 2,335.7
------- ------ --------- --------
TOTAL ASSETS.......................................... $ 948.5 $ 45.8 $ 1,901.0 $2,895.3
======= ====== ========= ========
LIABILITIES
CURRENT LIABILITIES
Current payables.................................... 157.8 2.8 -- 160.6
Other current liabilities........................... 150.4 3.4 -- 153.8
------- ------ --------- --------
Total current liabilities......................... 308.2 6.2 -- 314.4
NON-CURRENT LIABILITIES
Long-term debt...................................... 200.4 -- -- 200.4
Program and film rights............................. 96.0 -- -- 96.0
Other long-term deferrals........................... 0.2 0.1 -- 0.3
------- ------ --------- --------
Total non-current liabilities..................... 296.6 0.1 -- 296.7
------- ------ --------- --------
TOTAL LIABILITIES..................................... 604.8 6.3 -- 611.1
------- ------ --------- --------
Minority interest..................................... -- -- 951.3 (4) 1,031.5
80.2 (4)
------- ------ --------- --------
SHAREHOLDERS' EQUITY
Share capital......................................... 807.5 0.4 -- 807.9
Additional paid-in capital............................ -- 62.2 (62.2)(3) --
Retained earnings..................................... (430.3) (22.2) 22.2 (3) 478.3
809.2 (6)
99.4 (6)
Foreign currency translation and other................ (33.5) (0.9) 0.9 (3) (33.5)
------- ------ --------- --------
Total shareholders' equity........................ 343.7 39.5 869.5 1,252.7
------- ------ --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $ 948.5 $ 45.8 $ 1,901.0 $2,895.3
======= ====== ========= ========
Pro forma shareholders' equity........................ 1,252.7
Effect of US GAAP reconciling adjustments:
MIHL................................................ (32.1)(11)
--------
Shareholders' equity under US GAAP.................... $1,284.8
========
</TABLE>
30
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MIHL SPYGLASS ADJUSTMENTS COMBINED
--------- --------- ------------ ------------
(DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues................................ $ 353.2 $ 16.4 $ -- $ 369.6
Costs of revenue............................ (203.2) (5.5) -- (208.7)
Selling, general and administrative......... (145.0) (8.1) -- (153.1)
Depreciation and amortization............... (37.1) -- (172.5)(8) (208.3)
-- -- 1.3 (10)
Research and development.................... -- (3.2) -- (3.2)
------- ------ ------- -----------
Total operating (loss).................. (32.1) (0.4) (171.2) (203.7)
Financial results........................... (8.5) -- -- (8.5)
Equity in joint ventures.................... (18.7) -- -- (18.7)
Equity in associates........................ (1.3) -- -- (1.3)
Profit on sale of joint venture............. 3.0 -- -- 3.0
Profit on sale of associate................. 15.0 -- -- 15.0
Other income................................ -- 0.7 -- 0.7
------- ------ ------- -----------
Profit (loss) before taxation............... (42.6) 0.3 (171.2) (213.5)
Income tax.............................. 0.9 -- -- 0.9
------- ------ ------- -----------
Profit (loss) after taxation................ (41.7) 0.3 (171.2) (212.6)
Minority interest....................... 1.1 -- 93.0 (9) 94.1
------- ------ ------- -----------
Net profit (loss) from continuing operations
before non-recurring credits.............. $ (40.6) $ 0.3 $ (78.2) $ (118.5)
======= ====== ======= ===========
Effect of US GAAP reconciling adjustments:
MIHL.................................... (10.7)(11)
-----------
Net US GAAP loss from continuing operations
before non-recurring credits.............. $ (129.2)
===========
PRO FORMA EARNINGS PER SHARE
IAS
Weighted average number of common shares
outstanding............................... 50,230,474
Basic and diluted loss per share from
continuing operations before non-recurring
credits under IAS......................... $(2.36)
US GAAP
Weighted average number of common shares
outstanding............................... 50,230,474
Basic and diluted loss per share from
continuing operations before non-recurring
credits under US GAAP..................... $(2.57)
</TABLE>
31
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MIHL SPYGLASS ADJUSTMENTS COMBINED
--------- --------- ------------ ------------
(DOLLARS IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues............................... $ 607.9 $ 25.0 $ -- $ 632.9
Costs of revenue........................... (390.5) (8.1) -- (398.6)
Selling, general and administrative........ (203.8) (14.9) -- (218.7)
Depreciation and amortization.............. (51.4) -- (345.0)(8) (393.9)
-- -- 2.5 (10)
Research and development................... -- (9.2) -- (9.2)
-------- ------- -------- -----------
Total operating loss................... (37.8) (7.2) (342.5) (387.5)
Financial results.......................... (9.0) -- -- (9.0)
Equity in joint ventures................... (41.2) -- -- (41.2)
Equity in associates....................... (2.0) -- -- (2.0)
Profit on sale of joint venture............ 31.0 -- -- 31.0
Other income............................... -- 1.2 -- 1.2
-------- ------- -------- -----------
Loss before taxation....................... (59.0) (6.0) (342.5) (407.5)
Income tax............................. -- -- -- --
-------- ------- -------- -----------
Loss after taxation........................ (59.0) (6.0) (342.5) (407.5)
Minority interest...................... -- -- 183.1 (9) 183.1
-------- ------- -------- -----------
Net loss from continuing operations before
non-recurring credits.................... $ (59.0) $ (6.0) $ (159.4) $ (224.4)
======== ======= ======== ===========
Effect of US GAAP reconciling adjustments:
MIHL................................... (5.2)(7)
-----------
Net US GAAP loss from continuing operations
before non-recurring credits............. $ (229.6)
===========
PRO FORMA EARNINGS PER SHARE
IAS
Weighted average number of common shares
outstanding.............................. 38,235,000
Basic and diluted loss per share from
continuing operations before
non-recurring credits under IAS.......... $(5.87)
US GAAP
Weighted average number of common shares
outstanding.............................. 38,235,000
Basic and diluted loss per share from
continuing operations before
non-recurring credits under US GAAP...... $(6.00)
</TABLE>
32
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Explanation of pro forma adjustments (in millions except for share and per share
amounts):
1. Reflects the cash proceeds from the initial public offering of OpenTV shares
and the simultaneous conversion of certain preferred securities into shares
of OpenTV as if the transactions had occurred on September 30, 1999.
2. This amount reflects the investment made in Spyglass by OpenTV. The purchase
price was determined with reference to the average market price of OpenTV
shares, as quoted on the Nasdaq National Market, for the four trading days
prior to, and the four trading days immediately after, the announcement of
the transaction.
<TABLE>
<S> <C>
Shares issued............................................... 12,453,707
Per share average market price.............................. $ 141.69
</TABLE>
3. Reflects the elimination on consolidation of OpenTV's investment in Spyglass
against the net equity of Spyglass. The excess of the estimated purchase
price over the recorded amount of net assets has been preliminarily
allocated to goodwill and amortized over five years. The ultimate allocation
of the purchase price will depend on the results of fair value appraisals.
<TABLE>
<S> <C>
Purchase price.............................................. $1,764.5
Less: Book value of net assets acquired..................... (39.2)
--------
Goodwill.................................................... $1,725.3
========
</TABLE>
4. Represents the increased ownership of third parties in the equity of OpenTV
as the result of its initial public offering of shares and the
stock-for-stock acquisition of Spyglass. The increase in minority interest
is allocated as follows:
<TABLE>
<S> <C>
Increase in minority interest due to the OpenTV initial
public offering........................................... $ 80.2
Increase in minority interest due to the Spyglass
acquisition............................................... 951.3
--------
Total....................................................... $1,031.5
========
</TABLE>
5. Represents the goodwill recorded on the initial acquisition of OpenTV that
has been disposed of as a result of the dilution of MIH Limited's interest
in OpenTV. The adjustment is broken down as follows:
<TABLE>
<S> <C>
Effect due to the OpenTV initial public offering............ $ 8.7
Effect due to the Spyglass acquisition...................... 3.9
-----
Total....................................................... 12.6
=====
</TABLE>
6. Represents the "dilution gain" that arises when OpenTV issues its shares to
third parties at a price per share in excess of MIH Limited's average
carrying amount per share. The accounting policy of MIH Limited is to
account for dilution gains in the statement of operations. Therefore, for
the purposes of the pro forma balance sheet, the dilution gain has been
recognized in retained earnings. The effect on the pro forma statement of
operations has not been included since these represent non-recurring credits
that result directly from the OpenTV initial public offering and the
33
<PAGE>
Spyglass acquisition. The dilution gain, not included in the pro forma
statement of operations, can be allocated between the OpenTV initial public
offering and the Spyglass acquisition as follows:
<TABLE>
<S> <C>
Dilution gain due to the OpenTV initial public offering..... $ 99.4
Tax effect.............................................. --
------
$ 99.4
======
Dilution gain due to the Spyglass acquisition............... $809.2
Tax effect.............................................. --
------
$809.2
======
</TABLE>
7. This amount represents the sum of the US GAAP reconciling adjustments as
detailed in Note 29 to the MIH Limited audited annual consolidated financial
statements included elsewhere in this prospectus.
8. This represents the amortization of the goodwill generated on the
acquisition of Spyglass for the period reported.
9. This adjustment represents the combined effect of Open TV's minority
shareholders in the operations of Open TV (including the operations of
Spyglass) and the pro forma goodwill amortization.
10. This adjustment represents the reduction in the amortization charge arising
from the goodwill recorded on the acquisition of OpenTV as a result of the
dilution of MIH Limited's interest in OpenTV.
11. This represents the sum of the US GAAP reconciling adjustments as detailed
in Note 19 of the unaudited interim MIH Limited consolidated financial
statements included elsewhere in this prospectus.
34
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data set forth below as of and for the years ended
March 31, 1999, 1998, 1997 and 1996 have been derived from our consolidated
financial statements for the years ended March 31, 1999 and 1998 and from our
combined financial statements for the years ended March 31, 1997 and 1996. All
financial statements were prepared in accordance with IAS. The selected
unaudited financial data set forth below as of September 30, 1999 and for the
six months ended September 30, 1999 and 1998 have been derived from our
unaudited condensed consolidated financial statements. Our consolidated
financial statements as of March 31, 1999 and 1998 and for each of the three
years in the period ended March 31, 1999 were audited by
PricewaterhouseCoopers Inc. Our combined financial statements for the year ended
March 31, 1997 were audited by Coopers & Lybrand (predecessor to
PricewaterhouseCoopers Inc.). The accounting policies adopted by us under IAS
differ in certain significant respects from US GAAP. These differences are
described in Note 19 to our condensed consolidated interim financial statements,
Note 29 to our consolidated financial statements and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--US GAAP
Reconciliation". As described in more detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Presentation of
Financial Information", our combined financial statements include the combined
accounts of the businesses that are effectively the predecessor of our company.
We refer to these businesses as the "Acquired MIH Businesses". Our combined
financial statements eliminate all accounts among the Acquired MIH Businesses,
but do not eliminate amounts due from the Acquired MIH Businesses to MIH
Limited, which our consolidated financial statements do eliminate, nor do they
include purchase accounting adjustments that occurred as a result of the Canal+
Transaction described in more detail in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Presentation of Financial
Information". When you read this selected financial and operating data, you
should also read our consolidated financial statements and combined financial
statements and related notes included elsewhere in this prospectus. Our
historical results are not necessarily indicative of future results.
35
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED MIH
BUSINESSES COMBINED
COMPANY CONSOLIDATED(1) (PREDECESSOR)(1)
------------------------------------------------- ------------------------------
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH IAS:
Revenues:
Subscriptions......................... $245.7 $205.4 $442.7 $404.5 $315.5 $233.3
Decoder sales and repair.............. 41.9 44.1 72.0 63.1 60.2 43.6
Technology and other.................. 65.6 35.1 93.2 32.9 16.2 6.0
---------- ---------- ---------- ---------- ------- -------
Total revenues, net............... 353.2 284.6 607.9 500.5 391.9 282.9 $266.9(2)
Operating expenses:
Cost of providing services............ (203.2) (187.4) (390.5) (308.8) (259.4) (212.9)
Selling, general and administrative... (145.0) (76.6) (203.8) (175.2) (140.4) (77.6)
Depreciation and amortization(3)...... (37.1) (25.0) (51.4) (58.0) (16.2) (9.8)
---------- ---------- ---------- ---------- ------- -------
Operating loss........................ (32.1) (4.4) (37.8) (41.5) (24.1) (17.4)
Financial results, net(4)............. (8.4) (8.8) (9.1) (5.5) (5.3) (0.9)
Equity results in joint ventures and
associates.......................... (20.0) (14.2) (43.3) (7.9) 3.8 0.6
Profit on sale of joint ventures and
associates.......................... 18.0 31.1 31.1 -- -- --
---------- ---------- ---------- ---------- ------- -------
(Loss)/profit before taxation....... (42.5) 3.7 (59.1) (54.9) (25.6) (17.7)
(Loss)/profit from continuing
operations.......................... (40.5) 0.1 (59.0) (58.5) (26.0) (21.5)
Net loss............................ (47.9) (0.7) (68.8) (63.8) (26.0) (21.5)
Per share amounts(5):
(Loss)/profit from continuing
operations.......................... $(0.81) $0.01 $(1.54) $(1.53)
Net loss.............................. (0.95) (0.02) (1.80) (1.67)
Dividends(6).......................... -- -- -- 1.36
Weighted average shares outstanding... 50,230,474 38,235,000 38,235,000 38,235,000
AMOUNTS IN ACCORDANCE WITH US GAAP:
Total revenues, net................... $ 353.2 $ 284.6 $ 607.9 $ 500.5 $ 391.9 $ 282.9
Loss from continuing operations....... $(51.2) $(5.0) $(64.1) $(74.1) $(26.0) $(21.6)
Cumulative effect of a change in
accounting principle................ -- -- -- -- -- (3.9)
Net loss.............................. (58.6) (5.9) (74.0) (79.3) (26.0) (25.4)
Basic and diluted per share
amounts(5):
Loss from continuing operations....... (1.02) (0.13) (1.68) (1.94)
Net loss.............................. (1.17) (0.16) (1.94) (2.07)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
ACQUIRED MIH
BUSINESSES
COMBINED
COMPANY CONSOLIDATED(1) (PREDECESSOR)(1)
----------------------------------------- -------------------
SIX MONTHS ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
------------------- -----------------------------------------
1999 1998 1999 1998 1997 1996
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
AMOUNTS IN ACCORDANCE WITH IAS:
Cash and cash equivalents.................... $167.3 $ 56.1 $153.4 $ 53.9 $ 15.1
Total assets................................. 948.5 776.2 646.1 287.2 156.1
Total debt(7)................................ 275.1 284.4 107.6 76.8 16.1
Total liabilities............................ 604.8 599.0 392.5 337.7 188.6
AMOUNTS IN ACCORDANCE WITH US GAAP:
Total assets................................. $918.6 $746.3 $621.2 $287.2 $156.1
Total debt(7)................................ 275.1 284.4 107.6 76.8 16.1
Total liabilities............................ 604.8 599.0 392.5 337.7 188.6
Total shareholders' equity................... 311.2 146.8 228.7 (50.6) (32.4)
OTHER DATA:
Operating (Loss)/Profit Before
Depreciation and Amortization(8)........... $ 5.0 $ 20.6 $ 13.6 $ 16.5 $ (7.9) $ (7.6)
Cash flow from operating activities.......... (5.9) (19.6) (19.2) 5.2 68.5 6.6
Cash flow from investing activities.......... (36.9) (73.6) (95.6) 170.5 (14.6) (10.7)
Cash flow from financing activities.......... 155.1 11.2 18.1 (77.0) (13.3) (1.3)
Capital expenditures......................... (9.5) (1.8) (11.4) (31.7) (17.6) (13.0)
Subscribers in thousands (at period end):
Africa
South Africa............................... 1,067 1,086 1,073 1,054 1,008 943
Sub-Saharan Africa......................... 156 127 140 109 104 73
Egypt...................................... 40 22 30 18 13 9
Middle East................................ 79 47 62 27 15 --
------ ------ ------ ------ ------ ------
Total Africa............................. 1,342 1,282 1,305 1,208 1,140 1,025
------ ------ ------ ------ ------ ------
Mediterranean
Greece..................................... 282 277 316 254 203 101
Cyprus..................................... 37 33 35 31 26 11
------ ------ ------ ------ ------ ------
Total Mediterranean...................... 319 310 351 285 230 112
------ ------ ------ ------ ------ ------
Asia
Thailand................................... 312 289 300 313 253 130
------ ------ ------ ------ ------ ------
Total subscribers........................ 1,973 1,881 1,956 1,806 1,623 1,268
====== ====== ====== ====== ====== ======
Average monthly revenue per subscriber(9).... $25.79 $22.74 $24.11 $23.90 $21.10 $18.63
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
COMPANY CONSOLIDATED(1)
------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
AMOUNTS IN ACCORDANCE WITH IAS:
Net (loss)/profit........................................... $409.2 $(85.7) $(52.0)
Weighted average shares outstanding......................... 38,235,000 38,235,000 38,235,000
(Loss)/Profit per share..................................... 10.68 (2.24) (1.36)
AMOUNTS IN ACCORDANCE WITH US GAAP:
Net profit.................................................. $409.6
Profit per share............................................ 10.69
BALANCE SHEET DATA (AT PERIOD END):
AMOUNTS IN ACCORDANCE WITH IAS:
Total assets................................................ $803.1 $63.7 $65.4
Total debt(7)............................................... 124.0 94.5 --
AMOUNTS IN ACCORDANCE WITH US GAAP:
Total assets................................................ $803.1
Total debt(7)............................................... 124.0
Total shareholders' equity.................................. 397.3 (29.8) 60.5
</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 our predecessors were primarily
generated by our operations in Africa. The other operations did not generate
significant revenue. The business of our 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 MIH Limited for the years ended March 31, 1999 and
1998 and the six-month periods ended September 30, 1999 and 1998 include
$43.8 million, $33.3 million, $29.4 million and $14.2 million, respectively,
attributable to amortization of goodwill that was recorded as a result of
the acquisition of the Acquired MIH Businesses and subsequent acquisitions.
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) Dividend paid in 1998 to facilitate the capitalization of M-Web. We do not
expect to pay dividends in the near future.
(7) Includes bank overdrafts, current portion of long-term debt, long-term debt
and other long-term debt (see Note 14 to our consolidated financial
statements). In fiscal 1997, excludes debt owed to MIH Limited included in
the liabilities of the Acquired MIH Businesses, as such amounts would be
eliminated upon consolidation.
(8) Operating (Loss)/Profit Before Depreciation and Amortization is defined as
operating (loss)/profit before depreciation and amortization (other than
amortization of film and sports rights). Operating (Loss)/Profit Before
Depreciation and Amortization is presented supplementally as we believe it
is the most appropriate measure for evaluating operating performance. We
believe Operating (Loss)/Profit 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 (Loss)/Profit
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 (Loss)/Profit 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, our calculation of Operating
(Loss)/Profit Before Depreciation and Amortization may be different than the
calculation used by other companies and, therefore, comparability may be
affected.
(9) Excludes our Asia and Middle East pay-television operations because such
revenues are not consolidated with our income statements. Total subscribers
from consolidated operations were 1.582 million, 1.545 million,
1.594 million, 1.466 million and 1.355 million as of September 30, 1999 and
1998 and March 31, 1999, 1998 and 1997, respectively.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES 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, our activities consisted almost entirely of our 50%
interest in NetHold, a pay-television joint venture. NetHold had investments in
pay-television operations in Africa, Cyprus, Greece, Italy, Belgium, the
Netherlands, Scandinavia and the Middle East. NetHold also owned Irdeto Access
B.V., a pay-television technology company. In March 1997, we sold our 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 and 49% of Irdeto (the "Canal+ Transaction"). In subsequent transactions,
we 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 year ended March 31, 1997, our results consist
almost entirely of our share of the results of NetHold, which owned, in addition
to the Acquired MIH Businesses, a substantial number of other businesses.
Accordingly, our historical financial information after March 31, 1997 is not
comparable to our financial information prior to that date.
Our consolidated financial 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. We believe that the Acquired MIH Businesses are
effectively the predecessor of our company prior to March 31, 1997. Accordingly,
the results of operations of the Acquired MIH Businesses are presented on a
combined basis. This is because the Acquired MIH Businesses include nearly all
of the businesses currently operated by us, and do not include businesses that
have been discontinued or sold. Because of this, we believe that a period to
period comparison of the Acquired MIH Businesses will be more meaningful to
potential investors and will more accurately reflect our business trends.
Therefore, the discussion in this section includes a comparison of our
consolidated financial statements for the years ended March 31, 1999 and 1998
and the combined financial statements for the Acquired MIH Businesses for the
year ended March 31, 1997.
The comparability of the consolidated financial statements for the years
ended March 31, 1999 and 1998 with the combined financial statements for the
year ended March 31, 1997 is affected by:
- the intangible assets recognized upon the acquisition of the Acquired MIH
Businesses and the amortization thereof; and
- the acquisition of 100% of Irdeto in 1998 and the consolidation of results
which were equity accounted in the combined financial statements.
The comparability of the unaudited condensed consolidated interim financial
statements for the six month period ended September 30, 1999 with the unaudited
condensed consolidated interim financial statements for the six months ended
September 30, 1998 is affected by the increase in shares owned in OpenTV from
44.5% to 80.1% in March 1999 and the consolidation of results which were equity
accounted for in statements in previous periods. Our interest in OpenTV was
subsequently reduced as a result of investments in OpenTV by certain strategic
investors in October 1999 and by OpenTV's initial public offering in November
1999. We now own 30,631,746 of OpenTV's Class B Ordinary Shares (representing
approximately 65.0% of OpenTV's ordinary shares).
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Both our consolidated and combined financial statements have been prepared
in accordance with IAS, which differs in certain significant respects from US
GAAP. See "--US GAAP Reconciliation" and Note 19 to our condensed consolidated
financial statements for a description of the principal differences between IAS
and US GAAP as they relate to us and the Acquired MIH Businesses.
OVERVIEW OF OPERATIONS
We are a multinational provider of pay-television and Internet services and
the technology employed in the provision of such services. As of September 30,
1999, we provided television-platform and related services to over 2.0 million
households and operated our businesses in over 50 countries around the world.
Our current holdings consist of:
- pay-television platform operations in Africa, the Mediterranean and Asia;
- pay-media technology businesses based in the Netherlands and the United
States that collectively compose our Mindport division;
- Internet operations in Africa and Asia;
- an equity interest of 19.8% in M-Net Ltd. and SSIH;
- an equity interest of 16.8% in M-Web Holdings Limited; and
- an equity interest of 40% in SOE International SA, which owns 78.4% of PAE
AEK and 100% of Basic Hellas SA.
In Africa, MultiChoice Africa provides a range of subscriber management
services to pay-television households in over 40 countries on the African
continent and adjacent islands, principally in South Africa.
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
and digital platforms in Greece and an analog platform in Cyprus. In Asia, we
own 31.1% (26.1% as of September 30, 1998 and 31.1% as of March 31, 1999) of
UBC, the only major pay-television provider in Thailand. In the Middle East, we
perform subscriber management operations for the two digital platforms in the
Middle East and, through MultiChoice Egypt, service the Egyptian subscriber base
for both digital and analog platforms.
Our Mindport technology division consists of Mindport and its subsidiaries,
which design, develop and market pay-television and Internet subscriber
management systems, conditional access systems and other pay-media technologies.
Mindport also holds a 65.0% interest in the outstanding shares of OpenTV (80.1%
as of September 30, 1999 and 44.5% as of September 30, 1998 and earlier), which
develops and provides operating systems for interactive television, and a 100%
interest in TV/Com International Inc., which owns certain conditional access
intellectual property rights. In addition, Mindport engages in set-top box
design and specification and consulting and systems integration services.
Our operating results are affected by a number of items, including the
number of households subscribing to our television-platform and Internet access
services, the average revenue per subscriber, churn rates, seasonality and
foreign exchange rates. Foreign exchange rates can have a significant effect on
our reported earnings as we generate revenues predominantly in the local
currencies of the countries in which we operate, whereas a substantial portion
of our expenses is incurred in U.S. dollars.
REVENUES. Our primary source of revenue is subscriber fees. We also
generate revenue from the sale, rental and maintenance of decoders, 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, and
other income, including e-commerce. As a result of the subsequent acquisition of
the remaining interest in Irdeto and our interest in OpenTV, we began in
January 1998 to consolidate the revenues we generate from technology sales.
OpenTV became a subsidiary on March 31, 1999 and was, therefore, consolidated
during the six month period ended September 30, 1999.
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COSTS OF PROVIDING SERVICES. These include programming, content, 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 us, as well as the amortization of programming rights for
sporting events and films. Content costs include the cost of acquiring content
from third-party content providers for our Internet services. Subscriber
management costs include the direct costs of service and maintenance of
equipment installed at subscribers' homes and the cost of customer service.
Decoder purchase costs include the purchase of decoders by us for use, lease or
resale. Transmission costs consist of transmission and uplinking and backhauling
charges paid by us to various satellite vendors under operating lease
agreements. Development costs include the costs of research necessary to enhance
our 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/payable 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 our tangible fixed assets, including transponders, decoders and assets under
capital lease.
RECENT DEVELOPMENTS
SIGNIFICANT ACQUISITIONS AND DIVESTITURES
Subsequent to the end of the last financial year, but prior to OpenTV's
initial public offering, we invested an additional $4.8 million cash in
OpenTV Inc. As cash was injected pro rata to the shareholders' respective
shareholdings, it had no effect on our proportionate interest in OpenTV Inc.
On August 24, 1999, we disposed of our 20% interest and our loan claims in
Orbicom (Proprietary) Limited to MIH Holdings Limited which in turn, together
with its interest of 80%, sold the total investment in Orbicom (Proprietary)
Limited to M-Cell Limited in exchange for 23,952,096 M-Cell Limited shares with
a market value of $39 million. Of this total consideration, $21 million was
allocated to us, which we received in the form of 4,432,273 shares in M-Cell
Limited with a market value of $7.2 million and a $13.4 million note receivable
from MIH Holdings Limited. The consideration received by us, after allocating
$6 million to settle the loan claims, gave rise to a profit on sale of the
associate of $15 million, as the carrying value of the Orbicom (Proprietary)
Limited investment was recorded at no value in our accounting records.
We acquired a 9.1% interest in M-Web Holdings Limited for a cash
consideration of $16.5 million following the delinking of the MIH Holdings
Limited and M-Web Holdings Limited share on August 2, 1999. On September 30,
1999, we acquired an additional interest by exchanging our interest in 4,432,273
M-Cell Limited shares for 13,930,000 shares representing a 4.5% interest in
M-Web Holdings Limited. The excess of our equity investment over the fair value
of the net assets acquired, amounting to $19.5 million, was allocated to
goodwill, and is amortized over its estimated useful life of five years. In
February and March 2000, we acquired an additional 3.2% interest in M-Web
Holdings Limited, bringing our total interest up to 16.8%. The investment in
M-Web Holdings Limited has been treated as an equity investment because of the
significant influence that our directors exercise in the financial and operating
policies of M-Web Holdings Limited.
In July 1999, we acquired a 40% interest in SOE International SA, which owns
78.4% of PAE AEK and 100% of Basic Hellas SA, for $6.6 million. The excess of
the purchase price over the net liabilities acquired (goodwill) amounts to
$18.1 million. The acquisition has been accounted for under the equity method.
We also have an obligation under a shareholders agreement to fund SOE
International up to an amount of $18 million. On September 30, 1999, we advanced
a loan of approximately $8 million in partial satisfaction of this obligation.
In October 1999, our majority-owned subsidiary, OpenTV Corp., completed a
private placement of convertible preference shares and warrants to America
Online, Inc., General Instrument Corp., Liberty
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Digital, Inc., News Corporation, Time Warner, Inc. and Sun Microsystems, Inc. In
November 1999, OpenTV completed an initial public offering of its ordinary
shares, listing its ordinary shares on both the Nasdaq National Market and the
Amsterdam Stock Exchange. As part of the IPO, the convertible preference shares
sold in the October 1999 private placement were converted into ordinary shares.
In connection with the private placement, OpenTV entered into operating
agreements with America Online, Inc., News Corporation and Time Warner, Inc. to
increase its market penetration in the United States and to expand the range of
interactive applications available to its global client base. More recently,
OpenTV entered into a strategic agreement with General Instrument Corp. and, in
connection with this agreement, agreed to issue warrants to General Instrument
to purchase up to 700,000 ordinary shares of OpenTV. These warrants will vest if
and when certain performance goals are satisfied by General Instrument. To date,
one-quarter of these warrants have vested. In February 2000, OpenTV entered into
a strategic revenue sharing agreement with EchoStar Communications Corporation,
in connection with which OpenTV issued 2.252 million of its Class A Ordinary
Shares to EchoStar. After OpenTV's IPO and conversion of preference shares, we
remain the majority shareholder with 65.0% of OpenTV's outstanding shares.
On March 26, 2000, OpenTV announced that it had signed a definitive merger
agreement with Spyglass, Inc. pursuant to which OpenTV will acquire all of
Spyglass's outstanding stock in a tax-free, stock-for-stock transaction. See
"Business--Technology--OpenTV".
RESULTS OF OPERATIONS
Our results of operations are summarized in the following tables:
<TABLE>
<CAPTION>
CONSOLIDATED CONSOLIDATED COMBINED
------------------- ------------------- --------
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31,
------------------- ------------------------------
1999 1998 1999 1998 1997
-------- -------- -------- -------- --------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Subscription revenues........................... $ 245.7 $ 205.4 $ 442.7 $ 404.5 $ 315.5
Decoder sales and repairs....................... 41.9 44.1 72.0 63.1 60.2
Technology and other............................ 65.6 35.1 93.2 32.9 16.2
------- ------- ------- ------- -------
Net revenues.................................. 353.2 284.6 607.9 500.5 391.9
------- ------- ------- ------- -------
Cost of providing services...................... (203.2) (187.4) (390.5) (308.8) (259.4)
Selling, general and administrative expenses.... (145.0) (76.6) (203.8) (175.2) (140.4)
Depreciation and amortization................... (37.1) (25.0) (51.4) (58.0) (16.2)
------- ------- ------- ------- -------
Total operating expenses...................... (385.3) (289.0) (645.7) (542.0) (416.0)
Operating loss................................ (32.1) (4.4) (37.8) (41.5) (24.1)
Financial results, net.......................... (8.4) (8.8) (9.1) (5.5) (5.2)
Equity results in joint ventures................ (18.7) (13.7) (41.2) (5.1) 1.1
Equity results in associates.................... (1.3) (0.5) (2.1) (2.8) 2.6
Profit on sale of joint ventures and
associates.................................... 18.0 31.1 31.1 -- --
------- ------- ------- ------- -------
(Loss)/profit before taxation................. (42.5) 3.7 (59.1) (54.9) (25.6)
Income taxation................................. 0.9 (3.6) (0.3) (7.5) (1.2)
------- ------- ------- ------- -------
(Loss)/profit after taxation.................. (41.6) 0.1 (59.4) (62.4) (26.8)
Minority interest............................... 1.1 -- 0.4 3.8 0.8
------- ------- ------- ------- -------
Loss from continuing operations............... (40.5) (0.1) (59.0) (58.6) (26.0)
Loss from discontinued operations............. (7.4) (0.8) (9.8) (5.2) --
------- ------- ------- ------- -------
Loss for the period......................... $ (47.9) $ (0.7) $ (68.8) $ (63.8) $ (26.0)
======= ======= ======= ======= =======
</TABLE>
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SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES
Subscription revenues increased by $40.3 million, or 19.6%, to
$245.7 million during the period ended September 30, 1999, from $205.4 million
in the same period in 1998, mainly as a result of an increase in the number of
subscribers in our consolidated subsidiaries, as reflected in the table below:
<TABLE>
<CAPTION>
NUMBER OF SUBSCRIBERS(1)
SEPTEMBER 30,
------------------------------
1999 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Digital.............................................. 480 299
Analog............................................... 1,102 1,246
----- -----
Total............................................ 1,582 1,545
===== =====
</TABLE>
- ------------------------
(1) Excludes non-consolidated joint ventures and associates.
Total subscribers increased by 36,739, or 2.4%, from 1,544,954 at
September 30, 1998, to 1,581,693 at September 30, 1999. In Africa, the number of
digital subscribers increased by 181,139 and analog subscribers decreased by
153,918. The reduction in African analog subscribers resulted primarily from our
campaign to convert analog customers to digital service. Our subscribers in
Greece and Cyprus, where we provided only analog service at September 30, 1999
and 1998, increased by 3.1%, from 310,030 at September 30, 1998, to 319,548 at
September 30, 1999. The net decrease in overall analog subscribers was 144,400.
Average subscription revenue per subscriber per month increased by $3.05, or
13.4%, to $25.79 for the period ended September 30, 1999, from $22.74 for the
same period in 1998. The increase was attributable to the shift in subscribers
in Africa from the analog service to the higher-priced digital service and
increases in monthly subscriber fees in local currencies (primarily rand and
drachma) by approximately 10%-20%, offset by the effects of a devaluation of
local currencies against the US dollar.
Decoder sales and repairs decreased by $2.2 million, or 5.0%, to
$41.9 million during the period ended September 30, 1999, from $44.1 million
during the same period in 1998. This decrease relates mainly to the lower number
of boxes sold in the Mediterranean region compared to the previous year. This
trend is further enforced by the decrease of the sales price per decoder, as we
passed on the savings in the price we pay for decoders to our customers.
Technology and other revenue increased $30.5 million, or 86.9%, to
$65.6 million during the period ended September 30, 1999, from $35.1 million in
the same period in 1998, primarily as a result of the consolidation of OpenTV
revenues of $11.8 million for the first time and increased component revenues in
Irdeto Access of $7 million due to increased sales volumes. In the Africa
segment, other revenue increased due to additional satellite capacity recovery
of $4.5 million. Other revenue in the Mediterranean segment increased primarily
as a result of the sale of additional basketball advertising.
OPERATING EXPENSES
Costs of providing services increased by $15.8 million, or 8.4%, to
$203.2 million during the period ended September 30, 1999, from $187.4 million
in the same period in 1998. This increase is primarily attributable to the
related increase in the number of subscribers, but is offset by the decline in
decoder sales. Amortization of program and film rights increased by
$6.5 million due to the basketball rights acquired in the Mediterranean segment.
Depreciation and amortization increased $12.1 million, or 48.4%, to
$37.1 million during the period ended September 30, 1999, from $25.0 million in
the same period in 1998. Depreciation increased by $6.5 million mainly as a
result of the capitalization of the PAS 7 transponder financial
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lease in the Africa and Middle East segment. Amortization of intangible assets
increased by $6.6 million, which is primarily attributable to the amortization
of goodwill of $4.8 million arising from the additional stake acquired in
OpenTV Inc.
Selling, general and administrative costs ("SG&A") increased by
$68.4 million, or 89.3%, to $145.0 million during the period ended
September 30, 1999, from $76.6 million in the same period in 1998, primarily as
a result of:
- consolidation of the SG&A of OpenTV for six months after it became a
subsidiary of MIH Limited on March 31, 1999;
- an increase in staff and other fixed costs as a result of business
expansion;
- year 2000 costs;
- costs arising from the implementation of a new accounting system; and
- additional costs associated with group corporate functions.
OPERATING LOSS
Operating loss increased by $27.7 million to $32.1 million during the period
ended September 30, 1999, from a loss of $4.4 million for the same period in
1998 as a result of the combined effect of the foregoing factors.
FINANCIAL RESULTS, NET
Our net financial results decreased by $0.4 million from a net financial
loss of $8.8 million during the period ended September 30, 1998 to a net
financial loss of $8.4 million during the same period in 1999. The change in the
net financial result was affected by the increase in interest expenses as a
result of the capitalization of the PAS 7 financial lease, offset by the
increase in interest received on cash and cash equivalents, primarily as a
result of our IPO in April 1999.
EQUITY RESULTS IN JOINT VENTURES
Our share in the loss of our investment in joint ventures increased by
$5.0 million, or 36.5%, to $18.7 million during the period ended September 30,
1999, from $13.7 million in the same period in 1998. The increase is primarily
attributable to the 5% increase in the shareholding in UBC from 26.1% to 31.1%
and the related recording of losses and amortization of goodwill due to this
increase in shareholding. In July, we acquired a 40% interest in SOE
International, which owns 78.4% of AEK and 100% of Basic Hellas SA. This
acquisition, net of amortization, attributed $2.1 million to the equity results
of the period. The increase was offset by the results of OpenTV previously
equity accounted and now consolidated.
EQUITY RESULTS IN ASSOCIATES
Our equity results in associates (mainly a 19.8% interest in the linked
shares of Electronic Media Network Limited, which we refer to as M-Net Ltd., and
SuperSport International Holdings, or SSIH, and a 13.6% interest in M-Web
Holdings) was a loss of $1.3 million after goodwill amortization allocation of
$2.4 million for the period ended September 30, 1999. For the same period in
1998, our equity results in associates was a loss of $0.5 million after goodwill
amortization allocation of $2.2 million. We account for our investment in
M-Net/SSIH and M-Web Holdings using the equity method of accounting because of
the significant influence we exercise over M-Net/SSIH and M-Web Holdings as a
result of common ownership, our management and directors' representation on the
board of directors of M-Net/SSIH and M-Web Holdings and, in relation to
M-Net/SSIH, the fact that substantially all of M-Net/SSIH's revenues are derived
from us.
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PROFIT ON SALE OF JOINT VENTURES
The profit on sale of joint ventures of $3.0 million arose out of a
settlement agreement entered into upon the liquidation of the Digco and Joco
joint ventures. The profit on sale of $15 million relates to the sale of our 20%
investment in Orbicom (Proprietary) Limited.
TAXATION EXPENSE
The taxation expense decreased by $4.5 million. The decrease relates mostly
to the reversal of taxes in the technology segment as losses incurred for the
first six months of the current financial year will be carried back to offset
the taxable income of the prior financial year. We do not pay any significant
amount of tax due to losses incurred and accumulated tax losses available in
various of our affiliated companies.
LOSS FROM DISCONTINUING OPERATIONS
Loss from discontinuing operations increased by $6.5 million to
$7.4 million during the period ended September 30, 1999, from a loss of
$0.9 million in the corresponding period of 1998. With effect from September 6,
1999, we discontinued the operations of the International Gaming Networks, the
gaming entity of Multichoice Africa (Proprietary) Limited, the business of which
was spread and sports betting.
NET LOSS FOR THE PERIOD
As a result of the foregoing factors, we realized a net loss of
$47.9 million during the period ended September 30, 1999, compared to a net loss
of $0.7 million for the same period in 1998.
YEAR ENDED MARCH 31, 1999 COMPARED TO THE YEAR ENDED MARCH 31, 1998
REVENUES
Subscription revenues increased $38.2 million, or 9.4%, to $442.7 million
during the year ended March 31, 1999, from $404.5 million in the same period in
1998, mainly as a result of an increase in the number of subscribers in our
consolidated subsidiaries, as reflected in the table below:
<TABLE>
<CAPTION>
NUMBER OF SUBSCRIBERS(1)
MARCH 31,
------------------------------
1999 1998
-------- --------
(THOUSANDS)
<S> <C> <C>
Digital.............................................. 372 212
Analog............................................... 1,222 1,254
----- -----
Total.............................................. 1,594 1,466
===== =====
</TABLE>
- ------------------------
(1) Excludes non-consolidated joint ventures and associates.
Total subscribers increased by 128,062, or 8.7%, from 1,465,783 at
March 31, 1998, to 1,593,845 at March 31, 1999. In Africa, the number of digital
subscribers increased by 159,850 and the number of analog subscribers decreased
by 253,031. The reduction in African analog subscribers resulted primarily from
our campaign to convert analog customers to digital service, a trend that we
expect to continue. We estimate that in South Africa, 60% of analog subscribers
that discontinue service do so as a result of conversion to digital service. Our
subscribers in Greece and Cyprus, where we provided only analog service at
March 31, 1999 and 1998, increased by 23.0%, from 285,055 to 350,498. Overall,
analog subscribers decreased by 31,788.
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Average revenue per subscriber per month increased by $0.21, or 0.9%, to
$24.11 for the year ended March 31, 1999, from $23.90 for the year ended
March 31, 1998. The increase was attributable to the shift in subscribers in
Africa from analog service to the higher-priced digital service and increases in
monthly subscriber fees in local currencies (primarily rand and drachma) by
approximately 8.8% and 8.9% for the analog and digital service, respectively,
offset by the effects of devaluations of the rand and the drachma of 23.4% and
3.0%, respectively, against the U.S. dollar.
Decoder sales and repairs increased $8.9 million, or 14.1%, to
$72.0 million during the year ended March 31, 1999, from $63.1 million in the
same period in 1998. During the year ended March 31, 1999, the retail price of
decoders decreased consistent with the reduction in the manufacturing cost of
decoders. We passed on the savings in the price we pay for decoders to our
customers. We also subsidized the selling prices of digital decoders in Africa
and analog decoders in Greece and Cyprus to increase our subscriber base. 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 revenues increased $51.1 million, or 399.2%, to $63.9 million
during the year ended March 31, 1999, from $12.8 million in the same period in
1998. This increase relates directly to the consolidation of Irdeto for twelve
months compared with three months of the previous year. Irdeto was acquired
during January 1998 and therefore only consolidated for three months during the
1998 fiscal year.
Other revenues increased $9.2 million, or 45.8%, to $29.3 million during the
year ended March 31, 1999, from $20.1 million in the same period in 1998. This
increase was mainly attributable to an increase in advertising revenues and the
sale of sports, program and advertising rights in Greece.
OPERATING EXPENSES
Costs of providing services increased by $81.7 million, or 26.5%, to
$390.5 million during the year ended March 31, 1999, from $308.8 million in the
same period in 1998. This increase is primarily attributable to:
- the inclusion of costs associated with Irdeto for twelve months compared
with three months in the prior year;
- increased charges for additional satellite capacity;
- increase in the amortization of sports and programming rights;
- net increased programming costs associated with the increased number of
digital subscribers; and
- increase in the cost of decoders, sports, program and advertising rights
sold.
We expect the amortization of sports programming to increase in the future as a
result of the amortization of Greek basketball programming rights acquired.
SG&A costs increased by $28.6 million, or 16.3%, to $203.8 million during
the year ended March 31, 1999, from $175.2 million in the same period in 1998,
primarily as a result of:
- consolidation of the SG&A of Irdeto for twelve months compared to three
months of the prior period;
- 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;
- an expanded advertising campaign;
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<PAGE>
- year 2000 costs; and
- additional costs associated with the group corporate functions.
Depreciation and amortization decreased $6.6 million, or 11.4%, to
$51.4 million during the year ended March 31, 1999, from $58.0 million in the
same period in 1998. The depreciation charge decreased by $7.5 million as a
result of the devaluation of the local currencies against the dollar and the
transfer of assets from MIH Limited to Orbicom. These assets were subsequently
transferred back to us. This decrease was partly offset by an increase in the
depreciation charge arising from the net increase in fixed assets. As a result
of new transponder capacity leases classified as capital leases, we anticipate
an increase in the related depreciation charge in future periods.
OPERATING LOSS
Operating loss decreased by $3.7 million, or 8.9%, to $37.8 million during
the year ended March 31, 1999, from $41.5 million for the same period in 1998 as
a result of the combined effect of the foregoing factors.
FINANCIAL RESULTS, NET
Our net financial loss increased by $3.6 million, or 65.5%, to $9.1 million
during the year ended March 31, 1999, from $5.5 million in the corresponding
period of 1998. The increase is attributable to a non-recurring gain on disposal
of investments of $2.6 million (representing the sale of our interest in Canal+)
which was recorded in 1998, a reduction in dividend income of $0.6 million to
$2.6 million from $3.2 million, an increase in interest expense of $8.2 million
to $21.4 million from $13.2 million, which was partly offset by an increase in
interest income of $2.4 million to $10.3 million from $7.9 million, and a
decrease in exchange losses of $5.4 million to $0.6 million from $6.0 million.
The changes as compared to the previous year are primarily a result of the
consolidation of the results of Irdeto for twelve months in 1999 compared to the
three months of the previous year.
EQUITY RESULTS IN JOINT VENTURES
Our equity results in joint ventures changed by $36.1 million to a loss of
$41.2 million during the year ended March 31, 1999, from an equity loss of
$5.1 million in the corresponding period of 1998. The losses mainly included the
net losses of $32.7 million for UBC for nine months and $6.6 million for OpenTV
for twelve months. These results are inclusive of $9.1 million and $2.2 million
amortization of goodwill for UBC and OpenTV, respectively.
EQUITY RESULTS IN ASSOCIATED COMPANIES
Equity results in associates changed by $0.7 million, or 25.0%, to a
$2.1 million loss during the year ended March 31, 1999, from a $2.8 million loss
in the corresponding period of 1998. Equity results in associates for the year
ended March 31, 1999 are net of a goodwill allocation of $4.4 million in fiscal
1999, attributable to our 19.8% interest in M-Net Ltd. and SSIH. We account for
our investment in M-Net/SSIH using the equity method of accounting because of
the significant influence we exercise over M-Net/SSIH as a result of common
ownership, our management and directors' representation on the board of
directors of M-Net/SSIH and the fact that substantially all of M-Net's/SSIH's
revenues are derived from us.
PROFIT ON SALE OF JOINT VENTURES
The profit on sale of joint ventures resulted from the release of provisions
relating to the sale of the NetHold joint venture to Canal+. At March 31, 1997,
we deferred recognition of approximately $73.3 million of this gain, relating to
liability for warranties of decoder technology, guarantees of the
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number of subscribers and the potential reimbursement of programming costs.
During the year ended March 31, 1999, $31.1 million of these provisions were
reversed, as they were no longer required following the expiry of the warranties
and guarantees on June 30, 1998.
TAXATION EXPENSE
Taxation expense decreased to $0.3 million during the year ended March 31,
1999, from $7.6 million in the corresponding period of 1998. We do not pay any
significant amount of taxes due to losses incurred in various of our affiliated
companies to date. The charge for the current year was reduced by a reversal of
deferred taxes of $3.2 million.
MINORITY INTEREST
Minority interest decreased by $3.4 million to $0.4 million during the year
ended March 31, 1999, from $3.8 million in the corresponding period of 1998. The
minority interest primarily relates to Africa for the losses incurred in these
operations. The provision for minority interest was limited to the capital
infusion from the minority parties. We have recorded losses attributable to
minority interests of $6.2 million through March 31, 1999.
LOSS FROM DISCONTINUING OPERATIONS
Loss from discontinuing operations increased by $4.7 million, or 92.2%, to
$9.8 million during the year ended March 31, 1999, from a $5.1 million loss in
the corresponding period of 1998. The 1999 loss from discontinuing operations
arose from the termination of the TV/Com International Inc. operations.
Effective October 1, 1997, we sold our South African Internet businesses to
M-Web Holdings for $20.5 million. In addition, effective September 6, 1999, we
discontinued the operations of the International Gaming Networks and the results
at March 31, 1999 have been restated to reflect the results of operations in the
International Gaming Networks as discontinuing.
NET LOSS
As a result of the foregoing factors, we realized a net loss of
$68.8 million during the year ended March 31, 1999, compared to a net loss of
$63.8 million for the comparable period in 1998.
YEAR ENDED MARCH 31, 1998 (CONSOLIDATED FINANCIAL STATEMENTS) COMPARED TO THE
YEAR ENDED MARCH 31, 1997 (COMBINED FINANCIAL 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 our
consolidated subsidiaries, as reflected in the table below:
<TABLE>
<CAPTION>
NUMBER OF SUBSCRIBERS (1)
MARCH 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.
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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
our campaign to convert analog customers to digital service, a trend that we
expect to continue. We estimate that in South Africa, 60% of analog subscribers
that discontinue service do so as a result of conversion to digital service. Our
subscribers in Greece and Cyprus, where we provided only analog service at
March 31, 1998 and 1997, 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 and 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 the manufacturing cost of decoders.
We passed on the savings in the price we pay for decoders to our 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 $16.7 million, or 103.1%, to
$32.9 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 $49.4 million, or 19.1%, to
$308.8 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:
- the inclusion of costs associated with Irdeto effective January 1998;
- the amortization of sports rights which were acquired by NetMed for the
first time in fiscal 1998;
- increased charges for additional satellite capacity; and
- net increased programming costs associated with the increased number of
digital subscribers.
SG&A costs increased by $34.8 million, or 24.8%, to $175.2 million during
the year ended March 31, 1998, from $140.4 million in the same period in 1997,
primarily as a result of:
- consolidation of the SG&A of Irdeto beginning in January 1998, which was
$5.8 million;
- 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;
- an expanded advertising campaign; and
- 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
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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 $17.4 million, or 72.2%, to $41.5 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 3.8%, 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 our interest in Canal+) were recorded in 1998, with no corresponding
amounts recorded in 1997. Interest income increased $3.9 million, or 97.5%, to
$7.9 million from $4.0 million in the corresponding period of 1997, primarily as
a result of increased cash balances produced from our 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 $4.5 million, or 300.0%, to $6.0 million
from $1.5 million in the corresponding period of 1997.
EQUITY RESULTS IN JOINT VENTURES
Our equity results in joint ventures were 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 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 results in joint ventures.
EQUITY RESULTS IN ASSOCIATES
Equity results in associates decreased by $5.4 million, or 207.7%, to a
$2.8 million loss during the year ended March 31, 1998, from a $2.6 million gain
in the corresponding period of 1997. Equity results in associates for the year
ended March 31, 1998 are net of a goodwill allocation of $3.8 million in fiscal
1998, attributable to our 19.8% interest in M-Net Ltd. and SSIH. We account for
our investment in M-Net/SSIH using the equity method of accounting because of
the significant influence we exercise over M-Net/SSIH as a result of common
ownership, our management and directors' representation on the board of
directors of M-Net/SSIH and the fact that substantially all of M-Net/ SSIH's
revenues are derived from us.
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. We do not pay any
significant amount of taxes due to losses incurred in various of our affiliated
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 a result of timing differences between the
values for financial reporting and fiscal purposes under the liability method.
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MINORITY INTEREST
Minority interest increased by $3.1 million, or 442.9%, 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. We have 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, we 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.
LIQUIDITY AND CAPITAL RESOURCES
Our 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 in the pay-television, Internet and
technology segments.
During the years ended March 31, 1997 and 1996, we had no significant cash
flows as our activities consisted almost entirely of our investment in NetHold.
During the period from April 1997 through October 1997, we sold our shares in
Canal+, which we had obtained in connection with the Canal+ Transaction, for net
proceeds of $261.5 million and invested a portion of the proceeds in our
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.
In April 1999, we completed an initial public offering of 10,435,000 of our
Class A Ordinary Shares, including shares issued pursuant to the exercise of
over-allotment options, for net proceeds of approximately $171.6 million. The
proceeds of the offering were partially used to repay $56 million of debt.
We expect to meet our capital needs for the foreseeable future with the
proceeds of these offerings, cash on hand and existing and new loan facilities,
including a $62.0 million loan facility with Villiers Securities Limited and
ABSA Bank Limited.
During the fiscal year ended March 31, 1998, we 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. We also made an initial investment in OpenTV of
$9.1 million. During the year ended March 31, 1999, we increased our ownership
in UBC to 27.8% by acquiring additional shares for $66.6 million. In
August 1999, we exercised an option to purchase an additional 3.3% of UBC for
$8.9 million in cash. During November 1998, we acquired a 100% interest in
TV/Com International Inc. for $14.5 million in cash. In March 1999, we purchased
all of the interest of Thomson Consumer Electronics Inc. ("Thomson") in OpenTV
in exchange for a convertible note of approximately $46.2 million. The note
converted simultaneously with the consummation of our initial public offering
into our Class A Ordinary Shares at the price such shares were sold to the
public. We sold to a subsidiary of Sun Microsystems a portion of the OpenTV
interest purchased from Thomson for approximately $9.2 million in cash. After
giving effect to such sale, investments in OpenTV by certain strategic investors
in October 1999 and OpenTV's November 1999 initial public offering of its
Class A Ordinary Shares, we now own 65.0% of the outstanding ordinary shares of
OpenTV.
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We intend to make investments in and acquisitions of businesses operating in
the pay-television, Internet services, interactive television services and
pay-media technology industries. Our 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.
Currently, all of our businesses, other than our Internet operations, are
self-funding. Our 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
regulations significantly restrict our ability to receive cash distributions
from our South African subsidiaries". We anticipate funding future acquisitions
and investments through issuances of debt or equity and available cash
resources.
During the fiscal year ended March 31, 1998, we paid a special dividend of
$51.8 million. MIH Holdings used its pro rata portion of the dividend to
capitalize M-Web Holdings. Following this capitalization, M-Web Holdings
purchased our South African Internet businesses for $20.5 million. No dividends
were declared in 1996 or 1997.
On April 4, 1998, we transferred 28 million of our shares in M-Net/SSIH to a
trust for a total consideration of $22.2 million in cash. Consideration of
$20.0 million was financed with bank borrowings by the purchaser and under
certain circumstances on April 14, 2001, we could be required to assume the
obligations and reacquire the ownership of the 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. We retain rights to the
dividends on the M-Net/SSIH shares.
At September 30, 1999 and March 31, 1999, we had cash balances of
$167.3 million and $56.1 million, respectively, and available unused overdraft
borrowing facilities of $63.7 million and $56.0 million, respectively.
COMMITMENTS AND CAPITAL EXPENDITURES
We have lease commitments of $32.8 million, $30.5 million, and
$44.3 million in the years ended March 31, 2000, 2001 and 2002, respectively,
for land and buildings, machinery, furniture and equipment and transponders and
transmitters. We do not expect to incur significant additional capital
expenditures except for the requirements which may materialize from our
investments in Internet operations in China and Thailand.
PROGRAM AND FILM RIGHTS
Program and film rights increased from $81.6 million at March 31, 1999 to
$127.4 million at September 30, 1999, 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, 1999, amounts due in future fiscal years were
$31.3 million in 2000, $27.6 million in 2001 and $68.4 million thereafter.
DEBT
At September 30, 1999, long-term debt of $218.4 million consisted primarily
of capital lease obligations ($196.2 million) and loans ($22.2 million). Capital
lease obligations decreased by $1.4 million during the six month period ended
September 30, 1999. The capital leases bear interest at rates ranging from 6.0%
to 21.0%. The other long-term debt is composed mainly of a $20 million liability
which was recorded as a result of the transfer of 28 million M-Net/SSIH shares
as described above. Long-term debt at March 31, 1999 of $220.3 million consisted
primarily of capital lease obligations ($197.6 million) and loans
($22.7 million).
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, including interest rate and foreign currency
exchange rate risk associated with underlying assets, liabilities and
anticipated transactions. Following evaluation of these exposures, we
selectively enter into derivative financial instruments to manage the related
risk exposures pursuant to our policies in areas such as counter party exposure
and hedging practices. These policies have been approved by our senior
management and we do not hold or issue derivative financial instruments for
trading or speculative purposes. The following discussion and analysis, which
constitute "forward-looking statements" that involve risk and uncertainties,
summarize our market-sensitive financial instruments including their fair value,
maturity and contract terms. The discussion addresses market risk only and does
not address other risks which we face in the normal course of business,
including country risk, credit risk and legal risk.
FOREIGN CURRENCY MANAGEMENT
Our functional currencies are generally the local currencies of the
countries in which we operate. 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 the U.S. dollar
to the reporting currency are included in the foreign currency translation
adjustment in shareholders' equity and are only included in net earnings upon
sale or liquidation of the underlying investments. A number of our 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. We and our subsidiaries had foreign exchange forward
contracts on hand at March 31, 1999, hedging South African rand and Greek
drachma against the U.S. dollar. We do not currently hold or issue derivative
financial or interest rate instruments for trading purposes, but intend to
continue to use forward exchange contracts to limit our exposure to expected
depreciation of some of our functional currencies relative to foreign currencies
in which we incur a significant portion of our cost. Our forward exchange
contracts are primarily to hedge the South African rand and Greek drachma
against the U.S. dollar. During the year ended March 31, 1999, the value of the
U.S. dollar increased against the South African rand by approximately 23.4% and
the Greek drachma by approximately 3.0%. The cost of our foreign currency
commitments was approximately $4.1 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 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 our foreign currency commitments was
approximately $1.8 million greater as a result of hedging activities. At
March 31, 1999, our net monetary liability position in U.S. dollars subject to
risk of foreign currency exchange rate fluctuations amounted to $171.5 million.
The exposure amount primarily reflects U.S. dollar-denominated debt relating to
capital lease commitments and program and film rights. The aggregate
hypothetical loss in earnings on an annual basis that would result from a
hypothetical appreciation of 10% of the U.S. dollar, European currency unit and
Netherlands guilder against the South African rand and Greek drachma is
estimated to be $15.9 million. Our exposure to other changes in currencies other
than the U.S. dollar would not be material.
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INTEREST RATE SENSITIVITY
We generally do not undertake any specific actions to cover our exposure to
interest rate risk and at March 31, 1999, we were not party to any interest rate
risk management transactions. At March 31, 1999, our assets only included
certain short-term fixed or variable rate instruments. The fair value of these
instruments would not change significantly as a result of changes in interest
rates as a result of their short-term nature and variable interest rates,
respectively. At March 31, 1999, the fair value of our U.S. dollar-denominated
capital lease liabilities was estimated at $197.6 million and the South African
rand-denominated other fixed rate long-term debt was estimated at
$22.7 million. Assuming an increase of 1.5 percentage points on the weighted
average interest rate, the fair value of the capital lease liabilities would be
approximately $10 million lower than the fair value at March 31, 1999. A similar
increase in the interest rate on other long-term debt has no material impact on
the fair value.
US GAAP RECONCILIATION
Under IAS, the investment in UBC was carried at cost through to June 1998.
In June 1998, we increased our shareholdings in UBC to approximately 26.1% and,
as a result, exercise significant influence in UBC. Under IAS, we thereafter
applied 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 the investee becomes qualified
to use the equity method. The adjustment in the previous financial period
therefore reflects the effect of applying the equity method to the investment in
UBC determined under US GAAP.
Under IAS, we do not recognize a compensation expense for share option and
share purchase plans. Under US GAAP, Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 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 vesting period of the related options. In connection
with certain option grants to employees during the six months ended
September 30, 1999, we recorded deferred compensation for share based
compensation totaling $19.9 million, which is being amortized over the vesting
period of the related options, which is generally between four and five years.
Additionally, under US GAAP, we recorded compensation in accordance with
Emerging Issues Task Force 96-18 and SFAS No. 123 in connection with the grant
of options to purchase ordinary shares to non-employees. As of September 30,
1999, we have recorded deferred compensation for aggregate deferred compensation
of $4.8 million related to these options, which will be amortized over the
vesting period of these options.
On August 24, 1999, we disposed of our 20% interest and our loan claims in
Orbicom to MIH Holdings Limited, which in turn, together with its interest of
80%, sold the total investment in Orbicom to M-Cell Limited in exchange for
23,952,096 M-Cell Limited shares with a market value of $39 million. Of this
total consideration, $21 million was allocated to us, which we received in the
form of 4,432,273 shares in M-Cell Limited with a market value of $7.2 million
and a $13.4 million note receivable from MIH Holdings Limited. The consideration
received by us, after allocating $6 million to settle the loan claims, gave rise
to a profit on sale of the associate of $15 million, as the carrying value of
the Orbicom investment was recorded at no value in our accounting records.
Under IAS, it is appropriate for MIH Limited to recognize the gain on the
sale of interest in Orbicom, regardless of the related party nature of the
transaction and the disproportionate allocation of proceeds. Based on positions
taken by the SEC, under US GAAP, this transaction is evaluated as a transaction
between entities under common control, whereby generally no gains or losses are
recognized on the sale of an asset. Any gains or losses are accounted for as a
capital contribution or distribution. The sale of Orbicom to a third party was
executed simultaneously with the sale of the 20% interest by MIH Limited to MIH
Holdings Limited. The sale of MIH Limited's interest in Orbicom to
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MIH Holdings Limited was a way to convenience the transaction with the third
party and it is, therefore, appropriate to recognize a proportionate share of
the profit generated in the transaction. However, the excess of the
consideration received over the proportionate share of the total consideration
is accounted for as a capital contribution by MIH Holdings under US GAAP.
The effect of the difference between IAS and US GAAP resulted in an increase
in our net loss under US GAAP as compared with IAS for the years ended
March 31, 1999, 1998 and 1997 and the six month periods ended September 30, 1999
and 1998, and a reduction of shareholders' equity as compared with IAS at
September 30, 1999 and March 31, 1999, 1998 and 1997.
YEAR 2000 ISSUE
As of the date of this prospectus, we have not experienced any significant
Year 2000 problems with our internal operations, nor have we detected any
significant Year 2000 problems affecting our customers, suppliers or third-party
vendors.
ACCOUNTING STANDARDS
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 our financial
statements for the year ending March 31, 2000. We believe that we have complied
with the main provisions of this standard and do not believe that this standard
will have a significant influence on our financial statements.
In 1997, the IASC issued IAS 17 (revised 1997), Leases, which supersedes IAS
17, "Accounting for Leases" and is effective for our financial statements for
the year ending March 31, 2000. We do not expect a material impact on our
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 our financial statements for the year ending March 31,
2000. We do not expect a material impact on our financial statements as a result
of adopting IAS 19 (revised 1998).
In February of 1998, the IASC issued IAS 34, "Interim Financial Reporting".
The provisions of IAS 34 were adopted for our interim financial statements
issued after March 31, 1999.
In June of 1998, the IASC issued IAS 35, "Discontinuing Operations". IAS 35
will be effective for our financial statements for the year ending March 31,
2000. We believe that we have complied with the provisions of this standard and
do not believe that this standard will have a significant influence on our
financial statements.
In June of 1998, the IASC issued IAS 36, "Impairment of Assets". IAS 36 will
be effective for our financial statements for the year ending March 31, 2001. We
are currently assessing the impact that this standard may have on our financial
statements.
In September of 1998, the IASC issued IAS 37, "Provisions, Contingent
Liabilities and Contingent Assets". IAS 37 will be effective for our financial
statements for the year ending March 31, 2001. We believe that we have complied
with the provisions of this standard and do not believe that this standard will
have a significant influence on our 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 our 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 our financial statements for the year ending
March 31, 2001, with earlier application
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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. We are currently assessing the impact this standard may have on
our financial statements.
In March of 1999, the IASC published IAS 39, "Financial
Instruments-Recognition and Measurement". The standard becomes effective for our
financial statements for the year ending March 31, 2002. IAS 39 establishes
standards for recognizing, measuring, and disclosing information about an
enterprise's financial assets and financial liabilities, including accounting
for hedging transactions. We are assessing the impact this standard may have on
our financial statements.
US GAAP Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is effective for fiscal years
beginning after June 15, 1999. It will be effective for our annual financial
statements for the year ended March 31, 2001. We are currently assessing the
impact that this statement may have on our financial statements.
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BUSINESS
OVERVIEW
From our origin as the leading provider of pay-television services in South
Africa, we have grown into a multinational provider of pay-television and
Internet platform services and pay-media and interactive technologies. Our
operations are divided into three principal business segments:
- pay-television platforms,
- technology and
- the Internet.
Through our subsidiaries and joint ventures, we now provide terrestrial and
cable analog, digital satellite and other pay-television services to over
2.0 million households in Africa, the Mediterranean and Asia. Our Mindport
technology division provides pay-media companies worldwide with proprietary
software solutions for subscriber management, conditional access and other
pay-media related services. Mindport is also a leading provider of interactive
television operating systems through OpenTV, the leading worldwide provider of
software that enables digital interactive television. We believe the Internet is
a natural extension of our core media-based competencies. We have expanded our
Internet business through investments in leading Internet operations in South
Africa and Thailand, and have recently begun investing in Internet operations in
China.
Based on our significant experience in providing pay-television services, we
have developed a comprehensive understanding of pay-media and other
subscriber-based businesses, particularly in the areas of subscriber management,
content aggregation and platform development. Through our strategic application
of these core competencies and our proven business model, we have grown to
become the leading provider of pay-television services in each of our markets.
By leveraging these abilities, we have expanded our operations to include new
services and products, with a focus on those relating to the Internet and
interactive television services.
OBJECTIVES AND STRATEGY
We seek to leverage our core media-based competencies in the areas of
content aggregation, subscriber management, platform development and marketing
and branding to create multimedia platforms in the markets we serve. In
particular, we hope to become a recognized multinational provider of a full
array of content and pay-media services over a variety of electronic platforms,
with a focus on the Internet and interactive television. We also seek to
strengthen our current position as a worldwide provider of pay-television
services and related technologies, and seek to become a leading supplier of
pay-media customer care products and services. Our key objectives are as
follows:
- DEVELOP INTERNET BUSINESSES IN ASIA. We aim to become the leading Internet
content and service provider in the areas we enter, particularly in Asia,
where we intend to focus on the markets in China and Southeast Asia. We
have already built up leading pay-television and Internet positions in
Thailand. We are capitalizing on the experience that we have acquired
through our Thai and South African Internet operations by applying this
knowledge to the development of our positions in China and other countries
in Southeast Asia. We have also done extensive developmental work in many
Asian markets in preparation for entering these markets.
- EXPAND OUR INTERNET BUSINESSES IN AFRICA. By offering attractive content
and superior service, we intend to continue to grow M-Web as the leading
Internet service provider and content portal in South Africa. We are also
focusing on expanding our M-Web portals to take advantage of e-commerce
opportunities and on leveraging our pay-television infrastructure to
develop ISP operations in other sub-Saharan nations besides South Africa.
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- CONTINUE TO BUILD OUR DIGITAL SUBSCRIBER BASE. We seek to continue to
expand our digital pay-television subscriber base, both by converting our
current analog customers to digital service and by gaining new digital
customers. We believe a large digital subscriber base will give us a
strong platform for developing e-commerce and "t-commerce" (e-commerce
through the television) revenue opportunities.
- CONTINUE TO DEVELOP LEADING TECHNOLOGIES. We have developed Mindport into
a leading technology company that develops and sells software and hardware
solutions supporting pay-media businesses worldwide. We plan to continue
to develop technologies, such as Mindport's IBS subscriber management
system, in a manner that permits them to be used by a variety of pay-media
businesses, including Internet service providers. We believe that Mindport
will continue to benefit from our experience as a pay-media operator as it
continues to build its technology base.
We intend to implement the following strategies in pursuing our objectives:
- CROSS-PROMOTION AND PLATFORM LEVERAGE. We believe that our leading
pay-television platforms place us in a strong position to leverage our
content aggregation and management expertise to new content delivery
platforms, such as the Internet, through cross-promotion. A good example
is the use of our pay-television channels in South Africa to cross-promote
our South African M-Web Internet operations. We plan to continue to use
this strategy of cross-promoting content as we expand our Internet
businesses in other target markets.
- LOCAL APPROACH. We have a proven track record of establishing businesses
in developing markets, such as Africa and Southeast Asia. We believe that
an important component of our success in these markets is our emphasis on
taking a local approach. This involves employing local partners and
management teams and incorporating linguistically and culturally tailored
local content in our service offerings. For example, we place great
emphasis on obtaining the rights to broadcast popular sporting events in
each of our pay-television markets, such as cricket and rugby in South
Africa, soccer in Greece and badminton in Thailand. Our strategy is to
continue to take a local approach to content as we expand our
pay-television and Internet businesses through, for example, the
development of local language search engines and local content portals.
- PROVIDE HIGH-QUALITY SERVICE. We view our business as primarily a service
business and, accordingly, place great emphasis on providing high-quality
customer service. We believe that this helps build customer loyalty and
reduce "churn", a term used to describe customer turnover. We seek 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 PLATFORMS
OVERVIEW
We operate our pay-television businesses in three major regions:
- the African continent (South Africa, sub-Saharan Africa, Egypt and the
Middle East),
- the Mediterranean (Greece and Cyprus) and
- Asia (Thailand and development operations based out of China (Beijing) and
Hong Kong).
In each region, we have focused on obtaining exclusive programming, continually
improving our customer care and offering new services and technology, such as
interactive television. Through the application of this strategy, we have
developed the leading pay-television service in each of our operating regions.
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Through our subsidiaries and joint ventures, we provide pay-television and
related services to over 2.0 million households in Africa, the Mediterranean and
Asia. Our services are primarily provided through wireless technology, mainly
terrestrial analog and digital transmission, with some subscribers in Thailand
receiving programming through cable-based systems. Our pay-television businesses
were generally started as single-channel analog services. The expansion and
development of these analog services has provided us with the market presence
and subscriber base to launch multi-channel digital and interactive television
services.
The following table sets forth the services offered and subscriber numbers
for our pay-television subsidiaries and joint ventures by region and service:
<TABLE>
<CAPTION>
SUBSCRIBERS AS OF
LAUNCH DATE SERVICE DEC. 31, 1999
------------------------ ------------------------ -----------------
<S> <C> <C> <C>
AFRICA
South Africa.......... 1986 M-Net (analog) 724,420
1995 DStv (digital) 386,172
Sub-Saharan Africa.... 1991 M-Net (analog) 47,124
1996 DStv (digital) 121,874
Egypt and Middle various Subscriber management(1) 130,551
East................
MEDITERRANEAN
Cyprus................ 1993/1997 LTV/Alfa (analog) 41,265
Greece................ 1994/1996/1997 FilmNet/SuperSport/ 296,020
K-T.V. (analog)
1999 Nova (digital) 6,542(2)
ASIA
Thailand.............. 1995 UBC Cable (analog) 145,799
1995 UBC Satellite (digital) 178,738
</TABLE>
- ------------------------------
(1) Pay-television platforms operated by third parties.
(2) Our Greek digital platform was launched on December 16, 1999. See
"--Pay-television--Mediterranean."
Programming
On each of our pay-television platforms, we offer a group of channels, or
"bouquet", that is designed to be attractive to different members of a viewing
household. We generally market our analog service as a premium package with
broad market appeal, and position our digital service as an upscale service with
greater choice. By targeting the digital and analog services at different market
segments, we hope to spur total subscriber growth. We believe that segmenting
our product line in this way helps us to maximize the size of our addressable
market, while also encouraging analog subscribers to upgrade to the higher-end
digital service. We expect significant growth in our digital subscriber base
over time, due to customers who upgrade from analog as well as new customers.
In most of our markets, we have exclusive pay-television rights to transmit
premium movies, major sporting events and popular children's programming. We
operate channels in most of our markets 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. In several regions,
we provide a sports channel, SuperSport, that has exclusive rights to show
popular sports in that region. We have also developed a proprietary channel,
K-T.V., which televises exclusive children's programming. In addition, on both
our movie and children's channels, we frequently provide local programming as
well as programs produced elsewhere and dubbed or subtitled into the local
language. On our digital platforms, these primary channels are supplemented by
major international channels and/or the local market television networks. We
believe that access to this programming content allows us to attract and retain
subscribers, and enables us to grow our pay-media services.
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While we are the leading provider of pay television services in each of the
markets we serve, our pay-television platforms face competition from other forms
of entertainment, such as locally-available public and private free-to-air
television stations, live music and sports events, movie theaters and, to the
extent they are offered, small, localized pay-television and Internet
operations. We believe that our high-quality, exclusive programming appeals to a
broader market and differentiates us from our competitors. We also believe that
the comprehensive packages we offer attract new subscribers, enhance subscriber
loyalty and help to reduce churn. As long as we maintain a leading position in
each of our markets, we believe that we will be in a strong position to continue
to acquire programming rights on favorable terms.
Technology
We believe that our core competency in technology, drawn in large part from
our Mindport division, is another important component of our pay-television
business and a key strategic advantage. We develop and use the latest available
technologies and were one of the first pay-television companies in the world to
provide digital satellite service, which we now provide in each of our operating
regions. Following the successful introduction of digital services, we are
currently introducing interactive services on our digital platforms. Today,
these interactive services consist of electronic program guides. In the future,
we anticipate introducing enhanced services in our major markets, such as
pull-down menus, e-mail, gaming and home shopping, which have the potential for
generating significant additional revenue sources, including e-commerce
revenues, and generally higher margins. We believe that our Mindport division
gives us great support and insight into the latest developments and enhancements
of pay-media technologies.
Customer Care
Because our business is primarily a service business, we place great
emphasis on customer care. We are installing Mindport's proprietary customer
care and billing system, IBS, throughout our 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. We believe that IBS will result in greater customer
satisfaction and improved customer relationship management. In many of our
regions, we operate advanced call centers that also serve to increase customer
satisfaction. We strive to continually improve these operations in order to
ensure that we are perceived as a customer friendly organization.
Marketing and Subscriber Management
Throughout our operations, we conduct market research on an ongoing basis to
ensure that we continue to offer our subscribers a lineup of attractive
programming. To attract additional subscribers, we run promotions from time to
time, such as subsidizing the purchase price of set-top boxes, which are the
devices used to receive and decode subscription television services for display
on television sets.
Our customers are billed monthly through our IBS system. Generally,
subscribers who fail to pay their bills by their monthly billing date are
disconnected automatically and may be charged a fee for reconnection.
Growth
We have experienced significant growth in the number of our subscribers,
revenue per subscriber and total pay-television revenue. From the fiscal year
ended March 30, 1996 to December 31, 1999, we increased our number of
subscribers under management from 1,137,167 to 2,078,505. Over the same period,
our digital subscribers as a percentage of our total subscribers increased from
2.0% to 39.1%, which significantly impacted our revenue per subscriber as
digital subscription fees are approximately two-thirds higher than analog fees.
As a result, we have increased our monthly revenue per subscriber, excluding
Asia and the Middle East, which are not consolidated, by 9.0% annually, from
$18.63 for the
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fiscal year ended March 31, 1996 to $24.11 for the fiscal year ended March 31,
1999. Over the same period, subscription revenues increased 23.8% annually, from
$233.3 million to $442.7 million.
The following table shows the growth of subscribers in each of our markets:
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
-------- ------------------------------
1999 1999 1998 1997 CAGR(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUBSCRIBERS (THOUSANDS):
Africa
South Africa..................................... 1,111 1,073 1,054 1,008 3.6%
Sub-Saharan Africa............................... 169 140 109 104 19.3
Egypt............................................ 42 30 18 13 53.2
Middle East...................................... 88 62 27 15 90.3
------ ------ ------ ------
Total Africa................................... 1,410 1,305 1,208 1,140 8.0
------ ------ ------ ------
Mediterranean
Greece........................................... 308(2) 316 254 203 14.7
Cyprus........................................... 41 35 31 26 18.0
------ ------ ------ ------
Total Mediterranean............................ 344 351 285 230 14.9
------ ------ ------ ------
Asia
Thailand......................................... 325 300 313 253 9.5
------ ------ ------ ------
Total Subscribers.................................. 2,072 1,956 1,806 1,623 9.3
====== ====== ====== ======
Average monthly revenue per subscriber(3).......... $29.79 $24.11 $23.90 $21.10 13.4
</TABLE>
- ------------------------------
(1) Compounded annual growth rate calculated from March 31, 1997 until
December 31, 1999.
(2) Our subscriber numbers in the Greek market during the nine months ended
December 31, 1999 were adversely affected by the earthquake that struck
Greece in the summer of 1999, which resulted in a 3-week delay in the start
of the Greek soccer season. In addition, our Greek subscriber numbers at
December 31, 1999 reflect our policy change, effective as of September 30,
1999, of moving the disconnect date for subscribers whose billing is in
arrears one day forward. Without giving effect to this policy change, our
Greek subscriber numbers at December 31, 1999 would have been 330,355.
(3) Excluding our Asian and Middle East operations because these revenues are
not consolidated on our income statements. Total subscribers from
consolidated operations were 1.582 million, 1.594 million, 1.466 million and
1.355 million as of September 30, 1999 and March 31, 1999, 1998 and 1997,
respectively.
The table above, which sets forth aggregate subscriber numbers, does not
clearly reflect the growth in the number of our digital subscribers. As of
December 31, 1999, our pay-television operations had 811,617 digital
subscribers, as compared to 586,307 digital subscribers as of March 31, 1999.
This represents digital subscriber growth of 225,310, or 38.4%, during this
nine-month period.
AFRICA
We offer terrestrial analog and digital satellite pay-television services in
Africa through our wholly owned subsidiary, MultiChoice Africa, which has
operations in both South Africa and other sub-Saharan African nations besides
South Africa ("Sub-Saharan Africa").
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South Africa
PRODUCTS. MultiChoice Africa's analog service, which began in 1986,
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. MultiChoice Africa transmits its analog signal 24 hours each day,
including two hours of unencrypted programming. MultiChoice Africa's digital
service, which began in 1995 under the brand name "DStv", is transmitted
24 hours each day over 48 video channels and 49 audio channels. DStv, which
offers significantly more specialized channels than our analog service, provides
movies, sports, general entertainment, children's programming, local stations
and international news, among other channels. Some of the major video channels
offered by DStv are movie channels such as the Movie Magic Channel, Hallmark
Entertainment Network, and TNT Classic Movies; news channels such as BBC World,
CNN International, CNBC, Sky News, and Bloomberg Television; sports channels
such as SuperSport, SuperSport 2, SuperSport International, and ESPN;
infotainment channels such as the Discovery Channel, Travel Channel, and
National Geographic Channel; children's programming such as the K-T.V. Channel
and the Cartoon Network; and music channels such as VH1 and MTV Europe.
Several of the M-Net channels broadcast exclusive programming. For example,
M-Net Ltd., which provides the M-Net and Movie Magic digital channels, has
exclusive rights to the South African pay-television broadcast, at least a year
in advance of the free-to-air television premiere, of most Hollywood movies.
M-Net Ltd. has output deals for movies with all the major Hollywood movie
studios, including Disney, Columbia Tristar/Sony, Warner Brothers, Fox,
MCA/Universal, Paramount, MGM and DreamWorks. Similarly, SuperSport
International Holdings Limited, which provides sports programming for the M-Net
channel and the SuperSport channels for MultiChoice Africa's digital and analog
platforms, has the exclusive right to broadcast the South African cricket and
rugby league matches and major international cricket and rugby events. Cricket
and rugby are two of the most popular sports in South Africa. SuperSport also
has the exclusive right to broadcast the English, Italian, German and French
soccer leagues, all four major professional golf tournaments and 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 SuperSport International. Payments under these contracts are
calculated on a per subscriber basis and are subject to annual price
escalations. See "Transactions With Related Parties--Channel Distribution
Arrangements".
We are 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.
On March 1, 2000, we launched near-interactive push applications. These consist
of a weather channel, a games channel, a mosaic channel, an astrology channel
and a top 10 Internet pages channel. In the third quarter of 2000, we intend to
offer two-way interactive services such as gaming, home shopping and home
banking. In providing these services, we will use software platforms developed
and provided by OpenTV, part of our Mindport division. We believe interactive
television will become a substantial new phase in our business development and
has the potential to provide us with significant new sources of revenue at
higher margins and to fuel subscriber growth.
OPPORTUNITY. As of December 31, 1999, MultiChoice Africa had 724,420
subscribers to its analog service and 386,172 subscribers to its digital service
in South Africa, a total of approximately 20% of South Africa's television
market. 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
5.5 million color TV households in 1999. A substantial portion of television
households have sufficient disposable income to regularly purchase our services.
We believe that the number of television households will continue to grow as
nationwide efforts to provide economic empowerment to previously disadvantaged
groups begin to take effect. We also believe that our digital subscriber base
will continue to grow as expanded interactive services become available on our
digital platform.
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We believe that there is potential for growth in MultiChoice Africa's
digital platform business due to a number of additional factors, including:
- the nationwide coverage provided by our digital platform, which allows us
to reach new customers who are not able to receive our analog
transmissions;
- a significantly enhanced bouquet that provides broader appeal to
households that do not currently subscribe to the dual-channel analog
service; and
- renewed product promotions that have proven successful in the past to
drive subscriber growth, such as our successful promotions in which the
price of the equipment for digital service is reduced.
MARKETING AND SUBSCRIBER MANAGEMENT. The majority of growth in our digital
subscriber base has come from customers who upgrade from analog with additional
growth coming from new, rural subscribers currently unable to receive the analog
service.
We transmit our analog service unencrypted for two hours every day. We use
these transmissions as a promotional vehicle to increase subscriber numbers and
advertise our digital service, and as a mechanism to fulfill public service
obligations. We believe that these unencrypted transmissions have been
instrumental in achieving our subscriber growth and establishing a strong brand
identity.
We service our subscriber base through our 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 perform back-up services for the other centers in
times of heavy call volume. We also conduct telemarketing from these centers in
order to solicit new subscriptions.
PRICING AND BILLING. The following table sets forth certain pricing
information for our South African businesses:
<TABLE>
<CAPTION>
SUBSCRIBERS
(THOUSANDS) EQUIPMENT PRICE(1)
------------------------------ -------------------
MONTHLY
DEC. 31, MARCH 31, SUBSCRIPTION PRICE PURCHASE
-------- ------------------- ------------------------- -------------------
1999 1999 1998 ZAR $ ZAR $
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Analog............................ 724 802 896 160 24.58 799 122.73
Digital........................... 386 271 158 270 41.47 2,999 460.68
<CAPTION>
EQUIPMENT PRICE(1)
-------------------
MONTHLY
LEASE(2)
-------------------
ZAR $
-------- --------
<S> <C> <C>
Analog............................ 25.90 3.98
Digital........................... 59.00 9.06
</TABLE>
- ------------------------------
(1) Includes 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 ($38.40) for digital equipment and ZAR90 ($13.82) for
analog equipment.
MultiChoice Africa bills its subscribers monthly, in advance, in South
African rand. During the six months ending September 30, 1999, MultiChoice
Africa experienced an average monthly net churn (net churn is the percentage of
customers who terminate their subscription in a given period minus the number of
former customers who reconnect in that period) of approximately 2.4% on its
analog subscriber base and less than 0.4% on its digital subscriber base. To
date, we have not experienced significant customer disconnections as a result of
increases in the price of our services.
COMPETITION. Our digital and analog platforms are currently the only
pay-television services provided in South Africa. MultiChoice Africa competes
directly with the four free-to-air television channels in South Africa (which
are carried on our digital bouquet) and indirectly with live sporting events,
motion picture theaters, the Internet and other forms of entertainment. DStv's
offering of 48 distinct video channels is several times greater than all of the
competing free-to-air television channels in South Africa combined. Another
operator that currently provides a free, unencrypted analog service has
announced an intention to provide a digital service that may be subscription
based.
TRANSMISSION. The transmission of MultiChoice Africa's analog and digital
services is conducted by Orbicom. These services, including technical support,
are, and will continue to be, provided by Orbicom at cost until March 31, 2001.
After that date, MultiChoice Africa may elect to renew all or
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part of the services provided by Orbicom on an at cost basis. If MultiChoice
Africa chooses to extend this agreement in respect of all or any part of the
Orbicom services for further consecutive twelve month periods, it can do so by
way of six months notice to Orbicom. Although Orbicom has the right to terminate
the agreement on two years written notice to MultiChoice Africa, such notice may
not be given for a minimum period of two years from the effective date of our
and our parent company's sale of Orbicom, which was April 1, 1999. In addition,
the termination will not take effect unless and until MultiChoice Africa holds
the requisite license necessary for it to carry out the Orbicom services itself.
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 our customers' homes, where it is received by an antenna and decrypted
by a set-top box. The digital satellite signal is transmitted by a Panamsat
satellite situated over the east coast of Africa. We lease 7 Ku-band
transponders on this satellite, and our uplink facilities are provided by
Orbicom (Ku-band refers to a frequency range used for satellite downlink
transmissions that falls within the 12 to 14 GHz range of the electromagnetic
spectrum, allowing use of 27 inch (or 90 cm) or smaller ground dishes). Our
digital customers receive the signal from this satellite using a 90 cm satellite
dish located on or near their homes. MultiChoice Africa utilizes the Irdeto
Access encryption and decoder technology provided by our Mindport division for
both its analog and digital platforms.
Sub-Saharan Africa
PRODUCTS. We offer terrestrial analog and digital satellite pay-television
services to Sub-Saharan Africa through MultiChoice Africa and various joint
ventures and agents. We offer many of the same premium channels in Sub-Saharan
Africa as in South Africa, including those broadcasting exclusive premium films
and popular sports. Our analog service transmits a customized M-Net channel,
which features exclusive movies and sports and other programming, to 8 African
nations through joint ventures. Our digital service features 6 audio channels
and 30 video channels, including the customized M-Net channel and many major
international network channels, transmitted to approximately 40 countries in
Sub-Saharan Africa. The following table provides information about the primary
Sub-Saharan African nations in which we conduct business:
<TABLE>
<CAPTION>
ANALOG
TOTAL TV BUSINESS
POPULATION HOUSEHOLDS ANALOG DIGITAL TOTAL TOTAL OWNERSHIP
MARKET (MILLIONS) (THOUSANDS) SUBSCRIBERS(1) SUBSCRIBERS(1) SUBSCRIBERS PENETRATION INTEREST(2)
- ------ ---------- ----------- -------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Nigeria.............. 111.3 10,000 7,576 20,814 28,390 0.2% 91%
Tanzania............. 29.1 466 869 4,332 5,201 1.0 100
Kenya................ 30.0 823 3,439 8,200 11,639 1.4 51
Uganda............... 19.2 200 2,514 3,250 5,764 2.2 75
Ghana................ 17.1 274 3,990 2,656 6,646 2.4 50
Zimbabwe............. 12.7 342 149 26,075 26,224 6.7 N/A
Angola............... 11.2 571 -- 6,919 6,919 1.1 N/A
Malawi............... 9.5 * 2,037 3,841 5,878 N/A N/A
Zambia............... 9.2 589 6,129 4,830 10,959 1.7 51
Namibia.............. 2.0 109 18,988 13,594 32,582 29.0 49
Botswana............. 1.5 35 396 11,546 11,942 34.1 50
<CAPTION>
ANALOG
START
MARKET DATE
- ------ --------
<S> <C>
Nigeria.............. 1994
Tanzania............. 1997
Kenya................ 1995
Uganda............... 1995
Ghana................ 1993
Zimbabwe............. N/A
Angola............... N/A
Malawi............... N/A
Zambia............... 1995
Namibia.............. 1992
Botswana............. 1993
</TABLE>
- ------------------------------
(1) As of December 31, 1999.
(2) Ownership of digital is 100%.
* Insufficient data.
OPPORTUNITY. As of December 31, 1999, MultiChoice Africa and its joint
ventures had 47,124 Sub-Saharan African subscribers to its terrestrial analog
service and 121,874 Sub-Saharan African subscribers to its DStv digital
satellite service. Although the current number of subscribers in Sub-Saharan
Africa is a small portion of our overall base and recent political and economic
instability in the region could delay the realization of the market's full
potential, we expect significant subscriber growth in this market to the extent
economic demographics improve. In addition, we expect the
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continuing rollout of our digital service and promotions, including set-top box
subsidies, to further drive subscriber growth.
MARKETING AND SUBSCRIBER MANAGEMENT. We actively market our services in the
region through local affiliates and agents. Our efforts are focused on the major
cities in each of the countries we serve because we believe that households in
these major metropolitan areas are more likely to be able to afford our services
than many rural households. In addition, we believe that given the size of the
urban population and the percentage of urban households that own color
televisions, there is significant opportunity to increase our subscriber base in
these areas. As in South Africa, we believe that targeting our digital and
analog services to different economic demographics will increase our overall
subscriber base and, over time, encourage analog subscribers to upgrade to the
digital service.
PRICING AND BILLING. The following table sets forth certain pricing
information for our Sub-Saharan African businesses:
<TABLE>
<CAPTION>
SUBSCRIBERS
(THOUSANDS)
------------------------------
DEC. 31, MARCH 31, MONTHLY
-------- ------------------- SUBSCRIPTION EQUIPMENT
1999 1999 1998 PRICE1) PRICE(1)(2)
-------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Analog........................................ 47 54 60 $30.00 $ 150
Digital....................................... 122 86 49 52.50 700
</TABLE>
- ------------------------------
(1) Represents the average price across all of our Sub-Saharan African
businesses.
(2) Includes the price of the satellite receiver in the case of digital service.
In each Sub-Saharan African nation, we generally bill our customers in U.S.
dollars or dollar equivalents. During the six months ending September 30, 1999,
our Sub-Saharan African operations experienced an average monthly net churn of
approximately 1.5% on the analog subscriber base and approximately 0.2% on the
digital subscriber base. To date, we have not experienced significant customer
disconnections as a result of increases in the price of our services.
COMPETITION. We are the leading provider of pay-television services in
Sub-Saharan Africa. In the countries in which we broadcast, however, there are
numerous public and private free-to-air television stations, as well as small,
localized pay-television operations. We believe that our wide selection of high
quality, exclusive programming, distributed both terrestrially and on DStv,
appeals to the broader African market and differentiates us from other
broadcasters.
TRANSMISSION. We deliver analog services terrestrially to Sub-Saharan
Africa by transmitting our programming signal by satellite to local receiving
stations in 9 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.
Our digital service is transmitted direct-to-home, or DTH, on a C-band
satellite transponder (C-band refers to the 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). Customers receive
these signals on a satellite 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. Smart cards are credit
card-sized devices that have embedded processors that provide entitlement
functions and store decryption keys and digital signatures. The smart cards are
inserted in a set-top box to gain access to encrypted programming.
Egypt and the Middle East
We provide customer service, subscriber management and customer billing
services to third-party pay-television broadcasters in Egypt and other
Middle-Eastern nations. We provide these services for the Showtime and Firstnet
digital satellite platforms. In Egypt, we also provide these services to Cable
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Network Egypt for its terrestrial analog service. As of December 31, 1999, there
were 130,551 subscribers in these countries.
Under our arrangements with Arab Radio & TV and Gulf DTH, we collect
revenues from their subscribers. We remit a percentage of these revenues to the
broadcasters and keep the remainder as compensation for our services.
MEDITERRANEAN
Greece and Cyprus
PRODUCTS. We offer terrestrial analog and digital satellite pay-television
services in Greece and terrestial analog service in Cyprus through our
subsidiary, NetMed. NetMed began broadcasting its analog service in 1994 and
began offering digital satellite service in Greece in December 1999 after
successfully concluding a concession agreement required by the terms of the
digital transmission license it received from the Greek government.
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. NetMed's Greek digital service, Nova, includes 19
video and 5 audio channels, including film, sports and children's channels, as
well as popular international channels and several of the national Greek
free-to-air networks. We also intend to begin offering interactive television
services on our Nova digital platform.
In Cyprus, our analog platform broadcasts two third-party channels, LTV and
Alfa. LTV is produced by Lumiere Television, a Cypriot media company, and Alfa
is produced by Alfa TV, a Cypriot pay-television company. Each channel shows a
variety of programming, including exclusive films and sports.
NetMed Hellas has the exclusive right to the pay-television broadcast, at
least a year in advance of their free-to-air premiere, of most Hollywood movies.
It has output deals for movies with all the major Hollywood movie studios,
including Columbia Tristar/Sony, Warner Brothers, Fox, MCA/Universal, Paramount,
DreamWorks, Disney and MGM. Under these 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. 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 televises two live matches and two delayed
matches each week. In connection with NetMed's purchase of an interest in the
Greek football club AEK PAE, AEK has entered into a long-term contract for Greek
domestic league television rights with NetMed that will become effective at the
end of the current league contract in 2001.
OPPORTUNITY. As of December 31, 1999, NetMed had 302,562 subscribers in
Greece and 41,265 subscribers in Cyprus. 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. However, in 1998,
average daily viewing time in Greece was 220 minutes, compared to an average of
191 minutes in the EU as a whole. We believe that the potential market growth in
Greece arises from the large Greek appetite for television and its comparatively
low rates of market penetration. We also believe that the recent launch of our
Nova digital platform will be a significant source of new subscribers.
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MARKETING AND SUBSCRIBER MANAGEMENT. We believe that our 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 will market its
recently launched digital service as an upscale alternative to the premium
analog package, and we expect the majority of our digital growth to come from
subscribers that upgrade from the analog service. We also expect to achieve
subscriber growth, as our territorial coverage has expanded from 70% of Greek
households with our analog system to 100% of Greek households with our digital
service.
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. As a result, we have experienced subscriber churn
in the summer, but we are aggressively implementing new programs designed to
promote year-long subscriptions. For example, we are pursuing programs that
apply a discount to the price of a set-top box in conjunction with a
subscription over a consecutive number of summer months.
NetMed provides customer service through customer care and billing centers
in Athens and Salonica in Greece and Nicosia, Larnaca and Limassol in Cyprus.
These centers utilize Mindport's IBS subscriber management system.
PRICING AND BILLING. The following table sets forth certain pricing
information for our Mediterranean businesses:
<TABLE>
<CAPTION>
SUBSCRIBERS
(THOUSANDS) EQUIPMENT PRICE(1)
----------------------------------------- MONTHLY ------------------------------
DEC. 31, MAR. 31, SUBSCRIPTION PRICE TOTAL
------------------- ------------------- ----------------------------- ------------------------------
1999 1999 1998 GRD $ GRD $
------------------- -------- -------- --------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GREECE
Analog............. 296 316 254 11,200(3) 31.87 55,500 157.94
Digital............ 7(4) N/A N/A 15,500 44.11 149,000 424.02
CYPRUS
Analog............. 41 35 31 10,172(5) 28.95 66,169 188.30
<CAPTION>
EQUIPMENT PRICE(1)
----------------------------
MONTHLY LEASE(2)
----------------------------
GRD $
-------------- --------
<S> <C> <C>
GREECE
Analog............. N/A --
Digital............ 5,000 14.23
CYPRUS
Analog............. N/A --
</TABLE>
- ------------------------------
(1) Includes the price of the satellite receiver in the case of digital service.
(2) The estimated amount of monthly payments under optional, three-year
installment purchasing plans for equipment.
(3) Price for both FilmNet and SuperSport. Separately, FilmNet costs GRD7,500
($21.34) and SuperSport costs GRD9,100 ($25.90).
(4) Our Greek Digital platform was launched on December 16, 1999.
(5) Price for both LTV and Alfa together. Separately, each costs GRD8,439
($24.02).
NetMed bills its subscribers monthly in Greek drachmae. During the
six months ending September 30, 1999, NetMed experienced a monthly net churn of
approximately 1.2% on its total subscriber base. Net churn, which is heaviest in
the summer months of May, June and July, averaged approximately 4.8% in 1999. In
September 1999, monthly net churn was approximately negative 6.5%, versus
negative 6.6% in September 1998. 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, we have not experienced significant customer
disconnections as a result of increases in the price of our services.
COMPETITION. NetMed competes directly with free-to-air broadcast channels
in Greece and Cyprus. There are currently a number of free-to-air channels in
Greece and Cyprus, including national Greek networks (such as Mega, Antenna,
Alfa and Star) and four national Cypriot networks (Cyprus Broadcasting Corp.,
Sigma, Mega and Antenna). In addition, Hellenic Telecommunications Organization
SA recently announced that it will join Greece's state-run television network,
ERT, and Alpha Digital Synthesis SA to start a digital pay-television company
that will start operating within the next few months. The new Greek media law
allows multiple licenses to be granted for pay-television
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platforms, but we are aware of only two other entities, Intersat SA and Alpha
SA, that have applied for such a license. The National Radio and Television
Council of Greece has not yet processed Alpha SA's request. Intersat SA has
received the necessary National Radio and Television Council approval, but has
not yet concluded the concession agreement with the Greek government that is
necessary for it to begin operations.
We believe our analog service is an attractive alternative due to its
comparatively clean frequencies and uncluttered channels. NetMed's Nova digital
satellite service has clear signal coverage throughout Greece, which is
difficult to replicate using terrestrial broadcasts due to the mountainous
terrain and remote islands found there.
TRANSMISSION. NetMed transmits its analog service through a network of 58
terrestrial transmission sites across Greece. Its analog network currently
covers approximately 70% of the Greek population. NetMed owns and operates 26 of
the 58 sites, including the two major transmission sites in Athens and Salonica,
which together cover approximately 60% of the population. NetMed distributes its
analog signal to the regional transmission sites over the Eutelsat's Hot Bird 2
satellite. The remaining regional transmission sites are owned and operated on
our behalf by local business partners, who often also own distribution outlets
where NetMed's set-top boxes are sold. In Cyprus, the terrestrial analog
network, which is owned by Lumiere Television and Alfa TV, consists of
transmission sites that together provide coverage of 77% of Cypriot television
households. Our Greek Nova digital satellite service, which covers 100% of the
Greek population, is transmitted off Eutelsat's Hot Bird 2 and Hot Bird 3
satellites to 60 cm satellite dishes mounted on customers' homes.
In encrypting and decoding its signal, NetMed uses conditional access
technology licensed from Mindport.
ASIA
We have a joint venture interest in the UBC group, the leading
pay-television provider in Thailand. Through a series of transactions beginning
in 1997, we now own 31.1% of UBC. The agreements governing this joint venture
grant us certain management rights, including the right to appoint the chief
operating officer. We view the UBC venture as a model for possible future
ventures in Asian countries and plan to draw upon our experiences in Thailand in
structuring our other investments in the region.
Following our 1997 acquisition of an equity interest in UBC, we have
attempted to reposition UBC for long-term growth through the merger, entered
into in February 1998 and effective in May 1998, of UBC with Telecom Asia's
interest in UBC Cable, a leading provider of cable television services in
Thailand. This merger combined the two largest pay-television companies in
Thailand. We believe that the UBC group has been able to derive significant
benefits from this merger, including a more coordinated and focused marketing
strategy and the ability to streamline its workforce. This strategy has included
coordinating the analog and digital bouquets, implementing a new pricing plan
and introducing a new billing plan. We believe the long-term effect of these
changes will be to increase subscriber growth and UBC's revenues and
profitability.
Thailand
PRODUCTS. We offer digital satellite and analog pay-television services in
Thailand through the UBC group. The UBC group's digital satellite and analog
cable services both provide the same 40 channels, including proprietary channels
showing movies and sports, major international channels and six major
free-to-air networks, in addition to seven educational channels. Channels shown
on the UBC group's pay-television systems include UBC Movies and UBC Asian
Movies, which show first-run and repeat films, UBC Kids, UBC Series, UBC News,
UBC X-Zyte, SuperSport and SuperSport Gold, which 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.
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Some of the other major channels offered by the UBC group are movie channels
such as HBO, Cinemax, Star Movies, and TNT Classic Movies; news channels such as
CNN, BBC, and CNBC; children's programs such as the Cartoon Network; and sports
channels, including ESPN and Star Sports.
The UBC group does not currently have the same exclusive rights to first-run
movies as are enjoyed by our other operating companies through their
locally-created movie channels. However, the UBC group does secure the rights to
channels such as HBO, Cinemax and Star Movies, which channels tie up movie
rights for the Thai market exclusively. A significant number of these "turn
around" channel arrangements are done on an exclusive basis. The UBC group also
broadcasts major 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 generated by the UBC group.
In the future, UBC intends to offer an enhanced interactive service which
may include an extended electronic programming guide, e-mail, home shopping and
home banking, thereby creating a television portal by which it hopes to generate
"t-commerce" (e-commerce through the television) revenues. In providing these
services, UBC intends to use software platforms developed and provided by
OpenTV. Although UBC has not set a definite date for the launch of these
services, we believe that interactive television will be a substantial new phase
in UBC's business development, with the potential to provide UBC with
significant new sources of revenue at higher margins and to fuel subscriber
growth.
OPPORTUNITY. As of December 31, 1999, the UBC group had 324,537 total
subscribers, consisting of 145,799 analog cable subscribers and 178,738 digital
satellite subscribers. Thailand has a population of approximately 61.1 million
people, with approximately 15.4 million television households. We believe that
Thailand represents an excellent opportunity for subscriber growth, given the
low pay-television penetration in Thailand of approximately 2.1% 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. Another factor that we believe will lead to subscriber growth in
Thailand is the fact that Thailand has started to show economic growth and
improved economic conditions following the financial crisis that struck
Southeast Asia beginning in 1997.
Due to the comparatively low level of market penetration in Thailand, we
believe that the recently adopted coordinated marketing plan between our analog
cable and digital satellite services should result in increased subscriber
growth. UBC's digital satellite service is potentially receivable by all
15.4 million television households in the country. UBC Cable's analog service
covers approximately 800,000 homes in Bangkok.
MARKETING AND SUBSCRIBER MANAGEMENT. UBC markets its digital satellite and
analog cable services as premium packages with broad market appeal. The UBC
group's analog and digital bouquets have been coordinated in order to reduce
churn between services as subscribers abandoned one system for another. We
believe that this unified approach and leading market position has been
responsible for a significant decline in our international channel costs. UBC
phased out its analog multichannel, multi-point distribution service, or MMDS,
system in February 1999 due to widespread piracy of its signal (MMDS, also known
as "wireless cable", uses high-power transmitters to broadcast programming to
receiving equipment in homes and businesses). UBC will retain its rights to the
MMDS frequencies and is examining the feasibility of establishing a digital MMDS
service. Feasibility studies are presently being undertaken, with a decision
expected in the first half of 2000.
UBC provides customer service through customer care and billing centers in
four cities, including Bangkok. These centers use Mindport's IBS subscriber
management system.
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PRICING AND BILLING. The following table sets forth certain pricing
information for our Thai business:
<TABLE>
<CAPTION>
SUBSCRIBERS
(THOUSANDS) MONTHLY SUBSCRIPTION PRICE
------------------------------ ---------------------------------------------------------------
MINI CABLE
SILVER SILVER GOLD
DEC. 31, MAR. 31, PACKAGE PACKAGE PACKAGE
-------- ------------------- ------------------- ------------------- -------------------
1999 1999 1998 BAHT $ BAHT $ BAHT $
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cable...................... 146 147 154 389 10.29 768 20.32 1,060 28.05
Digital.................... 179 153 116 N/A N/A 768 20.32 1,060 28.05
MMDS(2).................... -- -- 43 N/A N/A N/A N/A N/A N/A
<CAPTION>
EQUIPMENT PRICE
-----------------------------------------
UP-FRONT MONTHLY
FEES(1) RENTAL(3)
------------------- -------------------
BAHT $ BAHT $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cable...................... 4,000 105.85 97 2.57
Digital.................... 6,500 172.00 156 4.13
MMDS(2).................... N/A N/A N/A N/A
</TABLE>
- ------------------------------
(1) Includes installation fee, connection fee and refundable set-top box
deposit.
(2) Phased out in February 1999.
(3) Cable subscribers only pay a monthly rental fee if they joined after May 1,
1998. Digital subscriber rental fees vary depending upon the date on which
the subscriber joined the service.
On March 19, 1999, the Mass Communications Organization of Thailand approved
the creation of UBC's new Silver package consisting of ten paid and six
free-to-air channels. MCOT also approved UBC's increase in the price of its Gold
package. Included in these charges was the reduction of value-added taxation
from 10% to 7%. We introduced the new basic Silver package on May 1, 1999, with
the Gold package price increase taking effect on April 5, 1999 for new
subscribers. UBC's margins on the Gold and Silver packages are similar as the
Silver package consists predominantly of fixed-cost UBC-produced channels, while
the Gold package includes variable-cost "turn around" channels. The UBC group
has not experienced any substantial number of customers downgrading from the
Gold package to the Silver package, and predominantly all new subscribers take
the Gold package.
For the year ended December 31, 1999, the UBC group's average monthly net
churn was approximately 0.8%. We believe that the coordination of the
programming packages for analog cable and digital satellite service 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 our other operating companies, the UBC group
has instituted a strict policy of terminating the service of subscribers once
they fall 30 days in arrears on their subscription payments. This policy has
helped reduce the average arrearage to well below 23 days as of December 31,
1999. In 2000, the UBC group plans to switch to advance billing, which is used
by our other operating companies.
The UBC group does not require its subscribers to purchase their set-top
boxes but rather loans them to customers, retaining ownership of the equipment.
The cost of the equipment is built into the connection fee and monthly charge.
We believe 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 six
free-to-air television stations and the UBC group's pay-television operations.
Another pay-television service previously operated by Thai Sky 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 satellite service, local
cable groups in Thailand. We believe 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 our subscribers. We believe
that this arrangement enhances our appeal to current subscribers and assists in
growing our subscriber base.
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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, a Thai satellite company. UBC utilizes
digital compression technology that facilitates multiple channel transmission
through a single channel's bandwidth, which is a term used to describe the
amount of space occupied by a channel on the radio frequency spectrum. Digital
compression technology refers to the process of reducing the number of bits
required to store or transmit information in digital form. Subscribers receive
their signal on a 60-90 cm satellite dish and unscramble and decompress the
signal with a set-top box utilizing Irdeto Access's conditional access system
and smart card technology from Mindport. The set-top box, smart cards and
conditional access equipment are owned by a 96%-owned subsidiary of UBC and
leased to the UBC group.
UBC Cable's transmission is delivered on hybrid coaxial fiber optic cable
lines 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, 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, Asia Multimedia
supplies and installs a dropwire to link its network to subscriber homes and
installs and maintains the set-top boxes.
TECHNOLOGY
OVERVIEW
Our technology division, Mindport, is an end-to-end systems integrator that
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 by providing global convergence solutions with a commitment to open
standards. The introduction of new technologies has generated the need for the
increasingly complex, integrated and scalable software and hardware that
Mindport provides. In addition, by taking advantage of our 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,
TVB, Foxtel, Stream and DirecTV Japan, as well as our African and Mediterranean
pay-television businesses and our African Internet business. We also provide
pay-television technology to CBSat, a subsidiary of China Central Television,
which is distributing 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, broadband Internet
systems and systems integration and consulting services. We believe that our
subscriber management system, marketed under the IBS brand name, 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.
Mindport's products are designed to be flexible, configurable and scalable,
allowing them to be used by a variety of different network operators 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. We believe that Mindport will be
able to capitalize on the anticipated growth in interactive platforms and the
anticipated convergence of television, telephony and the Internet, and thereby
expand its customer base.
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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 X X X
...................................... Sub-Saharan Africa X X X
...................................... Greece X X X
...................................... Middle East X X
UBC(1)............................................. Thailand X X
Canal+............................................. Europe(2) X X
EchoStar........................................... United States X
CBSat.............................................. China Trial Trial Trial
Stream............................................. Italy X X
Galaxy Latin America............................... Latin America(2) X
DirecTV............................................ Japan X
Optus.............................................. Australia X X
Foxtel............................................. Australia X X
BSkyB.............................................. UK X
TPS................................................ France X
Via Digital........................................ Spain X
TDK................................................ Denmark X
TVB................................................ Hong Kong X X X
Telepiu............................................ Italy X X
</TABLE>
- ------------------------------
(1) All transactions between Mindport and our other subsidiaries and affiliates
are conducted on an arms-length basis.
(2) Certain countries only.
As of September 30, 1999, approximately 4.6 million subscribers were being
managed through Mindport's IBS system, approximately 3.8 million Irdeto Access
smart cards had been deployed and approximately 6.1 million set-top boxes had
been enabled with OpenTV software.
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 our
agreement to provide conditional access systems, subscriber management systems
and the OpenTV operating system to CBSat, the first provider of digital
satellite services in the People's Republic of China. CBSat's system was
deployed in small numbers on a test basis in 1999, with plans for a possible
broader rollout thereafter. The CBSat system was recently expanded to a 42
channel system.
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 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. All recent
sales have been made on this basis. Mindport currently provides IBS to 18
customers in 44 countries, including certain platforms of Canal+, Galaxy Latin
America and many of our operating entities. Mindport's contract with Canal+
expired and was renewed during 1999, even though a Canal+ affiliate, Canal+
Technologies, sells its own customer care and billing system. IBS's competition
in its
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current and planned future markets includes approximately 40 companies
worldwide, including Wiztec and CableData, which focus on pay-television, and
Portal and Daleen, which focus primarily on the Internet.
We believe 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 by the fact that IBS is used to provide customer care and
billing systems for platforms ranging in size from our 41,265 subscriber
pay-television system in Cyprus to our approximately 1.3 million subscriber
pay-television system in Africa.
Today, IBS is a leading subscriber management software package for
pay-television. We plan to continually redefine the IBS architecture to improve
on its configurability, flexibility and scalability. We also plan to take
advantage of the system's flexibility to penetrate new markets for IBS, such as
Internet service, cable, data broadcasting and telephony providers. We have
recently developed an IBS product capable of tracking and billing television
applications, including interactive commerce transactions, and Internet
applications and transactions.
The IBS subscriber management software has been successfully modified for
use by Internet service providers. The IBS system is currently being used to
manage our Internet subscribers in Africa and will be used to manage our
Internet subscribers in Asia. We plan to continue to expand the functionality of
the IBS software system and to market it to ISPs and other pay-media content and
service providers.
IRDETO ACCESS
Irdeto Access provides digital and analog conditional access systems to 18
network operators in over 40 countries. These systems enable pay-television
operators to encrypt and decrypt their broadcast signals and thus control
subscriber access to programs, services and events.
We believe that our 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 to adjust these features as their needs
change. Irdeto Access offers M-Crypt, a system specifically designed for
pay-media providers with fewer than 250,000 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
grows past a certain size. Irdeto Access's analog conditional access system is
also based upon a modular and flexible design. This product allows us 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 these conditional access systems include Stream, Telepiu, Canal+, TVB
and certain of our operating entities. As of September 30, 1999, Mindport had
supplied over 3.8 million digital smart cards and over 2.0 million analog
conditional access units.
The principal products competing with Irdeto Access include MediaGuard
(Canal+), ViaAccess, NDS and NagraVision (Kudelski). We believe that a
customer's primary considerations in choosing a conditional access system are
system security and dependability and that Irdeto Access enjoys a solid
reputation for both of these qualities.
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Mindport's strategy for Irdeto Access is designed to achieve four main
goals:
- reduce the cost of ownership for both digital and analog conditional
access systems;
- develop the next generation of conditional access products;
- grow sales operations in new markets; and
- develop an MPEG-2 encryption product for the Internet (MPEG-2 refers to a
set of standards developed by the Moving Pictures Experts Group that
details guidelines for access rates, compression and conditional access).
We have 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 with respect to developing conditional
access technology. In November 1998, we acquired TV/COM International Inc., a
San Diego based company that owns intellectual property licensed to Irdeto for
use in our conditional access systems. In July 1999, we completed negotiations
with BetaTechnik whereby we regained access to the German-speaking countries
that were previously excluded to us under our Digco joint venture.
OPENTV
OpenTV is the leading worldwide provider of software that enables digital
interactive television. Its software is running on over 6.1 million set-top
boxes worldwide, with 25 network operators in 18 countries having selected our
OpenTV Runtime software as their interactive platform. OpenTV's digital
interactive solution enhances a television viewer's experience without changing
viewing habits and provides a rich audio and video television environment for
enhanced applications such as e-commerce. Using a standard remote control,
viewers can:
- access real-time statistics, buy team merchandise and purchase tickets
while watching a sporting event;
- purchase compact discs and learn more about recording artists while
watching music videos;
- purchase vacations, clothing, groceries and other merchandise through
dedicated interactive channels; and
- transfer funds, view account balances, borrow money and engage in other
banking transactions.
OpenTV's patented software platform provides a comprehensive solution for
the development and delivery of digital interactive services by network
operators to television viewers. Network operators, which include cable,
satellite and terrestrial broadcasters of television content, use its software
platform to transmit a continual stream of interactive programming to viewers.
Specifically, its software platform includes software that resides both at the
network operator's central broadcasting facility and within the viewer's set-top
box. OpenTV's central broadcasting facility software enables the streaming of
data from such facility to subscribers' set-top boxes where its operating system
enables digital reception and manages the interactive television environment.
The OpenTV system has been designed to enable network operators to deliver
interactive content through a low-cost, digital set-top box for viewing on
existing analog televisions. Its software platform, therefore, operates within
today's infrastructure, allowing network operators to rapidly deploy digital
interactive television to a large number of subscribers without incurring
prohibitively expensive hardware or infrastructure upgrade costs. In addition,
its software is designed to exploit the capabilities of emerging infrastructure
developments, such as broadband transmission networks and digital television
sets.
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The majority of OpenTV's revenues today are generated from royalties and
fees related to its core software platform. In addition, OpenTV is developing
interactive applications that it intends to license to network operators and
content providers in exchange for a share of advertising and e-commerce
revenues. OpenTV has recently signed revenue sharing agreements with EchoStar,
which operates the Dish network in the United States and the Turner and Warner
Brothers divisions of Time Warner.
On March 26, 2000, OpenTV announced that it had signed a definitive merger
agreement with Spyglass, Inc., a leading provider of Internet consulting,
software and professional services and products. Spyglass's technologies include
Spyglass Prism, a server-based product that reorganizes and reformats standard
Web content to display on set-top boxes, mobile phones and other non-PC devices.
These technologies will provide a platform for OpenTV to expand into the
wireless communications market. Spyglass has provided its technologies and
consulting services to companies such as GTE, Microsoft, Motorola, NEC, Nokia
and Sonia.
Under the terms of the agreement, OpenTV will acquire all of Spyglass's
outstanding stock in a tax-free, stock-for-stock transaction. Spyglass
stockholders will receive 0.7236 OpenTV Class A Ordinary Shares in exchange for
each share of Spyglass common stock. Based on OpenTV's closing price on
March 24, 2000, the last trading day before the announcement of the transaction,
the transaction has a value of approximately $2.5 billion on a fully diluted
basis. Spyglass stockholders and option holders will receive approximately
15.0 million OpenTV Class A Ordinary Shares and own approximately 18% of the
combined company's stock on a fully diluted basis. After giving pro forma effect
to the Spyglass transaction, MIH Limited will own shares representing
approximately 37.7% of the economic rights and 72.0% of the voting rights of
OpenTV's shares on a fully diluted basis. Subject to certain customary closing
conditions, including regulatory approvals and the approval of the stockholders
of both companies, the transaction is expected to close within three to four
months.
PRODUCT DEVELOPMENT AND SYSTEMS INTEGRATION AND CONSULTING SERVICES
Mindport's products development operations focus on convergence solutions
for pay-media companies, with an emphasis on open technological standards. To
ensure that it is able to deliver a best-of-breed solution to its customers,
Mindport has recently entered into a series of strategic partnerships with key
industry players, including Cisco Systems, DiviCom, Liberate Technologies, Wind
River Systems, SCM Microsystems, Pace Micro Technology, Digital Innovations, UEC
Technologies and Zenith. These partnerships are intended to enhance the
interoperability of these companies' products and to demonstrate an integrated
end-to-end open standards-based digital cable head-end platform. Mindport's
focus on open standards and interoperable products has strengthened its position
as an end-to-end systems integrator.
MEDIA COMMERCE TECHNOLOGIES. We believe that, as the various mechanisms for
the delivery of content (such as television and the Internet) converge, the
management of content will become increasingly important. Mindport is currently
developing the tools, technologies and supporting structures that will enable
content owners to address content management on the Internet, where video
content management in particular is still in its infancy.
MINDPACK. Mindport has upgraded its Contracts, Library and Scheduling
System (CLASS) to the Mindpack product. This enables digital pay-television
operators to manage contracts, control their program libraries, manage license
tracking, produce program schedules and utilize multiple-language electronic
program guides.
SYSTEMS INTEGRATION AND CONSULTING SERVICES. Mindport Solutions is a new
division intended to capitalize on the expertise within the Mindport group to
offer consultancy services and turnkey systems integration 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. Mindport Solutions was also responsible for the
initial implementation of the CBSat service installation in China, as well as
for the upgrade of this system to a 42 channel system. More
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recently, Mindport Solutions was the prime contractor for the installation of an
end-to-end solution for TVB's digital pay television platform in Hong Kong, the
United States and Australia.
INTERNET
OVERVIEW
We believe that our expertise in managing pay-television platforms in
several international markets will enable us to migrate effectively into the
Internet environment. Our strategy is to combine our pay-television assets and
core competencies, which include customer care, billing services, marketing and
branding, knowledge of enabling technologies, content aggregation and media
orientation, with our technology expertise to create leading Internet businesses
in the geographic areas in which we currently operate pay-television platforms,
as well as in new markets. This strategy provides us with the opportunity to
exploit the benefits of content delivery over both Internet and pay-television
platforms.
We believe that our pay-media experience has given us a strong understanding
of content rights and that this expertise, combined with our local approach to
content development, provides us with an ability to apply our knowledge of
content aggregation and packaging to the development of Internet portals and
other online services. The skills we have developed through our pay-television
operations, such as subscriber management and content aggregation, are those
which we believe to be essential in the development of Internet services
operations. We believe that these skills should enable us to smoothly expand our
Internet business.
The leading pay-television platform positions we hold in Thailand with UBC
and in South Africa with Multichoice enable us to apply our expertise and assets
to the development of leading Internet businesses within these regions,
including through cross-promotion activities. The SuperSport channel is a good
example of our cross-promotion of content and viewership from television to the
Internet. This ability to cross-market places us in a position to leverage our
successful media franchises into the Internet space, thereby creating audience
loyalty and traffic for future e-commerce opportunities.
Our strategic local approach, represented by an understanding of and
investment in local content, is heightened by our global operational experience
in new and developing markets. We believe the local language focus we employ may
provide us with a competitive advantage in non-English language markets.
Furthermore, we tailor our content to the local culture through collaboration
with local partners and management teams. In Thailand, for example, we own
Sanook.com, which is a search engine that has been developed in Thai by Thai
entrepreneurs and managers.
Our desire to build local communities on the Internet is illustrated by our
development of web sites dedicated to the local culture. For example, we
maintain a popular web site and community bulletin board that facilitate the
common Thai pastime of composing and sharing poems. We plan to apply this same
approach in other markets.
Although our Internet businesses are relatively new, the experience our
management has gained in our pay-television businesses is well diversified over
many markets, countries and cultures and capable of being applied to Internet
operations. We are developing our Internet businesses by combining our existing
knowledge of pay-media operations with the expertise of local management. We
have a proven record of establishing media businesses in developing markets, and
we believe that we are well-positioned to take advantage of Internet services
and e-commerce opportunities in these markets.
Our Internet businesses are operated under the M-Web brand. In South Africa,
our Internet business is well established, and our current focus is on the
development of our Internet businesses in Asia, particularly Thailand, China and
Indonesia, as well as in other countries in Africa.
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SOUTH AFRICA
Market Overview
Our first Internet venture began with the successful development, beginning
in 1997, of M-Web Holdings. The business conducted by M-Web Holdings was
originally a small ISP with 1,800 subscribers, which we acquired in 1997. We
subsequently developed this business by creating our own content and aggregating
other content from our affiliates, and transformed this business into the
leading online service provider, or OSP, and content portal in South Africa. In
the process, the business was spun-off in September 1997 into a publicly-listed
company, M-Web Holdings. We continue to manage M-Web Holdings pursuant to a
voting pool agreement between us and Naspers Limited, M-Web Holdings's principal
shareholder, and have recently acquired additional shares of M-Web Holdings,
bringing our total interest up to 16.8%. Naspers, the principal owner of our
controlling shareholder, continues to own 48.4% of the shares of M-Web Holdings.
M-Web Holdings is listed on the Johannesburg Stock Exchange and, on March 29,
2000, had a market capitalization of ZAR2.5 billion (or $379.4 million).
The South African Internet market has consolidated rapidly during the past
two years. In a market of approximately one million Internet users and more than
300,000 dial-up subscriber homes, two players now dominate the ISP market: M-Web
and World Online. World Online is a joint venture between Vodacom, the largest
GSM mobile operator in South Africa and a Vodafone affiliate, and Dutch ISP
World Online.
Similarly, two players dominate the Internet content provider, or ICP,
market: M-Web and iafrica.com. iafrica.com is owned by Metropolis, a South
African vertical Internet community company modeled on VerticalNet in the United
States. As of December 30, 1999, our M-Web content and portal sites generated
approximately 18 million page views per month, whereas iafrica.com's sites
generated approximately 16.5 million page views per month.
Both online advertising and e-commerce are in a very early stage of
development in South Africa. We estimate that neither is likely to start
emerging as a true generator of revenue for 12-24 months. Online consumer retail
and true retail e-commerce will only develop once the necessary financial
infrastructure and consumer markets mature. We believe, however, that business
and consumer-generated e-commerce opportunities will eventually develop into
genuine business opportunities and the business solutions division of M-Web
Holdings is now well-positioned to offer support to the increasing number of
e-commerce web sites.
M-Web Holdings
M-Web Holdings had approximately 195,775 subscribers as of December 31,
1999, which translates to an approximate 60% market share of the consumer
dial-up Internet market in South Africa and a penetration of 2% of total South
African households. M-Web Holdings also owns Computicket.com, the largest
advance retail and e-commerce ticket reservations business in South Africa.
At the beginning of 1999, M-Web Holdings launched a satellite Internet
service called Siyanda, which delivers Internet access to homes up to six times
faster than traditional dial-up access. The following table sets forth
subscriber numbers and subscription fees for our dial-up, web hosting and
Siyanda services.
<TABLE>
<CAPTION>
SUBSCRIBERS
(THOUSANDS) MONTHLY
------------------------------ SUBSCRIPTION
MAR. 31, PRICE
DEC. 31, ------------------- -------------------
1999 1999 1998 ZAR $
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Dial-up.................................................... 196 145 57 99 15.21
Web hosting................................................ 0.9 -- -- 225 34.56
Siyanda.................................................... 0.2 -- -- 280 43.01
--- --- ---
Total.................................................... 197 145 57
=== === ===
</TABLE>
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Rather than simply acquiring its portals from previously existing Internet
companies, M-Web Holdings has successfully developed its own content portals and
serves as the major Internet access provider for these portals. Today, its
MWEB.CO.ZA and 24.COM flagship portals are collectively the largest in South
Africa, with 18 million page views per month and 600,000 unique visitors per
month as of December 31, 1999. These portals include the following web sites,
which have been developed by M-Web Holdings and through partnerships with other
content providers:
- WWW.MWEB.CO.ZA: The M-Web South Africa home site is a leading content
platform portal offering an array of content hubs, including those
relating to sports, entertainment, travel, news, lifestyle, finance, jobs
and e-mail services.
- WWW.24.COM: The 24.com site is a popular South African content portal that
offers users the opportunity to personalize the portal for a better
personal Internet experience.
- WWW.MONEYMAX.CO.ZA: The Moneymax site is a financial portal that hosts
news, views and insights into a wide array of financial matters and also
offers premium financial content on a subscription basis.
- WWW.SUPERSPORT.CO.ZA: The SuperSport site is an online sports news service
that includes hubs reporting on rugby, cricket, soccer, tennis,
motorsport, golf and running.
- WWW.NEWS.24.COM: The News24 site supplies news services including South
Africa, business, world, Africa, politics, science and technology, health,
sports and weather news.
- WWW.ITWEB.CO.ZA: The IT Web site is an online technology news service.
- WWW.NETCOVER.COM: The Netcover site offers services such as comparative
insurance and unit trust purchases. It merges content with e-commerce and
aims to become South Africa's leading insurance and investment offering
site.
- WWW.MAX.CO.ZA: The Max site is a leading South Africa search engine and
content platform portal.
M-Web Holdings had total revenues for the six months ended September 30,
1999 of $15.1 million compared with total revenues of $6.9 million for the six
months ended September 30, 1998 and $19.8 million for the fiscal year ended
March 31, 1999. More than 75% of M-Web Holdings's revenues are generated by
access subscriptions and the second largest source of revenue is
Computicket.com, from which M-Web Holdings derives approximately 14% of its
revenues. Advertising and e-commerce (excluding Computicket.com) generated less
than 4% of M-Web Holdings's revenues in the six months ended September 30, 1999;
however, M-Web Holdings has recently signed several significant e-commerce deals
with large retailing groups in South Africa, such as Edgars, Avis, MoreSport,
Ascot Direct, MultiMedia Warehouse, Jenna Clifford, The ProShop and various
others.
SUB-SAHARAN AFRICA
Recently, we have expanded our African Internet business to include ISP
operations in several sub-Saharan African countries, including Namibia, Zambia
and Botswana.
THAILAND
Market Overview
The Thai Internet market is generally a fragmented market dominated by
regulatory uncertainty, with, until recently, a large number of small players
conducting limited operations, but no significant commitment from any investors
to build the industry. This relatively open Internet market is beginning to
attract the attention of foreign and local investors. A number of investments by
domestic and foreign companies and venture capitalists have recently been made.
The growth of Internet users in Thailand has followed macro-economic trends
since commercial Internet ventures were first launched in 1994, characterized by
rapid growth and a lagging
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infrastructure followed by dramatically slower growth since the onset of the
economic crisis in July 1997. As Thailand appears to be emerging from its
economic crisis, however, the number of Internet users is rising. Currently,
according to industry reports and figures published by the National Electronics
and Computer Technology Center, there are approximately one million Thai
Internet users, consisting of domestic users and Thai nationals living or
traveling abroad.
The first Thai content initiatives were started as late as 1997, and today
these consist mainly of Thai language content portals, or directories of Thai
web sites. Several media players also have Thai language destination sites that
are attracting a growing number of visitors. Typically, these web sites are run
by newspaper companies, such as those maintained by two leading Thai newspapers,
KRUNGTHEP THARAKIJ and THAI RATH.
Due to low computer penetration, low telephone penetration and polarized
income distribution, the Internet is not expected to reach a mass media market
in Thailand for at least three years. Revenues from advertising and online
consumer retail e-commerce will only develop once the necessary financial
infrastructure and consumer markets mature. Nonetheless, we believe that
business and consumer generated e-commerce opportunities in the Thai Internet
market will eventually be viable business opportunities.
Strategy
We believe that online advertising and e-commerce will not be significant
sources of revenue in Thailand for many years. Accordingly, M-Web (Thailand) has
initially begun to establish itself as a major Internet force in Thailand by
investing in Internet content providers and Internet service providers and
developing the M-Web Network. Through its Internet service provider operations,
M-Web (Thailand) hopes ultimately to penetrate the e-commerce market.
INTERNET CONTENT PROVIDERS. One principal aspect of our strategy is to
focus on establishing a presence in Thailand as an Internet content provider
through the development of the M-Web Network. The objective is to be the top
Internet platform and to capture the Internet consumer in Thailand. We plan to
achieve this through the development of a network of sites under the M-Web
brand. Each of the following M-Web sites specializes in a core Internet service:
- WWW.MWEB.CO.TH: The M-Web (Thailand) home page acts as the content
platform and core brand flagship site. Several content hubs are being
developed, including those relating to sports, entertainment, travel,
news, lifestyle, finance and jobs. Content for these hubs is either
self-developed or co-branded with leading content providers.
- WWW.SANOOK.COM: The Thai language Sanook! site, recently acquired by M-Web
(Thailand), is the leading portal in Thailand today with approximately
8.5 million page views per month as of December 31, 1999. Our investments
in this site consist of our purchase of a Thai language search engine and
the on-going development of the catalogue of content being offered on the
site.
- WWW.THAICENTRAL.COM: The ThaiCentral site is being developed as the core
community and communications center. All community-oriented services for
all sites in the network will be housed here. Similarly, software is under
development to enable the launch of "distance family", or interest group,
services and features. Since its launch in November 1999, the site has
registered more than 20,000 members.
- WWW.THAIICQ.COM: The Thai ICQ site is a web site where Thai ICQ users can
find other Thai ICQ users and guides to ICQ, or instant messaging. The
latest version of the software is also available to download.
- WWW.SIMPLEMAG.COM: The Simplemag site was acquired in November 1999. It is
a niche web site marketed towards female Thai users.
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- WWW.SABUY.COM: The Sabuy site was acquired in November 1999. This niche
web site has been developed to focus on domestic travel.
M-Web (Thailand) is currently the only Internet company in Thailand that can
offer a full search engine in the Thai language and a full advertising service
based on actual reach and advertisement viewers. M-Web (Thailand) aims to
develop a relationship with Thai Internet users by providing a comprehensive
Internet experience in the Thai language tailored to the Thai culture through
local customization. In order for M-Web (Thailand) to accomplish this, we
envision not only all content on our sites being in the Thai language, but also
plan to launch a Thai language Internet browser customized for the M-Web
Network.
Pursuant to our objective to penetrate the Thai Internet market, M-Web
(Thailand) has established a number of key content partners specifically for the
M-Web (Thailand) sites. These include Jobs and Adverts (an on-line recruitment
agency), Thai Driver (the leading domestic automobile magazine), GM 2000 (the
leading domestic high-end consumer brown goods magazine), Kick-Off (a leading
sports publication), Daily News (a domestic consumer newspaper with a
circulation of approximately 12 million daily) and The Manager (a domestic
business-oriented magazine).
Pursuant to a share swap agreement dated January 14, 2000, our affiliate MIH
Asia transferred 5% of the total issued share capital of M-Web (Thailand) to AD
Venture Company Limited, the Internet subsidiary of Shin Corporations Public
Company Limited, a Thai telecommunications group, and received, in return, 5% of
the total issued share capital of Shinee.com Company Limited.
INTERNET SERVICE PROVIDERS. In conjunction with our strategic objective to
become a leading Internet service provider in Thailand, M-Web (Thailand)
Holdings BV recently acquired 49% of the issued share capital of MKSC World Dot
Com Co. Ltd., or MKSC, a Thai company that, in turn, owns 75% of the issued
shares of IKSC. The remaining shares in IKSC are owned by Jasmine International
plc, or Jasmine, a Thai telecommunications network and infrastructure provider.
IKSC has a 65% stake in KSC Comnet, a Thai ISP licensee, while the Thai
regulatory authority and its staff own a further 35% of the issued shares of KSC
Comnet. IKSC has agreed to transfer 12.5% of the issued shares of KSC Comnet to
Jasmine upon receipt of regulatory approval for the transfer. We believe that
KSC Comnet is the leading ISP in Thailand, with over 300,000 customers.
The transfer of the shares in IKSC to MKSC in connection with M-Web
(Thailand) Holdings BV's purchase of an interest in MKSC has been disputed by
Jasmine on the basis of provisions in a shareholders' agreement between Jasmine
and the transferors of the IKSC shares. Jasmine has claimed that these
provisions, in effect, prohibited the transfer of the IKSC shares to MKSC, and
has obtained an injunction from the Thai courts which sought to prevent the
transfer. However, as the transfer had already taken place prior to the granting
of the injunction, Jasmine is now seeking the revocation of the share transfer.
The matter is currently awaiting a hearing in the courts of Thailand. We have
obtained legal advice to the effect that the shareholders' agreement is not
effective to prohibit the transfer of the IKSC shares to MKSC, and we intend to
defend vigorously any action that may be taken by Jasmine to obtain a court
order revoking the transfer. However, if Jasmine should succeed in obtaining
such an order, our remedy against the transferors of the MKSC shares may be
limited.
CHINA
Market Overview
Through our M-Web China (BVI) subsidiary, we are currently developing and
investigating several business opportunities in the Chinese Internet market. In
developing our Internet operations in China, we have focused on building upon
the important relationships that we first established when our Mindport division
was awarded the contract to provide pay-television technology to CBSat in
connection with its distribution of digital television signals to rural villages
in China. Since opening our Asia representative office in Beijing in 1998, our
Chinese operations have expanded significantly and M-Web China currently has
over 170 employees.
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According to CNNIC, a branch of Chinese Academy of Science that oversees the
Internet in China, there were approximately 2.1 million Internet users in China
at the end of 1998. This figure grew to 8.9 million by the end of 1999, and
CNNIC forecasts that it will grow to approximately 40 million by 2003.
International Data Corporation, or IDC, estimates that overall e-commerce
revenue in China will increase from approximately $43 million in 1999 to
$11.7 billion in 2003. We believe that the significant growth in the Chinese
Internet market, if it occurs as expected, will create important business
opportunities in this market, particularly in the following areas:
- the creation of strong user communities;
- the development of Chinese-language content, which in turn will increase
the market for online advertising and sponsorship;
- e-commerce opportunities;
- the provision of high-quality customer and online services; and
- new online businesses.
Strategy
M-Web China's strategic objective is to capitalize on the rapid growth of
the Chinese Internet market and to become one of the leading Internet companies
in China, providing a comprehensive offering of attractive local content coupled
with high-quality customer service. This strategy is centered on building value
in the Chinese Internet market through creating a "commerce network" that
derives e-commerce, sponsorship, advertising and online services revenues. We
aim to achieve this by focusing on the following development opportunities:
- establishing MWEB.COM.CN as a comprehensive horizontal portal with focused
vertical categories of content, multiple community services and customized
context and communication tools;
- establishing a major e-commerce network around the MWEB.COM.CN portal; and
- developing a leading online service provider, or OSP, operation that
provides high-quality online services and related technical and customer
support.
In pursuing these opportunities, we will continue to focus on maintaining strong
relationships with the relevant Chinese governmental agencies, as well as
entering into strategic alliances with local partners where appropriate. We also
intend to simplify the Internet user experience by focusing on providing
superior customer support services as we have done in South Africa and Thailand.
The MWEB.COM.CN Portal and Specialized Vertical Portals
M-Web China aims to draw a large number of Chinese Internet users to its
MWEB.COM.CN portal by providing a one-stop destination that offers a broad array
of Chinese-language content and a comprehensive catalog of links to
Chinese-language web sites worldwide, together with a customized search engine,
a diverse range of interactive communities and communication services, site
personalization tools, free e-mail, diary and home page services and a browser
that will be customized for the site. M-Web China is currently focused on
developing the specialized vertical sites that will make up the MWEB.COM.CN
portal, including interest categories such as news, sports, personal finance,
entertainment, environmental, health science, computer, lifestyle, culture,
women and travel.
M-Web China has recently entered into an arrangement with a Chinese company
for the establishment of a Chinese-language financial information portal
targeted at both the corporate and consumer markets. M-Web has a 50% interest in
this venture and will contribute financial resources and management expertise.
M-Web's local partner will contribute its existing financial portal, EEFOO.COM
and certain other assets. EEFOO.COM, which was launched in July 1999, is the
fourth largest financial portal in China, with 450,000 page views and 250,000
unique visitors daily. M-Web China will deliver EEFOO.COM's financial-related
information, as well as access to banking information, home finance tools
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(such as mortgage advice), short-term insurance, online stock portfolio
management, investment tips and other related personal finance services, through
the MWEB.COM.CN portal.
Consistent with our focus on taking a localized approach to the markets in
which we operate, we have designed the MWEB.COM.CN home page and the portal's
navigational structure in conjunction with local Chinese web site designers and
developers. The MWEB.COM.CN portal is currently in the pre-launch stage, which
means that it is operational but is password protected and, therefore, not
generally available to consumers. M-Web China expects to launch the portal in
April 2000.
Educational Services
Together with Wisdom Network Technology Limited, a subsidiary of Tsinghua
University Enterprises Group, MIH Limited has established a joint venture to
develop and produce online information systems to be used for the delivery of
educational services over the Internet in China.
We will contribute financial and technical assistance and management expertise
to this joint venture, and our local partner will contribute personnel
resources, marketing expertise and research and development assets. We believe
that this arrangement represents an important step in strengthening our
relationships in China and in pursuing our strategy of expanding our
Internet-related businesses in this market.
One of the primary focuses of the venture will be the further development of
the existing Education Online (EOL) information system. Another key objective of
the joint venture is developing online systems to assist companies and
individuals in providing online courses and tuition and other related services
to the education sector in China.
The EOL web site offers information about China's higher education
institutions, offers help for students wishing to study abroad and hosts a
variety of different education-oriented communities. It also offers education
news, an education yellow page, an education navigation guide, university and
graduate school enrollment services and educational software downloads. Because
of the strong focus on education in China, where there are currently over 4
million university students and several million more wishing to attend
university each year, we believe that there are significant opportunities in the
area of online educational services in the Chinese market.
Online Service Provider
M-Web China and the owners of the leading private Chinese ISP, A-1 Net, have
entered into strategic agreements for the development of a Chinese-language
subscription-based Internet content and information service. This service is
intended to be bundled with access services offered by A-1 Net, an Internet
access service provider. This OSP operation, which will be owned by M-Web China,
will have access to A-1 Net's existing ISP subscriber base through a network
services contract. M-Web China will provide management expertise and marketing,
sales, customer care and technical services. Internet customers will be able to
subscribe to the OSP for a package of technical support and subscriber services,
including free access to the ISP. The MWEB.COM.CN portal will become the
exclusive home page and content provider for the OSP. Certain content and
services on the MWEB.COM.CN portal will be made available to OSP subscribers on
an exclusive basis. We believe that this relationship will provide M-Web China
with a steady stream of subscription-based revenues and will help drive
subscriber growth in the OSP and page views on the MWEB.COM.CN portal.
In connection with the strategic agreements entered into with respect to the
establishment of this OSP operation, the owners of A-1 Net will receive 35% of
the issued share capital of M-Web China and MIH Limited's interest will be
reduced to 65%. This transaction is expected to close in early April 2000.
Acquisition of Vertical Content Sites
M-Web China is also in the process of acquiring a number of domestic Chinese
web sites to facilitate the deployment of the MWEB.COM.CN portal. M-Web China
has approached a number of
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potential targets and, over the next few months, hopes to acquire several web
sites and enter into numerous content partnership arrangements. These sites will
contribute page views, content and communities to the MWEB.COM.CN portal. The
content areas being targeted include online communities and sports,
entertainment, games, personal finance and music sites.
OTHER ASIAN INTERNET INITIATIVES
Our business plan has previously been to launch Internet initiatives in
those countries where we own pay-television platforms. Because we believe that
Asia represents a significant investment opportunity in the Internet market, we
have also begun investing in countries, such as China, where we have not
established pay-television platforms. We hope to invest in other Asian markets
in both the Internet content provider and ISP areas in the same manner in which
we have entered our current operating markets, namely Thailand, China, South
Africa and other Sub-Saharan African countries.
PROPERTIES
We have major corporate offices in Hoofddorp, The Netherlands, Johannesburg,
South Africa and Athens, Greece. The following table summarizes certain
information regarding our principal facilities as of September 30, 1999:
<TABLE>
<CAPTION>
DESCRIPTION/USE LOCATION SIZE OWNED OR LEASED
- --------------- --------------------------------- ---------- ---------------
<S> <C> <C> <C>
Corporate offices................ Hoofddorp, The Netherlands 6,772m(2 ) leased
Corporate offices................ Mountain View, CA, USA 3,626m(2 ) leased
Corporate offices................ San Diego, CA, USA 1,750m(2 ) leased
Corporate offices................ Johannesburg, South Africa 20,400m(2)* leased
Corporate offices................ Durban, South Africa 2,672m(2 ) leased
Corporate offices................ Cape Town, South Africa 3,219m(2 ) leased
Corporate offices................ Athens, Greece 12,000m(2) leased
Corporate offices................ Beijing, China 2,091m(2 ) leased
Corporate offices................ Bangkok, Thailand 20,336m(2) leased
Corporate offices................ Shanghai, China 100m(2 ) leased
Development offices.............. Hong Kong 193m(2 ) leased
</TABLE>
- ------------------------
* multiple locations
EMPLOYEES
At March 1, 2000, we had 4,132 employees, of which 1,048 are employed by
MultiChoice, 1,208 by UBC, 475 by NetMed, 504 by Mindport and 246 by M-Web
(Thailand). The remainder are in our MIH corporate offices in the Netherlands,
South Africa, Hong Kong and China. As of March 31, 1999, we had a total of 3,069
employees, and as of March 31, 1998, we had a total of 4,024 employees. None of
our full-time employees is unionized. We believe our labor relations are
satisfactory.
INTELLECTUAL PROPERTY
We rely on a combination of patents, licensing arrangements, trade names,
trademarks and proprietary technology to protect our intellectual property
rights. We own, or have been assigned or licensed the rights to, several patents
and have several patent applications in various jurisdictions relating to our
proprietary technology. In addition, we currently have numerous trademarks
(pending and registered) in countries where we conduct business. Some of our
major trademarks include the names and logos of Irdeto, Mindport, OpenTV, DStv,
MultiChoice and M-Web.
We may file additional patent and trademark applications in the future,
although there can be no assurance that we will be successful in obtaining
patents or trademark registrations based upon these applications. We intend to
vigorously protect our intellectual property rights. It may be possible,
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however, for a third party to copy or otherwise obtain and use our technology
without authorization or to develop similar technology independently.
Furthermore, the laws of certain countries in which we sell our products do not
protect our intellectual property rights to the same extent as do the laws of
the United States. See "Risk Factors--Because much of our success and value lies
in our ownership and use of intellectual property, our failure to protect our
intellectual property or to develop new proprietary technology may negatively
affect us".
LEGAL PROCEEDINGS
From time to time, we and our local partners in Greece have experienced
objections by local communities to the establishment or continued presence of
transmission sites in these communities. These matters have generally been
resolved in the ordinary course. In addition, we are party to routine litigation
and proceedings in the ordinary course of business. We are not aware of any
current or pending litigation which we believe would have a material adverse
effect on our results of operations or financial condition.
UBC has submitted an application to the Thai Trade Competition Committee
under the Thai Competition Act. See "Regulation--Thailand".
ENVIRONMENTAL MATTERS
Environmental laws vary significantly among the countries in which we
operate. 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 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 our facilities, we
could be liable for such costs in the future.
We are not aware of any material environmental claims pending or threatened
against us, and we do not believe we are subject to any material environmental
remediation obligations. However, we cannot assure you 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 South African
Broadcasting Corporation (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 (the "Telecommunications Act")
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 wireless cable license, known as the "MMDS"
license, which was 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 license and, on February 19, 1999, received a further uplink
license from SATRA.
The Telecommunications Act requires any person who provides value added
network services, which at present are defined to include Internet services, to
do so under a license issued by SATRA. The Telecommunications Act also provides
that any person who provided such services before May 20, 1996 shall be
permitted to continue providing such services as a deemed license holder. The
corporate pedigree of M-Web Connect (Pty) Limited permits it to carry on
business as a deemed license holder. The process for formalizing such deemed
licenses has yet to be completed by SATRA.
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
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government, licensing and regulation by the IBA and service provision by the
broadcasters and signal distributors. The White Paper made, among others, the
following recommendations:
- 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;
- 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
- 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 June 30, 1999, a new Broadcasting Act came into effect. This Act
essentially seeks to put into law the most important findings and
recommendations of the White Paper. In particular, it:
- repeals the previous Broadcasting Act No. 73 of 1996 and provides a
charter for the SABC;
- 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;
- establishes the Frequency Spectrum Directorate in the Department of
Communications; and
- creates new classes of broadcasting licenses in line with the proposals in
the White Paper.
Although M-Net Ltd. and Orbicom hold a broadcasting signal distribution and
uplink license, respectively, MultiChoice Africa requires a license for the DStv
service within the new regulatory framework. MultiChoice Africa has made
submissions to the IBA in this regard.
In July 1999, the Department of Communications initiated a policy process
for the regulation of e-commerce. This process envisages the rationalization and
amendment of all relevant legislation and the creation of new legislation for
new media and converged technologies within a merged broadcasting and
telecommunications regulatory environment. This may have a potential impact upon
the regulatory regime for Internet services. It is anticipated that any
legislation resulting from this process will only come into operation at the
beginning of 2002.
The policy process for e-commerce also presents the opportunity for the
government to reconsider whether it is appropriate that Internet services are
regulated as value added network services. While no formal process has been
initiated, informal discussions at industry level reveal a large degree of
support for the creation of a separate category of "light touch" regulation for
Internet services.
GREECE
OVERVIEW. 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,
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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 GRD1 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 to 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 than a majority of shares
requires ERT to be notified. ERT also has 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 a
cooperation agreement with any holder of a license. However, the existing
agreement between NetMed Hellas and ERT has been extended (by a further
agreement dated October 15, 1999 between NetMed Hellas and ERT) until the
licenses for the provision of terrestrial pay-television services have been
granted in accordance with the new pay-television law. The Minister of Press has
announced the frequencies which will be used for the provision of terrestrial
pay-television services and MultiChoice Hellas submitted an application for such
a license on February 1, 2000.
After the terrestrial licenses have been granted, 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, a license for the provision of pay-television and
radio services via satellite was received by MultiChoice Hellas on July 15,
1999. MultiChoice Hellas and the Greek government concluded the concession
agreement that is required by the terms of this digital transmission license on
December 20, 1999.
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 which that state's
authorities regulate.
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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.
INTERNET REGULATION. Currently, there is minimal legislative activity
regarding restrictions on Internet service providers and content transmitted
through the Internet. The regulation of the Internet in Greece is subject to
review by the Greek parliament.
THAILAND
OVERVIEW. At present, public telecommuncation networks and services are
subject to regulations by three entities which come under the control of the
Ministry of Transport and Communications ("MTC"), namely the Post and Telegraph
Department of Thailand ("PTD"), the Telephone Organisation of Thailand ("TOT")
and the Communications Authority of Thailand ("CAT").
There are four primary pieces of legislation that govern telecommunications
in Thailand. The Telegraph and Telephone Act originally assigned full authority
to install, maintain and operate the telegraph and telephone infrastructure to
PTD. The responsibility for domestic telephone and related services and
international telephone services to Laos and Malaysia was transferred to TOT by
virtue of the Telephone Organisation of Thailand Act. Authority for all
international telecommunications and certain domestic telecommunications, such
as postal and telegraph services and related services was transferred from PTD
to CAT, which was established by virtue of the Communications Authority of
Thailand Act. PTD continues to be responsible for licensing the transmission of
information by radio frequency and the use and trade of radio equipment as
prescribed by the Radio Communications Act.
Currently, there is no central regulatory entity that coordinates and
regulates telecommunications policy. Furthermore, imprecise legislation and
rapid advances in the field of telecommunications have created overlapping
jurisdiction by both TOT and PTD. This has resulted in the duplication of
services and competition between the authorities. MTC is attempting to set up a
national communications board as a central regulatory body in order to
reorganize the overlapping authorities and establish a plan to privatize CAT and
TOT.
BROADCASTING. 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, the Mass
Communication Organisation of Thailand ("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 transmissions within Bangkok, 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
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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 to both entities
for licenses to broadcast. 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"). Under 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 a
satellite to provide direct-to-home service, cable in the provincial areas and
MMDS as permitted by the Post and Telegraph Department, and is entitled to use a
satellite to provide service to hubs in provincial areas and then, through local
cable networks, on to subscribers. In exchange, UBC pays MCOT 6.5% of the gross
revenue derived from the operation of the subscription television business each
year during the period of the UBC Concession as consideration for the agreement,
subject to a minimum amount per annum.
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"). UBC Cable 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 each year during the period of
the concession as consideration for the agreement, subject to a minimum amount
per annum.
On February 16, 1998, UBC entered into various agreements for the
acquisition of a 97.85% shareholding in UBC Cable from Telecom Holding.
Meanwhile, Telecom Holding acquired a 49.5% shareholding in UBC in order to
consolidate the position of both UBC and UBC Cable in the Thai market and to
rationalize the cost of providing a pay-TV service to subscribers in Thailand.
Thailand recently introduced a new competition law, the Trade Competition
Act, 1999 (the "Competition Act"). The Competition Act extends the regulation of
competition in Thailand, and also addresses specific anti-competitive
activities. Contravention of the Competition Act carries penalties including the
imposition of restrictions and compulsory restructuring. Under the Competition
Act, the Ministry of Commerce requires companies that had acted in a
monopolistic manner or in a manner which, in relation to certain specific
activities, reduced or eliminated competition, to submit a request for the
approval for such action. Requests which relate to actions prior to April 30,
1999 must have been submitted by July 28, 1999. The board of directors of UBC
believes that the activities of UBC do not fall within the ambit of the Act and,
accordingly, that UBC was not required to submit such request. However, in order
for UBC to preserve its rights, and without admitting any liability, UBC
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submitted a request for approval to the relevant authority. The request relates
both to UBC's current activities as the only offeror of pay-television services
in Thailand and the acquisition in 1998 by UBC of UBC Cable.
INTERNET SERVICES. Legislation relating to the Internet and
telecommunications services is contained in a number of acts, such as the
Telephone and Telegraph Act 1934, the Radio Communication Act 1955, the
Telephone Organisation of Thailand Act 1954, Communications Authority of
Thailand Act 1976 and the Organisation for Frequency Management and the
Supervision of Broadcasting Radio, Broadcasting Television and Telecommunication
Business Act 2000 (the "Frequency Management Act"). Essentially such laws
reserve the following services to either TOT or CAT:
(1) the establishment, operation and maintenance of telegraph and
telephone offices within Thailand; and
(2) the reception, storage and delivery of messages and everything else
concerning telegraph and telephone services in accordance with rules and
regulations prescribed by MTC.
Internet services require a concession by either CAT or TOT or must be
carried out in a joint venture with TOT and/or CAT. At present there are 18
Internet service providers licensed in Thailand.
M-Web (Thailand) recently acquired a stake in MKSC, the parent company of
IKSC, which has a majority stake in KSC Comnet. KSC Comnet holds a concession
from the CAT to operate as an ISP until 2005.
CURRENT DEVELOPMENTS. The Constitution of the Kingdom of Thailand B.E.
2540, Section 40, provides that:
"Transmission frequencies for radio or television broadcasting and radio
telecommunication are national communication resources for the public
interest.
There shall be an independent regulatory body having the duty to
distribute radio and television frequencies and to supervise radio or
television broadcasting and telecommunication businesses as provided by
law.
These activities are to be carried on for the public benefit at national
and local levels in relation to education, culture, State security, and
other public interests, including fair and free competition."
This constitutional provision is a crucial milestone in broadcasting and
telecommunication liberalization in Thailand. On March 8, 2000, the Frequency
Management Act, developed under the Constitution, came into force. The key
element of this Act is the establishment of two regulatory bodies, which are the
National Broadcasting Commission for the Supervision of Radio and Television and
the National Telecommunications Commission for the Supervision of
Telecommunications Businesses. In addition, the Thai parliament is currently
debating a telecommunication business bill to replace the Telephone and
Telegraph Act 1934 and to operate in conjunction with the Frequency Management
Act. This law is expected to take effect later this year.
In addition, the parliament is drafting several bills regarding
Internet-related services, such as an e-commerce law, a digital signature law,
an electronic fund transfer law, a data protection law, a universal access law
and a computer crime law.
CHINA
OVERVIEW. The operation of telecommunications businesses, including
Internet-related businesses, in the People's Republic of China (the "PRC") is
subject to extensive regulation by the PRC government. The Ministry of
Information Industries of the PRC (the "MII") is the primary regulator of
Internet businesses, with other government authorities also participating in the
regulation of, among other matters, foreign investment, advertising, security,
encryption and content.
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FOREIGN INVESTMENT IN ISPS. The operation of computer information networks
in the PRC has been domestically deregulated; therefore, Chinese companies are
permitted to participate and compete in this particular business. However,
foreign investors and foreign-invested PRC companies are prohibited from
operating or participating in the operation of computer information networks.
The regulations do not directly state that foreign investment in Internet
service providers is not allowed, but rather list certain businesses in which
foreign-invested enterprises are not permitted to engage. These businesses
include the provision of e-mail services and "computer information services".
Pursuant to a subsequent definition of the term "computer information services"
published by the predecessor ministry to the MII and unwritten MII policy, this
term is applied to traditional ISP activities and certain interactive Internet
functions, including e-commerce, interactive games and chat rooms (together with
the provision of e-mail services, the "Restricted Activities"). Thus, foreign
investment is not allowed in businesses that engage in the Restricted
Activities.
FOREIGN INVESTMENT IN ICPS. None of the current published PRC Internet
regulations specifically define Internet content provision or what it means to
be an Internet content provider ("ICP") or whether foreign investment in ICPs is
allowed. The general regulations setting forth areas in which foreign investment
is prohibited or restricted do not specifically mention ICPs. Moreover, the
general principle set forth in PRC investment-related regulations is that any
type of business that is not listed as one in which foreign investment is
prohibited or restricted is one in which foreign investment is allowed. Applying
this principle of construction, foreign investment in ICPs that do not engage in
the Restricted Activities should be permitted. However, the MII has at various
times orally stated that foreign investment in ICPs is not allowed, without
citing any legal basis for this rule. The State Secrets Protection Bureau of the
PRC has issued regulations restricting the distribution of Internet content
containing State secrets. Because these regulations are new and untested, the
interpretation and enforcement is uncertain. The MII has also indicated that new
regulations regarding the need for approval of certain Internet content
(particularly in relation to political news) will be issued. There is no
assurance that these regulations will be issued, or when they will be issued.
The PRC has entered into agreements with certain governments committing to the
gradual opening up of the Internet sector, including ISPs and ICPs, to foreign
investment upon the PRC's accession to the World Trade Organization. However,
there is also no assurance that this liberalization will actually take place.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors, executive officers and other key personnel:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Theunissen Vosloo......................... 62 Chairman of the Board of Directors
Jacobus D.T. Stofberg..................... 49 Chief Executive Officer and Director
Jacobus P. Bekker......................... 47 Director
A. Andre Coetzee.......................... 47 General Counsel and Director
Johannes H.W. Hawinkels................... 48 Chief Executive Officer--Internet
Operations and Director
Stephen G.J. Oldfield..................... 45 Chief Executive Officer--Mindport and
Director
Stephan J.Z. Pacak........................ 44 Director
William J. Raduchel....................... 53 Director
Allan M. Rosenzweig....................... 44 Group Director--Corporate Finance and
Director
Jan Steenkamp............................. 36 President, Chief Executive Officer--OpenTV
J. James Volkwyn.......................... 41 Chief Executive Officer--Television
Operations
Stephen F. Ward........................... 45 Chief Financial Officer and Director
</TABLE>
Messrs. Vosloo, Stofberg, Bekker, Coetzee, Hawinkels, Oldfield, Pacak,
Raduchel, Rosenzweig and Ward are referred to herein as the "named directors and
officers".
THEUNISSEN VOSLOO has been our chairman of the board of directors 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 our chief executive officer and a director
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 chairman of the board of directors of
OpenTV, Inc. and OpenTV Corp. and as a director of M-Net Ltd., MultiChoice
Africa, M-Web Holdings, SSIH and Naspers. Before joining us in September 1998,
Mr. Stofberg was a director of NetHold, our 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 NetMed.
JACOBUS P. BEKKER has been one of our directors since September 1998.
Mr. Bekker and Mr. Stofberg founded MIH Holdings in 1985 and Mr. Bekker 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 Holdings, and a director of MIH Holdings, SSIH, M-Net Ltd., MTN, M-Cell
and OpenTV Corp. 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.
A. ANDRE COETZEE has been the MIH group general counsel and director since
June 1999. Before joining the group, Dr. Coetzee was a partner of Mallinicks
Attorneys, from 1984 until 1992, in Cape
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Town, South Africa, and since then, in London. Dr. Coetzee has been an adviser
to the MIH group and associated companies since 1985.
JOHANNES H.W. HAWINKELS has been the chief executive officer of our Internet
operations and one of our directors since January 2000 and September 1998,
respectively. Before we reorganized our management structure, Mr. Hawinkels had
served as the chief executive officer of MIH Asia B.V. since July 1997.
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 our joint ventures in the Middle East and Egypt. In addition,
Mr. Hawinkels was the chief executive officer 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, sporting goods retail and wholesale and film production.
STEPHEN G.J. OLDFIELD has been the chief executive officer of Mindport and
has served as a director 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 joined us as a director in 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 Holdings, 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.
WILLIAM J. RADUCHEL has been a director of MIH Limited since June 1999.
Mr. Raduchel also serves as a director of OpenTV, Inc. and OpenTV Corp. Since
September 1999, he has been the chief technology officer of America Online Inc.
Prior to that, he was the chief strategy officer of Sun Microsystems, Inc.
Before accepting that position in 1998, he was responsible for managing
information systems and resources for Sun Microsystems and its associated
companies. Mr. Raduchel joined Sun Microsystems in 1988 and was appointed as
vice president of finance and chief financial officer. Prior to joining Sun
Microsystems, Mr. Raduchel served as vice president for document systems in
Xerox and also held various executive positions at Data Resources Inc., the
Institute of Defense Analysis and Harvard University.
ALLAN M. ROSENZWEIG has been the group director--corporate finance since
February 1996 and a director since October 1997. Mr. Rosenzweig currently serves
as a director of M-Web Holdings, Mindport and OpenTV. Before joining us 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 traded companies like United Services Technologies Limited and Brait
S.A.
JAN STEENKAMP has served as president and chief executive officer of
OpenTV, Inc. since August 1997 and as a director of OpenTV, Inc. since
May 1999. Mr. Steenkamp has served as a director of OpenTV Corp. since
October 1999 and as president and chief executive officer of OpenTV Corp. since
November 1999. From 1985 until he joined us in 1997, Mr. Steenkamp held a
variety of management positions within the MIH Holdings group of companies. He
was the commercial director of Irdeto Consultants, a Netherlands-based
subsidiary of MIH Limited that develops digital conditional assess and
subscriber management systems. During his time at Irdeto, Mr. Steenkamp managed
business and product development as Irdeto grew from 50 to 250 employees. While
working at MIH Holdings, Mr. Steenkamp initiated the introduction of pay
television in Greece, managed a project
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team to establish pay television in Italy and was active in the acquisition and
development of the European NetHold operations in the Netherlands, Belgium,
Finland, Sweden, Denmark and Norway.
J. JAMES VOLKWYN has been the chief executive officer of our television
operations since January 2000. Before we reorganized our management structure,
Mr. Volkwyn had served as 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.
STEPHEN F. WARD joined us on January 1, 2000 as a director and chief
financial officer. Before joining us, Mr. Ward was a senior partner with
PricewaterhouseCoopers in the Netherlands where during his thirteen years as a
partner he was involved in advising multinational, publicly traded companies as
well as serving in various management positions. Mr. Ward is a fellow of the
Institute of Chartered Accountants in England and Wales and a Dutch Registered
Accountant.
The business address of our directors and officers is our registered office:
Abbot Building, Mount Street, Tortola, Road Town, British Virgin Islands.
DIRECTORS
Pursuant to our Memorandum and Articles, our board of directors is
classified into three classes of directors. 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". The following table lists
the class within which each of our directors serves:
<TABLE>
<CAPTION>
NAME CLASS
- ---- --------
<S> <C>
Jacobus P. Bekker........................................... 2000
Stephen G.J. Oldfield....................................... 2000
William J. Raduchel......................................... 2000
A. Andre Coetzee............................................ 2001
Stephan J.Z. Pacak.......................................... 2001
Allan M. Rosenzweig......................................... 2001
Stephen F. Ward............................................. 2001
Theunissen Vosloo........................................... 2002
Jacobus D.T. Stofberg....................................... 2002
Johannes H.W. Hawinkels..................................... 2002
</TABLE>
BOARD COMMITTEES
Our board of directors has a Compensation Committee and an Audit Committee.
The Compensation Committee, which comprises Messrs. Bekker and Vosloo,
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 and Pacak,
reviews our audit policies and oversees the engagement of our independent
auditors.
COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate salary and related benefits compensation paid by us and our
subsidiaries to the named directors and officers as a group during the fiscal
year ending March 31, 1999, was approximately $1,267,650. The aggregate bonus
compensation paid by us and our subsidiaries to the
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named directors and officers as a group during the fiscal year ending March 31,
1999 was approximately $366,185.
The aggregate amount set aside by us and our 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 was approximately $112,281.
OPTIONS TO PURCHASE SECURITIES
The Compensation Committee of our board of directors has determined that it
will periodically award and grant options to purchase shares of our Class A
Ordinary Shares to directors and members of management under the MIH Limited
Share Scheme. The exercise price represents the fair value of the shares on the
date of the Compensation Committee's determination, which is generally the date
the options are awarded. The options expire if they are not exercised within
five years and one hundred and five days from the option date. As of March 29,
2000, the following options had been awarded and granted to directors and
members of management under the MIH Limited Share Scheme:
- On April 1, 1999, 950,140 Class A Ordinary Shares (after giving effect to
stock splits) were granted at an exercise price of $10.57 per share, which
represents the estimated fair value of the shares on September 11, 1998,
the date the Compensation Committee determined to award the Shares;
- On May 6, 1999, 771,327 Class A Ordinary Shares were awarded and granted
at an exercise price of $18.625 per share;
- On July 1, 1999, 9,590 Class A Ordinary Shares were awarded and granted at
an exercise price of $26.50 per share;
- On August 26, 1999, 29,000 Class A Ordinary Shares were awarded and
granted at an exercise price of $28.6875 per share;
- On October 4, 1999, 176,190 Class A Ordinary Shares were awarded and
granted at an exercise price of $29.375 per share; and
- On January 4, 2000, 8,820 Class A Ordinary Shares were awarded and granted
at an exercise price of $52.375 per share.
SHARE SCHEME
Pursuant to the Deed constituting the MIH Limited Share Trust (the "Deed"),
dated March 22, 1999, we have 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 our employees,
by giving them an opportunity to acquire our Class A Ordinary Shares, to remain
in our employment and to promote our 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.
We 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 by us to the Trust 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
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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.
Our directors 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.
DIRECTORS' STOCK OPTION PLAN
On October 4, 1999, we adopted a Directors' Stock Option Plan (the "Plan")
to provide incentives to attract and retain highly competent persons to serve as
directors on our board. By providing our directors with opportunities to acquire
a proprietary interest in MIH Limited by the grant of nonqualified stock options
which may result in their ownership of our Class A Ordinary Shares, we hope to
induce them to represent shareholders' interests as they oversee our general
operations. The following summary does not purport to be complete and is subject
to, and qualified in its entirety by, the Plan, 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 aggregate number of Class A Ordinary Shares that may be issued pursuant
to the exercise of options granted under the Plan will not exceed 500,000 and
will be made available from authorized but unissued Class A Ordinary Shares. The
Class A Ordinary Shares subject to the unexercised portion of any stock option
granted under the Plan which expires, terminates or is canceled will become
available for issuance upon the exercise of future options granted under the
Plan.
Our board of directors is responsible for administering the Plan; however,
any or all of the board's authority under the Plan may be delegated to a
committee of one or more directors. The administrator of the Plan is either the
board of directors or, if the board has delegated its authority under the Plan,
the committee. Each option granted under the Plan is evidenced by an option
agreement. Options may only be granted to a participating director who is not
also an employee.
Under the Plan, the administrator may grant to a participating director an
initial stock option to purchase the number of Class A Ordinary Shares
determined by the administrator. In any calendar year after the calendar year in
which a participating director received an initial stock option, a stock
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option will be granted automatically to this participating director to purchase
5,000 Class A Ordinary Shares.
The purchase price of the Class A Ordinary Shares under each stock option
granted will be equal to the fair market value of the Class A Ordinary Shares on
the date of the grant, or the effective date of the option agreement. The fair
market value is determined by the closing price of the Class A Ordinary Shares
as reported on the Nasdaq National Market, or if the closing price does not
properly reflect the fair market value, then a price as may be determined in
good faith by the administrator.
A maximum of 25% of the granted stock options are exercisable after the
expiry of one year after the date of the grant, a maximum of 50% are exercisable
after the expiry of two years after the date of the grant, a maximum of 75% are
exercisable after the expiry of three years after the date of the grant and the
balance of the remaining original stock options are exercisable after the expiry
of four years after the date of the grant. The administrator may, however, in
its discretion permit the earlier exercise of any or all of the stock options,
but no option granted under the Plan shall be exercised after ten years from its
date of grant.
Upon exercise of a stock option, the purchase price will be payable in full
in cash or its equivalent acceptable to us. In the discretion of the
administrator, the purchase price may be paid by the assignment and delivery to
us of Class A Ordinary Shares or a combination of cash and shares equal in value
to the exercise price. Any shares so assigned and delivered to us in payment or
partial payment of the purchase price will be valued at their fair market value
on the exercise date.
The stock option is exercisable during the participating director's lifetime
only by the participating director or by his guardian or legal representative
and is non-transferable, except that the participating director may transfer all
or any part of the stock option by will or by the laws of inheritance.
Our board of directors may amend the provisions of the Plan; however, any
amendments which would adversely affect the participating director's rights
under any stock option previously granted under the Plan would require the
consent of the affected participating director.
As of March 29, 2000, 20,000 Class A Ordinary Shares had been awarded and
granted under the Plan, all at an exercise price of $28.75 per share.
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TRANSACTIONS WITH RELATED PARTIES
CHANNEL DISTRIBUTION ARRANGEMENTS
Pursuant to channel distribution agreements between MultiChoice Africa and
M-Net Ltd., we have the right to distribute the M-Net channels by analog and
digital distribution systems, and to license the reception of the M-Net channels
by terrestrial analog and digital satellite distribution systems. 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 six month period ended September 30, 1999,
these amounts totaled approximately $42.5 million. During the fiscal year ended
March 31, 1999, these amounts totaled approximately $74.4 million.
Through the M-Net channel distribution agreements, we also have 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 six
month period ended September 30, 1999, these amounts totaled approximately
$36.3 million. During the fiscal year ended March 31, 1999, these amounts
totaled approximately $63.3 million.
The M-Net channel distribution agreements are disclosed because MultiChoice
Africa is a subsidiary of MIH Limited. SSIH is a shareholder of MIH Limited.
TRANSMISSION ARRANGEMENTS
Through certain of our subsidiaries and joint ventures, we have various
arrangements with Orbicom pursuant to which our 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, we pay Orbicom
fixed monthly fees for leasing arrangements and variable fees for maintenance
services. During the fiscal year ended March 31, 1999, these amounts totaled
approximately $28.8 million.
The M-Net channel distribution agreements and the Orbicom arrangements were
negotiated on an arms-length basis and, we believe, on terms no less favorable
than we could have received from independent third parties.
The Orbicom arrangements are disclosed because MIH Holdings (the parent of
MIH (BVI) Limited) formerly owned 80% of Orbicom and Johnnic presently owns
approximately 30% of M-Cell, which currently owns Orbicom.
SALE OF ORBICOM
On August 24, 1999, we disposed of our 20% interest and our loan claims in
Orbicom to MIH Holdings Limited which in turn, together with its interest of
80%, sold the total investment in Orbicom to M-Cell Limited in exchange for
M-Cell limited shares. We received total consideration in connection with this
sale of $21 million, which was in the form of 4,423,273 shares in M-Cell limited
with a market value of $7.2 million and $13.4 million note receivable from MIH
Holdings Limited. For a more complete description of this transaction, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments".
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The sale of Orbicom is disclosed because Johnnic, one of our principal
shareholders prior to the completion of these offerings, owns approximately 30%
of M-Cell Limited.
ACQUISITION OF SHARES IN M-WEB
We acquired a 9.1% interest in M-Web Holdings Limited for a cash
consideration of $16.5 million in August 1999. On September 30, 1999, we
acquired an additional 4.5% interest in M-Web Holdings Limited in exchange for
our interest in shares of M-Cell Limited. In February and March 2000, we
acquired an additional 3.2% interest in M-Web Holdings Limited, bringing our
total interest up to 16.8%. For a more complete description of these
transactions, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Recent Developments".
The acquisition of shares in M-Web Holdings is disclosed because MIH
Investments (Proprietary) Limited presently owns more than 50% of the issued
shares in MIH Holdings and more than 45% of the issued shares in M-Web Holdings.
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PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth, after giving effect to the sale by us of
2,972,208 Class A Ordinary Shares and the sale by the selling stockholder of
3,527,792 Class A Ordinary Shares in these offerings, certain information with
respect to the beneficial ownership of each class of our voting securities by
(1) each person who is known to us to be the beneficial owner of more than 5% of
any class of our voting securities and (2) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
CLASS A CLASS B
ORDINARY SHARES ORDINARY SHARES
-------------------- ---------------------
PERCENT PERCENT TOTAL
IDENTITY OF PERSON OR GROUP NUMBER OF CLASS NUMBER OF CLASS VOTING RIGHTS
- --------------------------- --------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
MIH (BVI) Limited......................... -- --% 30,787,319 100.0% 78.4%
SuperSport International Holdings
Limited................................. 3,253,222 12.8 -- -- 2.8
Thomson Consumer Electronics, Inc......... 2,581,775 10.1 -- -- 2.2
MIH Limited Share Trust(1)................ 1,944,415 7.6 -- -- 1.7(2)
Directors and officers as a group(3)...... -- -- -- -- *
</TABLE>
- ------------------------------
* Less than 1%.
(1) Holds shares that are issuable pursuant to the exercise of options granted
under the MIH Limited Share Scheme.
(2) Until the shares have been delivered to an employee upon the exercise of an
option, voting rights with respect to shares held by the MIH Limited Share
Trust are vested in the trustees of the Share Trust.
(3) Excludes options to purchase Class A Ordinary Shares. See
"Management--Options to Purchase Securities" and "Management--Directors'
Stock Option Plan".
The following table sets forth certain information relating to a stockholder
who is offering Class A Ordinary Shares in these offerings, including the number
of shares offered by such selling stockholder and the impact that this sale will
have on such stockholder's ownership interest in our Class A Ordinary Shares:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES TO SHARES BENEFICIALLY
OWNED BEFORE THESE BE SOLD IN THESE OWNED AFTER THESE
OFFERINGS OFFERINGS OFFERINGS
-------------------- -------------------- -------------------
PERCENT PERCENT PERCENT
OF OF OF
SELLING STOCKHOLDER NUMBER CLASS NUMBER CLASS NUMBER CLASS
- ------------------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Johnnies Industrial Corporation
Limited(1)........................... 3,527,792 15.7% 3,527,792 15.7% -- --%
</TABLE>
- ------------------------
(1) Shares to be sold are held through a wholly owned subsidiary.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Set forth below is a description of the material terms of our capital stock.
This summary is subject to the provisions of our Memorandum and Articles of
Association which are included as exhibits to the registration statement of
which this prospectus forms a part, and by the provisions of applicable BVI law.
Our Memorandum and Articles authorize the issuance of up to:
(1) 103,468,878 Class A Ordinary Shares, (2) 55,920,509 Class B Ordinary Shares
and (3) 8,388,916 preference shares. Our Memorandum and Articles were most
recently amended on April 12, 1999. The alteration of authorized capital may be
effected by a resolution approved by a majority of our shareholders or directors
pursuant to Section 42 of our Articles of Association.
Our Class A Ordinary Shares are listed on the Nasdaq National Market 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.
Settlements with respect to our Class A Ordinary Shares take place through
the respective book-entry settlement systems of The Depository Trust Company
("DTC"), Euroclear and Cedel Bank S.A. ("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.
We were incorporated on July 26, 1991, in the British Virgin Islands. Our
Memorandum and Articles do not prescribe any time period for our corporate
existence.
TRADING THROUGH ASAS
Trading in our 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 us 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.
It is possible that trading in our Class A Ordinary Shares on the Amsterdam
Stock Exchange will in due course take place through the improved Amsterdam
Security Account System, or New ASAS, in
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the form of ASAS rights issued by Nominee for Class A Ordinary Shares deposited
to its account. These ASAS rights are deposited with the Netherlands securities
settlement system, Nederlands Centraal Instituut voor Giraal Effectenverkeer
B.V., or NECIGEF, and trades in ASAS rights on the Amersterdam Stock Exchange
are then cleared by its securities clearing division, AEX-Effectenclearing, and
settled through NECIGEF. It is uncertain if and when the Amsterdam Stock
Exchange will change the system of trading of our Class A Ordinary Shares to New
ASAS.
The above description is only a summary of ASAS and New ASAS. Investors
should consult their professional advisors if they require more information or
if they have any questions about ASAS, New ASAS or the Amsterdam Stock Exchange.
CLASS A ORDINARY SHARES AND CLASS B ORDINARY SHARES
VOTING. The holders of our Class A Ordinary Shares and our Class B Ordinary
Shares will generally be entitled to vote as a single class on all matters upon
which holders of our ordinary shares have a right to vote, subject to the
requirements of any applicable laws. Each of our Class A Ordinary Shares
entitles its holder to one vote, and each of our Class B Ordinary Shares
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 our
Class A Ordinary Shares and our Class B Ordinary Shares will not be entitled to
vote on any amendment to our Memorandum and Articles that relates solely to the
terms of one or more outstanding series of preference shares.
DIVIDENDS AND OTHER DISTRIBUTIONS. Subject to the preferential and other
dividend rights of any outstanding series of preference shares, the holders of
our Class A Ordinary Shares and our Class B Ordinary Shares will be entitled to
equal dividends per share when, as and if declared by our board of directors,
except that all dividends payable in ordinary shares will be paid in the form of
our Class A Ordinary Shares to holders of Class A Ordinary Shares and in the
form of our Class B Ordinary Shares to holders of Class B Ordinary Shares.
Neither our Class A Ordinary Shares nor our Class B Ordinary Shares may be
split, divided or combined unless the other class is proportionally split,
divided or combined.
According to our Memorandum and Articles, all dividends that remain
unclaimed for a period of three years after their declaration may be forfeited
by our board of directors for our benefit.
In the event we are liquidated or wound up, the holders of our Class A
Ordinary Shares and our Class B Ordinary Shares will be treated equally on a per
share basis and will be entitled to receive all of our remaining assets
following distribution of the preferential and/or other amounts to be
distributed to the holders of our preference shares.
ISSUANCE OF CLASS B ORDINARY SHARES, OPTIONS, RIGHTS OR WARRANTS. Subject
to certain provisions regarding dividends and other distributions described
above, we 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 we 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. Our Class A Ordinary Shares and our Class B
Ordinary Shares will be treated equally with respect to any offer by us to
holders of ordinary shares or options, rights or warrants to subscribe for any
of our other capital stock.
MERGER. In the event of a merger, the holders of our Class A Ordinary
Shares and our 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), we may (but are not required to)
provide that the holders of our Class B Ordinary Shares receive voting
securities (or rights to acquire voting
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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 our Class A Ordinary Shares.
CONVERSION OF CLASS B ORDINARY SHARES. Each of our Class B Ordinary Shares
will be convertible, at the option of the holder thereof, into our Class A
Ordinary Shares on a share-for-share basis and will automatically convert on a
share-for-share basis upon the occurrence of any of the following:
- upon transfer of our Class B Ordinary Shares to a person or entity which
is not one of the original beneficial owners of our Class B Ordinary
Shares;
- on the date on which the number of our Class B Ordinary Shares then
outstanding is less than 10% of our then outstanding ordinary shares
(without regard to voting rights);
- at any time when the board of directors and the holders of a majority of
our outstanding Class B Ordinary Shares approve the conversion of all of
the Class B Ordinary Shares into Class A Ordinary Shares; or
- 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 our Class A
Ordinary Shares, considered in the aggregate, due to (1) the exclusion of
our Class A Ordinary Shares from trading on a national securities exchange
or the exclusion of our Class A Ordinary Shares from quotation on the
Nasdaq or any other similar market quotation system then in use; or
(2) requirements under any applicable law, in each of cases (1) and (2),
as a result of the existence of our Class B Ordinary Shares.
In the event of a transaction where our 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 our 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.
PREEMPTIVE RIGHTS. The holders of our ordinary shares will not have any
preemptive rights with respect to any of our outstanding or newly issued capital
stock.
PREFERENCE SHARES
Pursuant to the Memorandum and Articles, we may issue preference shares 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 preference shares up to the limit
of our authorized but unissued preference shares and to fix any of the
following:
- the number of shares constituting such series and the designation of such
series;
- the voting owners (if any) of the shares of such series;
- the relative, participating, optional or other rights (if any);
- any qualifications, preferences, limitations or restrictions thereof,
including, without limitation, the dividend rate (and whether dividends
are cumulative), conversion rights, rights and terms of the redemption
(including sinking fund provisions);
- the 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.
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Upon the completion of these offerings, there will be no preference shares
outstanding. See "--Certain Anti-Takeover Matters--Blank Check Preferred Stock".
LIMITATION OF LIABILITY
Our Memorandum and Articles provide that, to the fullest extent permitted by
British Virgin Islands law or any other applicable laws, our directors will not
be personally liable to us or our 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. Our 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 our 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 or 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 our Memorandum and Articles, removal of a director only
for cause and the availability of authorized but unissued blank check preference
shares.
DUAL CLASS VOTING STOCK. Our Class B Ordinary Shares are entitled to three
votes per share and our Class A Ordinary Shares are entitled to one vote per
share. Therefore, after giving effect to these offerings, our Class B Ordinary
Shares will represent 78.4% of the voting power of all our ordinary shares even
though they represent 54.8% of the economic interests thereof. Since MIH
Holdings, through MIH (BVI) Limited, owns all of our Class B Ordinary Shares, it
currently has effective control over any proposals to acquire us, rendering
futile any attempts to pursue unsolicited tender offers or takeover attempts
without negotiation with MIH Holdings.
CLASSIFIED BOARD OF DIRECTORS. Our Memorandum and Articles establish a
classified board of directors. Our 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 preference shares to elect directors, shareholders will elect one
class constituting approximately one-third of the board of directors 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 our board of directors. The classification
of directors will effectively make it more difficult to change the composition
of our board of directors.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS CALLABLE ONLY BY
BOARD. Our Memorandum and 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
our Memorandum and Articles. Our Memorandum and Articles provide that special
meetings of shareholders may only be called by the direction of our board of
directors pursuant to a resolution adopted by our board of directors or by our
chief executive officer. These provisions could have the effect of delaying
consideration of a shareholder proposal until the next annual meeting. The
provisions would also prevent the holders of a majority of the voting power of
our ordinary shares entitled to vote from unilaterally using the written consent
procedure to take shareholder action.
ADVANCE NOTICE REQUIREMENT. Our Memorandum and 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
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such shareholder proposals must be timely given in writing to our secretary
prior to the meeting at which the action is to be taken. Generally, to be
timely, notice must be received at our principal executive offices not less than
30 days nor more than 60 days prior to the meeting. The advance notice
requirement does not give our 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. Our Memorandum and Articles require
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 our Memorandum and Articles, including those described in this section under
"Certain Anti-Takeover Matters", or to approve any merger by us which would have
the effect of making changes in our Memorandum or Articles which would have
required such affirmative vote if effected directly as an amendment. This
requirement will render more difficult the circumvention of the anti-takeover
effects of our Memorandum and Articles.
REMOVAL OF DIRECTORS ONLY FOR CAUSE. Our Memorandum and 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 our board of directors by filling
the vacancies created by removal with its own nominees.
BLANK CHECK PREFERRED STOCK. Our Memorandum and Articles provide for
authorized preference shares, none of which has been issued. The existence of
authorized but unissued preference shares may enable our board of directors to
render more difficult or discourage an attempt to obtain control of us by means
of a merger, tender offer, proxy contest or otherwise. For example, if in the
due exercise of its fiduciary obligations, our board of directors were to
determine that a takeover proposal is not in our best interests, our board of
directors could cause preference shares 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, our Memorandum and Articles
grant our board of directors broad power to establish the rights and preferences
of authorized and unissued preference shares. The issuance of preference shares
pursuant to our board of directors' authority described above could decrease the
amount of earnings and assets available for distribution to you and adversely
affect the enjoyment of your rights, including voting rights in the event a
particular series of preference shares is given a disproportionately large
number of votes per share, and may have the effect of delaying, deferring or
preventing a change in our control that may be favored by certain shareholders.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of these offerings, we will have 25,436,664 Class A
Ordinary Shares outstanding (26,411,664 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 6,500,000 Class A
Ordinary Shares sold by us and the selling stockholder in these offerings
(7,475,000 Class A Ordinary Shares if the underwriters' over-allotment options
are exercised in full) and the 10,435,000 Class A Ordinary Shares sold in our
initial public offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by one of our "affiliates"
(as that term is defined under the Securities Act and the regulations
promulgated thereunder). The remaining 8,501,664 Class A Ordinary Shares
outstanding and the 30,787,319 Class B Ordinary Shares (together, the
"Unregistered Shares") 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 our affiliates (34,707,208 shares) generally can
be resold in the United States or to U.S. persons 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 (2,581,775 shares) generally can be
resold in the United States without registration under the Securities Act
beginning on April 13, 2000, subject to the volume and manner of sale
restrictions of Rule 144 and the rules of any other applicable jurisdictions,
and, beginning on April 13, 2001, may be sold freely, subject only to the laws
of any other applicable jurisdiction. Pursuant to an agreement between us and
Thomson, we are required to file a registration statement with the SEC with
respect to the Class A Ordinary Shares held by Thomson within 10 days after the
one-year anniversary of our IPO (which occurred on April 13, 1999) and to use
commercially reasonable efforts to have that registration statement declared
effective by the SEC prior to the fifteen-month anniversary of our IPO. Once
that registration statement is declared effective by the SEC, the 2,581,775
Class A Ordinary Shares held by Thomson 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 (1) 1% of the number of
then outstanding Class A Ordinary Shares or (2) 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 us of options under our Share Scheme or our
Directors' Stock Option Plan, we and our directors and executive officers have
agreed not to, directly or indirectly (1) 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 (2) 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 and SSIH have
similarly agreed not to, directly or indirectly, dispose of any of our ordinary
shares without the consent of Merrill Lynch for a period of 180 days after the
date of this prospectus.
In addition, MIH (BVI) Limited, SSIH, Johnnic and Thomson, in their capacity
as shareholders that individually held more than 5% of our ordinary shares
outstanding prior to first admission of our shares to listing on the Amsterdam
Stock Exchange, agreed at that time (in accordance with the rules for admission
to listing on the Amsterdam Stock Exchange of issuers with less than three
financial
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years' net profit) that they would not, for a maximum period of three years
ending April 12, 2002, dispose of ordinary shares that total, in the aggregate:
- more than 50% (for so long as not more than one of our fiscal years has
closed with a net profit) or
- more than 75% (when and for so long as not more than two of our fiscal
years have closed with a net profit)
of the number of ordinary shares outstanding prior to first admission of our
shares to listing on the Amsterdam Stock Exchange. This prohibition is subject
to the following exceptions:
- they may sell to each other or to professional investors, provided the
purchaser agrees to be bound by the same restrictions on the disposal of
the ordinary shares being transferred as the transferor; and
- under certain conditions, they may sell by a registered public offering
occurring at least one year after April 13, 1999, being the date of first
admission of the Class A Ordinary Shares to listing on the Amsterdam Stock
Exchange.
In addition, SSIH, Johnnic and Thomson may freely dispose of their ordinary
shares provided and to the extent that MIH (BVI) Limited shall not dispose of
any of its ordinary shares during the three year period referred to above.
Our directors (to whom similar rules as above would apply if they held our
ordinary shares at the time of first admission to listing on the Amsterdam Stock
Exchange) have not entered into similar undertakings as described above, since
none of them, directly or indirectly, held or had any ownership interest in or
control over the disposal of ordinary shares then outstanding.
Options to purchase 1,944,415 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 1,823,500 shares remain available for future option grants under the
Share Scheme. Any shares obtained by the exercise of these options may
thereafter be sold in the open market, subject, in the case of certain 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.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section summarizes the material U.S. Federal income tax consequences to
holders of our Class A Ordinary Shares as of the date of this prospectus. The
summary applies to you only if you hold our ordinary shares as a capital asset
for tax purposes (that is, for investment purposes). The summary does not cover
state, local or foreign law. In addition, this summary does not apply to you if
you are a member of a class of holders subject to special rules, such as:
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- a bank;
- a life insurance company;
- a tax-exempt organization;
- a person that holds our ordinary shares as part of a straddle or a
hedging, integrated, constructive sale or conversion transaction for tax
purposes;
- a person whose functional currency for tax purposes is not the U.S.
dollar;
- a person liable for alternative minimum tax; or
- a person that owns, or is treated as owning, 10% or more of any class of
our shares.
The discussion is based on current law. Changes in the law may alter the tax
treatment of our ordinary shares, possibly on a retroactive basis.
The discussion does not cover tax consequences that depend upon your
particular tax circumstances. We recommend that you consult your tax advisor
about the consequences of holding our ordinary shares in your particular
situation.
We have 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 our 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 the discussion below, you are a "U.S. holder" if you are a
beneficial owner of our ordinary shares who or which is:
- an individual U.S. citizen or resident alien;
- a corporation, or other entity taxable as a corporation, that was created
under U.S. law (federal or state); or
- an estate or trust as defined in Section 7701(a)(30) of the Internal
Revenue Code.
If you are not a U.S. holder, you are a "Non-U.S. holder" and the discussion
below titled "NON-U.S. HOLDERS OF ORDINARY SHARES" will apply to you.
If a partnership holds our ordinary shares, the tax treatment of a partner
will generally depend upon the status of the partner and upon the activities of
the partnership. If you are a partner of a partnership holding ordinary shares,
you should consult your tax advisor.
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U.S. HOLDERS OF ORDINARY SHARES
DISTRIBUTIONS. We do not anticipate making distributions on our ordinary
shares in the foreseeable future. See "Dividend Policy". If distributions are
made, however, the gross amount of any such distribution (other than in
liquidation) that you receive with respect to our ordinary shares generally will
be taxed to you as a dividend (I.E., ordinary income) to the extent such
distribution does not exceed our current or accumulated earnings and profits, as
calculated for U.S. Federal income tax purposes ("E&P"). To the extent any
distribution exceeds our E&P, the distribution will first be treated as a
tax-free return of capital to the extent of your adjusted tax basis in our
ordinary shares and will be applied against and reduce such basis on a
dollar-for-dollar basis (thereby increasing the amount of gain and decreasing
the amount of loss recognized on a subsequent disposition of such ordinary
shares). To the extent that such distribution exceeds your adjusted tax basis,
the distribution will be taxed as gain recognized on a sale or exchange of our
ordinary shares. See "--Sale or Other Disposition of Our Ordinary Shares",
below. Because we are not a U.S. corporation, no dividends-received deduction
will be allowed to corporations with respect to dividends paid by us. Dividends
paid with respect to our ordinary shares will generally be treated as foreign
source "passive income" or, in the case of certain types of U.S. holders,
"financial services income", for purposes of computing allowable foreign tax
credits for U.S. foreign tax credit purposes.
SALE OR OTHER DISPOSITION OF OUR ORDINARY SHARES. Generally speaking, in
connection with the sale or other taxable disposition of our ordinary shares:
- you will recognize gain or loss equal to the difference (if any) between:
- the U.S. dollar value of the amount realized on such sale or other
taxable disposition, and
- your tax basis in such ordinary shares;
- any gain or loss will be capital gain or loss and will be long-term
capital gain or loss if your holding period for our ordinary shares is
more than one year at the time of such sale or other disposition;
- any gain or loss will be treated as having a United States source for
United States foreign tax credit purposes; and
- your ability to deduct capital losses is subject to limitations.
PASSIVE FOREIGN INVESTMENT COMPANY
U.S. holders generally would be subject to a special, adverse tax regime
(that would differ in certain respects from that described above) if we are or
were to become a passive foreign investment company for U.S. Federal income tax
purposes. Although the determination of whether a corporation is a passive
foreign investment company is made annually, and thus may be subject to change,
we do not believe that we are, nor do we expect to become, a passive foreign
investment company. Notwithstanding the foregoing, we urge you to consult your
own U.S. tax advisor regarding the adverse U.S. Federal income tax consequences
of owning the shares of a passive foreign investment company and making certain
elections designed to lessen those adverse consequences.
NON-U.S. HOLDERS OF ORDINARY SHARES
DISTRIBUTIONS. Distributions by us to a non-U.S. holder of our ordinary
shares generally will not be subject to U.S. withholding tax, assuming, as we
expect, that no more than 25% of our gross income will be effectively connected
with the conduct of a trade or business in the United States by us.
DISPOSITIONS. Gain realized on a non-U.S. holder's sale or other taxable
disposition of our ordinary shares generally will not be subject to U.S. federal
income tax, including withholding tax,
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unless (1) the gain is effectively connected with such non-U.S. holder's conduct
of a trade or business within the United States, or (2) 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.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a U.S. holder, payments (or other taxable distributions) in
respect of our ordinary shares that are made in the United States or by a U.S.
related financial intermediary will be subject to U.S. information reporting
rules. You will not be subject to "backup" withholding of U.S. Federal income
tax provided that:
- you are a corporation or other exempt recipient; or
- you provide a taxpayer identification number (which, in the case of an
individual, that is his or her taxpayer identification number) and certify
that no loss of exemption from backup withholding has occurred.
If you are a non-U.S. holder, you generally are not subject to information
reporting and backup withholding, but you may be required to provide a
certification of your non-U.S. status in order to establish that you are exempt.
Amounts withheld under the backup withholding rules may be credited against
your U.S. Federal income tax liability, and you may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the Internal Revenue Service.
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BRITISH VIRGIN ISLANDS TAXATION
Under the International Business Companies Act of the British Virgin Islands
as currently in effect, a holder of ordinary shares who is not a resident of the
British Virgin Islands is exempt from British Virgin Islands income tax on
dividends paid with respect to the ordinary shares and all holders of ordinary
shares are not liable to the British Virgin Islands for income tax on gains
realized during that year on sale or disposal of such shares. The British Virgin
Islands does not impose a withholding tax on dividends paid by a company
incorporated under the International Business Companies Act.
There are no capital gains, gift or inheritance taxes levied by the British
Virgin Islands on companies incorporated under the International Business
Companies Act. In addition, the ordinary shares are not subject to transfer
taxes, stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between the
United States and the British Virgin Islands.
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UNDERWRITING
GENERAL
We and the selling stockholder intend to offer our Class A Ordinary Shares
in the United States and Canada through a number of U.S. underwriters as well as
elsewhere through international managers. Merrill Lynch, Pierce, Fenner & Smith
Incorporated is acting as U.S. representative of each of the U.S. underwriters
named below. Subject to the terms and conditions set forth in a U.S. purchase
agreement among our company, the selling stockholder and the U.S. underwriters,
and concurrently with the sale of 5,200,000 shares of Class A Ordinary Shares to
the international managers, we and the selling stockholder have agreed to sell
to the U.S. underwriters, and each of the U.S. underwriters severally and not
jointly has agreed to purchase from us and the selling stockholder, 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......................................
---------
Total................................................. 1,300,000
=========
</TABLE>
We and the selling stockholder have also entered into an international
purchase agreement with certain international managers outside the United States
and Canada for whom Merrill Lynch International and MeesPierson N.V. are acting
as lead managers. Subject to the terms and conditions set forth in the
international purchase agreement, and concurrently with the sale of 1,300,000
Class A Ordinary Shares to the U.S. underwriters pursuant to the U.S. purchase
agreement, we and the selling stockholder have agreed to sell to the
international managers, and the international managers severally and not jointly
have agreed to purchase from us and the selling stockholder, an aggregate of
5,200,000 Class A Ordinary Shares. The public offering price and the total
underwriting discount per Class A Ordinary Share will be identical under the
U.S. purchase agreement and the international purchase agreement.
In the U.S. purchase agreement and the international purchase agreement, the
several U.S. underwriters and the several international managers, respectively,
have agreed, subject to the terms and conditions set forth in those agreements,
to purchase all of the Class A Ordinary Shares being sold under the terms of
each such agreement if any of the Class A Ordinary Shares being sold under the
terms of that agreement are purchased. In the event of a default by an
underwriter, the U.S. purchase agreement and the international purchase
agreement provide that, in certain circumstances, the purchase commitments of
the non-defaulting underwriters may be increased or the purchase agreements may
be terminated. The closings with respect to the sale of Class A Ordinary Shares
to be purchased by the U.S. underwriters and the international managers are
conditioned upon one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including some liabilities under the
Securities Act, or to contribute to payments the U.S. underwriters and
international managers may be required to make in respect to those liabilities.
The Class A Ordinary Shares are being 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.
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COMMITMENTS AND DISCOUNTS
The U.S. representative has advised us that the U.S. underwriters propose
initially to offer the Class A Ordinary Shares to the public at the initial
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 to certain
other dealers. After the public offering, the public offering price, concession
and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholder to the U.S.
underwriters and the international managers and the proceeds before expenses to
us and the selling stockholder. This information is presented assuming either no
exercise or full exercise by the U.S. underwriters and the international
managers of their over-allotment options.
<TABLE>
<CAPTION>
TOTAL
-------------------
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discount....................................... $ $ $
Proceeds, before expenses, to MIH Limited................... $ $ $
Proceeds, before expenses, to the selling stockholder....... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us and the selling stockholder.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell our 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. Under the terms of the intersyndicate
agreement, the U.S. underwriters and any dealer to whom they sell our Class A
Ordinary Shares will not offer to sell or sell our 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 offer to sell or sell Class A Ordinary Shares to U.S. persons or to
Canadian persons or to persons they believe intend to resell to U.S. or Canadian
persons, except in the case of transactions under the terms of the
intersyndicate agreement.
OVER-ALLOTMENT OPTION
We have 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 195,000
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 solely to cover over-allotments, if any,
made on the sale of our 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.
We also have granted an option to the international managers, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate of
780,000 additional Class A Ordinary Shares to cover over-allotments, if any, on
terms similar to those granted to the U.S. underwriters.
113
<PAGE>
NO SALES OF SIMILAR SECURITIES
We and our directors and executive officers have agreed, subject to certain
exceptions, not to directly or indirectly (1) 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 of our 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 (2) 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. MIH (BVI) Limited and SSIH have similarly agreed not to,
directly or indirectly, dispose of any of our ordinary shares for a period of
180 days after the date of this prospectus.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our 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 our
Class A Ordinary Shares. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of our Class A Ordinary
Shares.
If the underwriters create a short position in our Class A Ordinary Shares
in connection with these 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.
representative may reduce that short position by purchasing Class A Ordinary
Shares in the open market. The U.S. representative may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. representative may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
representative purchases 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, it may reclaim the amount 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 our Class A Ordinary Shares to the
extent that it were to discourage resales of our Class A Ordinary Shares before
the distribution is completed.
Neither we 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 our Class A Ordinary
Shares. In addition, neither we nor any of the underwriters makes any
representation that the U.S. representative will engage in such transaction or
that such transactions, once commenced, will not be discontinued without notice.
DISCRETIONARY ACCOUNTS
The underwriters do not intend to confirm sales of Class A Ordinary Shares
offered hereby to any accounts over which they exercise discretionary authority.
OTHER RELATIONSHIPS
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 us and our affiliates. In connection with rendering such
services in the past, such underwriters have received customary compensation,
including reimbursement of related expenses.
114
<PAGE>
LEGAL MATTERS
The validity of our 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 us by Cravath, Swaine & Moore, New
York, New York. Matters relating to Dutch tax law have been passed upon for us
by Nauta Dutilh, Rotterdam, The Netherlands. Certain United States legal matters
will be passed upon for the underwriters by Simpson Thacher & Bartlett, New
York, New York.
EXPERTS
Our consolidated balance sheets as of March 31, 1999 and 1998, 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,
1999, were audited by PricewaterhouseCoopers Inc., independent accountants. The
combined balance sheet of the Acquired MIH Businesses as of March 31, 1997 and
the related combined statement of operations and cash flow and changes in net
deficit for the year ended March 31, 1997 appearing in this prospectus were
audited by Coopers & Lybrand, independent accountants. The consolidated balance
sheet of United Broadcasting Corporation Public Company Limited and its
subsidiaries as at March 31, 1999 and the related statement of loss and deficit,
change in shareholders' equity and cash flow for the year then ended were
audited by PricewaterhouseCoopers, independent accountants. The audited
financial statements included in this prospectus have been included in reliance
on the reports of such firms, given on the authority of said firms as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Spyglass, Inc. at September 30, 1999 and 1998, and for the years
ended September 30, 1999, 1998 and 1997, as set forth in their report. The
financial statements are included in this prospectus and the registration
statement of which this prospectus forms a part in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information as of
September 30, 1999, and for the six months ended September 30, 1999 and 1998,
contained in this prospectus, 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.
115
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form F-1 with respect to
the ordinary shares being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and file reports and other
information with the Commission. These include annual reports on Form 20-F and
periodic reports on Form 6-K. Such reports and other information, as well as the
registration statement relating to these offerings, exhibits and schedules, may
be inspected, without charge, or copied, at prescribed rates, at the public
reference facility maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet
site that contains reports, proxy and information statements, and other
information, regarding issuers that file electronically with the Commission. The
address of the Commission's web site is WWW.SEC.GOV.
116
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
MIH LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Report of Independent Accountants........................... F-3
Condensed Consolidated Balance Sheets as of September 30,
1999 and March 31, 1999................................... F-4
Condensed Consolidated Statements of Operations for the
six-month periods ended September 30, 1999 and 1998....... F-5
Condensed Consolidated Statements of Cash Flow for the
six-month periods ended September 30, 1999 and 1998....... F-6
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the six-month periods ended
September 30, 1999 and 1998............................... F-7
Notes to the Condensed Consolidated Interim Financial
Statements................................................ F-8
MIH LIMITED AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-18
Consolidated Balance Sheets as of March 31, 1999 and 1998... F-19
Consolidated Statements of Operations for the years ended
March 31, 1999, 1998 and 1997............................. F-20
Consolidated Statements of Cash Flow for the years ended
March 31, 1999, 1998 and 1997............................. F-21
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1999, 1998 and 1997......... F-22
Notes to the Consolidated Financial Statements.............. F-23
ACQUIRED MIH BUSINESSES (PREDECESSOR TO MIH LIMITED)
AUDITED COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-55
Combined Balance Sheet as of March 31, 1997................. F-56
Combined Statement of Operations for the year ended March
31, 1997.................................................. F-57
Combined Statement of Cash Flow for the year ended March 31,
1997...................................................... F-58
Combined Statement of Changes in Net Deficit for the year
ended March 31, 1997...................................... F-59
Notes to the Combined Financial Statements.................. F-60
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED AND
SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Auditors' Report............................................ F-78
Consolidated Balance Sheet as of March 31, 1999............. F-79
Consolidated Statement of Loss for the year ended March 31,
1999...................................................... F-80
Consolidated Statement of Changes in Shareholders' Equity
for the year ended March 31, 1999......................... F-81
Consolidated Statement of Deficit in Shareholders' Equity
for the year ended March 31, 1999......................... F-82
Consolidated Cash Flow Statement for the year ended March
31, 1999.................................................. F-83
Notes to the Consolidated Financial Statements.............. F-84
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SPYGLASS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations for the three-month
periods ended December 31, 1999 and 1998.................. F-114
Consolidated Balance Sheets as of December 31, 1999 and
September 30, 1999........................................ F-115
Consolidated Statement of Changes in Stockholders' Equity
for the three-month period ended December 31, 1999........ F-116
Consolidated Statements of Cash Flows for the three-month
periods ended December 31, 1999 and 1998.................. F-117
Notes to the Unaudited Consolidated Financial Statements.... F-118
SPYGLASS, INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-121
Consolidated Statements of Operations for the years ended
September 30, 1999, 1998 and 1997......................... F-122
Consolidated Balance Sheets as of September 30, 1999 and
1998...................................................... F-123
Consolidated Statement of Changes in Stockholders' Equity
for the years ended September 30, 1999, 1998 and 1997..... F-124
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997......................... F-125
Notes to the Audited Consolidated Financial Statements...... F-126
</TABLE>
F-2
<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, 1999 and the
related condensed consolidated statements of operations, cash flow and changes
in shareholders' equity for the six-month periods ended September 30, 1999 and
1998. These financial statements are the responsibility 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 inquiries 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 do not 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 condensed consolidated interim financial
statements for them to be in conformity with International Accounting Standards.
<TABLE>
<S> <C>
Johannesburg, Republic of South Africa PricewaterhouseCoopers Inc.
November 5, 1999 Chartered Accountants (SA)
Registered Accountants and Auditors
</TABLE>
F-3
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND MARCH 31, 1999
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
-------------
SEPTEMBER 30, MARCH 31,
NOTES 1999 1999
-------- ------------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $167,279 $ 56,099
Accounts receivable, net................................ 50,041 50,557
Other receivables....................................... 28,220 28,229
Program and film rights................................. 4 37,968 38,935
Amounts owing by related parties........................ 21,863 14,221
Inventories, net........................................ 5 24,632 21,368
-------- --------
Total current assets.............................. 330,003 209,409
-------- --------
NON-CURRENT ASSETS
Tangible fixed assets, net.............................. 6 235,069 237,104
Intangible assets, net.................................. 6 209,593 207,201
Long-term investments................................... 68,692 70,114
Program and film rights................................. 4 105,098 52,399
-------- --------
Total non-current assets.......................... 618,452 566,818
-------- --------
TOTAL ASSETS...................................... $948,455 $776,227
======== ========
LIABILITIES
CURRENT LIABILITIES
Bank overdrafts and short-term loans.................... 9 $ 56,659 $ 64,117
Current portion of long-term debt....................... 9 17,961 15,512
Current portion of program and film rights.............. 31,349 37,857
Accounts payable........................................ 51,828 43,164
Accrued expenses and other current liabilities.......... 7 114,671 161,472
Amounts owing to related parties........................ 18,857 16,298
Provisions.............................................. 8 16,889 11,933
-------- --------
Total current liabilities......................... 308,214 350,353
-------- --------
NON-CURRENT LIABILITIES
Long-term debt.......................................... 9 200,435 204,770
Program and film rights................................. 96,008 43,777
Deferred taxation....................................... 110 120
-------- --------
Total non-current liabilities..................... 296,553 248,667
-------- --------
TOTAL LIABILITIES................................. 604,767 599,020
-------- --------
Minority interest........................................... 354 524
SHAREHOLDERS' EQUITY
Share capital
Class A Ordinary Shares no par value:
Authorized: September 30, and March 31, 1999:
103,468,878
Issued and outstanding: September 30, 1999: 22,224,513
and March 31, 1999: 7,447,681......................... 331,550 113,986
Class B Ordinary Shares no par value:
Authorized: September 30 and March 31, 1999: 55,920,509
Issued and outstanding: September 30 and March 31, 1999:
30,787,319............................................ 475,566 475,566
Preference Shares no par value:
Authorized: September 30 and March 31, 1999: 8,388,916
Accumulated loss............................................ (430,258) (382,386)
Foreign currency translation adjustment..................... (33,524) (30,483)
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 343,334 176,683
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $948,455 $776,227
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
F-4
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------
SIX MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------
NOTES 1999 1998
-------- ---------- ----------
<S> <C> <C> <C>
Net revenues................................................ 11 $ 353,205 $ 284,568
Operating expenses:
Cost of providing services................................ (203,203) (187,402)
Selling, general and administrative....................... (145,008) (76,584)
Depreciation and amortization............................. (37,066) (24,976)
--------- ---------
Total operating expenses.................................... (385,277) (288,962)
--------- ---------
Operating loss.............................................. (32,072) (4,394)
Financial results, net.................................... 12 (8,454) (8,771)
Equity results in joint ventures.......................... (18,706) (13,665)
Equity results in associates.............................. (1,309) (524)
Profit on sale of joint venture........................... 13 3,017 31,093
Profit on sale of associate............................... 13 15,007 --
--------- ---------
(Loss)/profit before taxation............................... (42,517) 3,739
Income taxation........................................... 895 (3,562)
--------- ---------
(Loss)/profit after taxation................................ (41,622) 177
Minority interest......................................... 1,142 --
--------- ---------
(Loss)/profit from continuing operations.................... (40,480) 177
Loss from discontinuing operations.......................... 14 (4,004) (911)
Loss arising on discontinuing operations.................... 14 (3,388) --
--------- ---------
Net loss................................................ $ (47,872) $ (734)
========= =========
Per share amounts:
Loss/(profit) from continuing operations
Basic..................................................... $ (0.81) $ 0.01
Net loss
Basic..................................................... $ (0.95) $ (0.02)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
F-5
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------
SIX MONTH PERIOD ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before taxation............................... $(42,517) $ 3,739
Adjustments to reconcile (loss)/profit before taxation to
cash generated from operations:
Elimination of non-cash flow items........................ 72,283 35,623
Working capital changes................................... (29,454) (56,541)
-------- --------
Cash generated from/(used in) operations.................... 312 (17,179)
Finance income.............................................. 5,341 3,083
Taxation paid............................................... (4,210) (4,607)
Utilized in discontinued operations......................... (7,392) (911)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES................... (5,949) (19,614)
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in OpenTV........................................ -- (6,400)
Investment in associate/joint venture....................... (31,781) (62,164)
Purchase of tangible fixed assets........................... (9,464) (1,830)
Disposal of joint venture................................... 3,018 --
Proceeds on sale of tangible fixed assets................... 1,282 28
Net increase in other investments........................... -- (3,223)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES................... (36,945) (73,589)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance costs............................................... (5,742) (6,242)
Proceeds from issue of share capital........................ 187,830 --
Share issue costs........................................... (16,728) --
Funds raised from outside shareholders...................... 10,372 --
Proceeds on transfer of M-Net/SSIH shares................... -- 22,243
Long-term debt raised....................................... -- 20,339
Capital leases repaid....................................... (14,510) (17,295)
Bank overdrafts repaid...................................... (6,145) (7,854)
-------- --------
NET CASH FROM FINANCING ACTIVITIES...................... 155,077 11,191
-------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ 112,183 (82,012)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD........ 56,099 153,412
TRANSLATION ADJUSTMENT ON CASH AND CASH EQUIVALENTS......... (1,003) 16,073
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.............. $167,279 $ 87,473
======== ========
NON CASH TRANSACTIONS
</TABLE>
The principal non-cash transactions are the conversion of the $46 million note
payable to Thomson Consumer Electronics, Inc. into 2,581,775 Class A ordinary
shares and the acquisition of property, plant and equipment using capital
leases.
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
F-6
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(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 April 1, 1998........................ $113,986 $475,566 $(313,547) $(22,432) $253,573
Net loss................................ -- -- (734) -- (734)
Translation adjustment.................. -- -- -- 2,499 2,499
-------- -------- --------- -------- --------
At September 30, 1998................... $113,986 $475,566 $(314,281) $(19,933) $255,338
======== ======== ========= ======== ========
At April 1, 1999........................ $113,986 $475,566 $(382,386) $(30,483) $176,683
Issue of share capital.................. 259,787 -- -- -- 259,787
Share issue expenses.................... (16,728) -- -- -- (16,728)
Share incentive scheme.................. (25,495) -- -- -- (25,495)
Net loss................................ -- -- (47,872) -- (47,872)
Translation adjustment.................. -- -- -- (3,041) (3,041)
-------- -------- --------- -------- --------
At September 30, 1999................... $331,550 $475,566 $(430,258) $(33,524) $343,334
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
F-7
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM 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.
2. BASIS OF PREPARATION
The condensed consolidated interim financial statements are prepared in
accordance with International Accounting Standard 34 "Interim Financial
Reporting". The accounting policies used in the preparation of the condensed
consolidated interim financial statements are consistent with those used in the
annual financial statements for the year ended March 31, 1999.
The condensed consolidated balance sheet of MIH as of September 30, 1999 and
the condensed consolidated statements of operations, cash flow and changes in
shareholders' equity for the six-months ended September 30, 1999 and 1998 are
unaudited. For the purpose of these condensed consolidated interim 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, 1999 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, 1999.
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
Subsequent to the past financial year, the Company invested an additional
$4.8 million cash in OpenTV Inc. As cash was injected pro rata to the
shareholders respective shareholdings, it had no effect on the Company's
interest in OpenTV Inc.
On August 24, 1999, the Company disposed of its 20% interest and its loan
claims in Orbicom (Proprietary) Limited to MIH Holdings Limited, who in turn,
together with its interest of 80%, sold the total investment in Orbicom
(Proprietary) Limited to M-Cell Limited in exchange for 23,952,096 M-Cell
Limited shares with a market value of $39 million. Of this total consideration,
$21 million was allocated to the Company, which was received in the form of
4,432,273 shares in M-Cell Limited with a market value of $7.2 million and a
$13.4 million note receivable from MIH Holdings Limited. The consideration
received by the Company, after allocating $6 million to settle the loan claims,
gave rise to a profit on sale of the associate of $15 million, as the carrying
value of the Orbicom (Proprietary) Limited investment was recorded at no value
in the accounting records of the Company.
The Company acquired a 9.09% interest in M-Web Holdings Limited for a cash
consideration of $16.5 million following the delinking of the MIH Holdings
Limited and M-Web Holdings Limited share on August 2, 1999. On September 30,
1999, the Company acquired an additional interest by exchanging
F-8
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES --CONTINUED
its interest of 4,432,273 shares in M-Cell Limited for 13,930,000 shares
representing a 4.48% interest in M-Web Holdings Limited. The excess of the
Company's equity investment over the fair value of the net assets acquired,
amounting to $19.5 million, was allocated to goodwill, and is amortized over its
estimated useful life of five years. The investment in M-Web Holdings Limited
has been treated as an equity investment because of the significant influence
that the Company's directors exercise in the financial and operating policies of
M-Web Holdings Limited.
With effect from July 8, 1999, the Company acquired a 40% interest in SOE
International, which owns 78.4% of AEK and 100% of Basic Hellas SA, for
$6.6 million. The excess of the purchase price over the net liabilities acquired
(goodwill) amounts to $18.1 million. The Company has an option to acquire an
additional 11% interest by June 30, 2001. The acquisition has been accounted for
under the equity method. The Company also has an obligation to fund SOE
International up to an amount of $18 million. At September 30, 1999, the Company
advanced a loan of approximately $8 million.
4. PROGRAM AND FILM RIGHTS
Program and film rights increased primarily due to the purchase of soccer
sports rights, the "Friendly Games" and basketball rights for broadcasting in
Greece and Cyprus.
5. INVENTORIES
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1999 1999
------------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Decoders and associated components................... $36,822 $31,828
Less: provision for slow moving and obsolete
inventories........................................ (12,190) (10,460)
------- -------
$24,632 $21,368
======= =======
</TABLE>
6. CAPITAL EXPENDITURE
<TABLE>
<CAPTION>
INTANGIBLE
FIXED ASSETS ASSETS
------------ -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Opening net book amount at March 31, 1999............. $237,104 $207,201
Additions............................................. 13,429 35,276
Disposals............................................. (1,082) --
Depreciation/amortization............................. (17,524) (29,428)
Other movements....................................... 3,142 (3,456)
-------- --------
Closing net book amount at September 30, 1999......... $235,069 $209,593
======== ========
</TABLE>
F-9
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1999 1999
------------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Deferred income...................................... $ 43,196 $ 27,508
Accrued expenses..................................... 47,466 50,226
Taxes and social securities.......................... 11,483 10,341
Amounts owing in respect of investments acquired..... -- 46,287
Other current liabilities............................ 12,526 27,110
-------- --------
$114,671 $161,472
======== ========
</TABLE>
8. PROVISIONS
<TABLE>
<CAPTION>
CHARGED/ (UNAUDITED)
AT ARISING ON (CREDITED) AT
MARCH 31, TRANSLATION ACQUISITION OF TO COST AND SEPTEMBER 30,
1999 ADJUSTMENT JOINT VENTURE EXPENSES 1999
----------- ----------- -------------- ----------- ---------------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C>
Provision for:
Post-retirement benefits......... $ 2,667 $ 76 -- $ (206) $ 2,537
Write down of carrying values of
assets in certain African
countries...................... 3,307 113 -- (95) 3,325
Warranties....................... 5,460 -- -- (198) 5,262
Intellectual property
infringement................... 499 -- -- -- 499
Redundancy provision............. -- -- -- 529 529
Losses in joint venture.......... -- -- 3,551 1,186 4,737
-------- ----- ------- ------- --------
$ 11,933 $ 189 $ 3,551 $ 1,216 $ 16,889
======== ===== ======= ======= ========
</TABLE>
MultiChoice Africa (Proprietary) Limited provides post-retirement by way of
medical aid contributions. During the year ended March 31, 1998, an agreement
was reached with employees of MultiChoice Africa (Proprietary) Limited to
terminate the post-retirement medical aid benefits plan in exchange for an
increase of MultiChoice Africa (Proprietary) Limited annual contributions to the
retirement benefit fund. The provision is released to operating results to match
the additional contributions to the retirement benefit plan.
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.
The warranty provision has been raised to cover smartcards and conditional
access modules supplied to customers.
The intellectual property infringement provision relates to the expected
settlement amount in respect of a patent used in the conditional access system.
The redundancy provision relates to the benefits payable to employees
following the curtailment of the development activities of the Mindport Media
Commerce Technologies division, for which a
F-10
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
8. PROVISIONS --CONTINUED
detailed plan was approved and announced in September 1999, as part of which 27
employees are expected to leave the Company before March 31, 2000.
The provision for losses in a joint venture relates to the purchase of a 40%
interest in SOE International (see Note 3). Since MIH has an obligation to fund
the losses of SOE international, a provision was created in the amount of the
MIH's funding obligation.
9. BORROWINGS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1999 1999
------------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Current.............................................. $ 74,620 $ 79,629
Non-current.......................................... 200,435 204,770
-------- --------
$275,055 $284,399
======== ========
The borrowings are analysed as follows:
Bank overdrafts and short term loans................. $ 56,659 $ 64,117
Capital leases....................................... 196,240 197,610
Other long-term debt................................. 22,156 22,672
-------- --------
$275,055 $284,399
======== ========
</TABLE>
10. SHARE CAPITAL
On March 23, 1999, in anticipation of the 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. 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.
During April 1999, the Company issued 10,435,000 Class A Ordinary Shares in
an initial public offering for net proceeds of $174.7 million. Simultaneously
with the completion of the public offering, the $46.2 million note payable to
Thomson converted into 2,581,775 Class A Ordinary Shares.
The Company also issued 1,760,057 Class A Ordinary Shares to a trust in
terms of a share incentive scheme in return for a $25.5 million note receivable,
which has been offset against share capital in the consolidated statement of
changes in shareholders' equity.
F-11
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
11. NET REVENUES
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Subscription revenues................................. $245,671 $205,400
Decoder sales and repairs............................. 41,870 44,100
Technology............................................ 43,434 22,539
Other................................................. 22,230 12,529
-------- --------
$353,205 $284,568
======== ========
</TABLE>
12. FINANCIAL RESULTS, NET
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Dividend income....................................... $ 166 $ 96
Interest income....................................... 5,176 2,987
Exchange losses....................................... (1,667) (4,492)
Interest expense...................................... (12,129) (7,362)
-------- -------
$ (8,454) $(8,771)
======== =======
</TABLE>
13. PROFIT ON SALE OF JOINT VENTURE/ASSOCIATE
1999
JOINT VENTURE
The profit on sale of joint venture arose out of a settlement agreement
entered into between the joint venture partners upon the liquidation of the
Digco and JoCo joint ventures.
ASSOCIATE
The profit on sale of associate relates to the sale of the Company's
investment in Orbicom (Proprietary) Limited.
1998
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.
F-12
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
14. DISCONTINUING OPERATIONS
With effect from September 6, 1999, the Company discontinued the operations
of International Gaming Networks, the gaming entity of MultiChoice Africa
(Proprietary) Limited, the business of which was spread and sports betting. A
condensed statement of operations for the discontinuing operation is set out
below:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Net revenues.......................................... $ 1,350 $ 1,701
Cost of providing services............................ (826) (1,273)
Selling, general and administrative................... (4,528) (1,339)
------- -------
Net loss.............................................. $(4,004) $ (911)
======= =======
</TABLE>
The loss arising on discontinuing operations of $3.4 million relates mainly
to staff retrenchment costs, lease cancellation costs and asset impairment
provisions.
15. (LOSS)/EARNINGS PER SHARE
Basic (loss)/earnings per share is calculated by dividing the (loss)/profit
from continuing operations and the net loss respectively by the weighted average
number of shares in issue during the period of 50,230,474 (1998 shares at end of
period of 38,235,000). The weighted average number of shares in issue excludes
the shares issued by the Company in terms of the share incentive scheme.
Diluted (loss)/earnings per share is calculated by dividing the
(loss)/profit from continuing operations and the net loss respectively by the
weighted average number of shares in issue during the period of 51,743,076 (1998
shares at end of period of 38,235,000).
16. 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, technology and Internet. The
pay-television business segment is conducted in Africa and the Middle East, the
Mediterranean and Thailand. The technology business segment consists of
Mindport, based in the Netherlands, and the Company's interest in OpenTV (1998
joint venture) and TV/Com, based in the United States. The Internet business
segment consists of M-Web (Thailand) and the Company's investment in M-Web in
South Africa. The Company's interest in the Middle East is accounted for by the
equity method and is, therefore, included in equity results in joint ventures
below.
F-13
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
16. SEGMENT AND GEOGRAPHIC INFORMATION --CONTINUED
<TABLE>
<CAPTION>
PAY-TELEVISION SERVICES
---------------------------------------
AFRICA
&
THE MIDDLE- MEDITER- SEGMENTAL
1999 EAST RANEAN THAILAND TECHNOLOGY INTERNET TOTAL CORPORATE
- --------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
External sales....... 238,668 69,920 -- 43,845 27 352,460 745
Inter-segment sales.. -- -- -- 7,820 -- 7,820 --
------- -------- ------- ------- ------- ------- ---------
Total revenue........ 238,668 69,920 -- 51,665 27 360,280 745
======= ======== ======= ======= ======= ======= =========
RESULTS
Operating profit/
(loss)............. 4,945 (11,648) -- (13,669) (4,397) (24,769) (7,303)
Depreciation and
amortization....... 19,374 8,945 -- 8,523 65 36,907 159
Amortization of
program and
film rights........ -- 21,020 -- -- -- 21,020 --
Operating profit/
(loss) is stated
before the
following items:
Equity results in
associates......... (403) -- -- -- (906) (1,309) --
Equity results in
joint ventures..... 341 (2,095) (16,952) -- -- (18,706) --
Other information
Segment assets....... 309,758 262,384 86,090 90,606 1,958 750,796 1,154,572
<CAPTION>
RECONCILING CONSOLIDATED
1999 ITEMS TOTAL
- --------------------- ----------- ------------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
SALES
External sales....... -- 353,205
Inter-segment sales.. (7,820) --
-------- -------
Total revenue........ (7,820) 353,205
======== =======
RESULTS
Operating profit/
(loss)............. -- (32,072)
Depreciation and
amortization....... -- 37,066
Amortization of
program and
film rights........ -- 21,020
Operating profit/
(loss) is stated
before the
following items:
Equity results in
associates......... -- (1,309)
Equity results in
joint ventures..... -- (18,706)
Other information
Segment assets....... (956,913) 948,455
</TABLE>
<TABLE>
<CAPTION>
PAY-TELEVISION SERVICES
---------------------------------------
AFRICA
&
THE MIDDLE- MEDITER- SEGMENTAL
1998 EAST RANEAN THAILAND TECHNOLOGY INTERNET TOTAL CORPORATE
- --------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
External sales....... 199,761 61,419 -- 22,539 -- 283,719 849
Inter-segment sales.. -- -- -- 8,754 -- 8,754 --
------- ------- ------- ------- ------- ------- -------
Total revenue........ 199,761 61,419 -- 31,293 -- 292,473 849
======= ======= ======= ======= ======= ======= =======
RESULTS
Operating profit/
(loss)............. (1,880) (5,802) -- 4,810 -- (2,872) (1,522)
Depreciation and
amortization....... 14,327 8,647 -- 2,002 -- 24,976 --
Amortization of
program and film
rights............. -- 14,501 -- -- -- 14,501 --
Operating profit/
(loss) is stated
before the
following items:
Equity results in
associates......... (524) -- -- -- -- (524) --
Equity results in
joint ventures..... (701) -- (11,427) (1,537) -- (13,655) --
Other information
Segment assets....... 395,644 93,253 107,551 179,027 -- 775,475 650,917
<CAPTION>
RECONCILING CONSOLIDATED
1998 ITEMS TOTAL
- --------------------- ----------- ------------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
SALES
External sales....... -- 284,568
Inter-segment sales.. (8,754) --
-------- -------
Total revenue........ (8,754) 284,568
======== =======
RESULTS
Operating profit/
(loss)............. -- (4,394)
Depreciation and
amortization....... -- 24,976
Amortization of
program and film
rights............. -- 14,501
Operating profit/
(loss) is stated
before the
following items:
Equity results in
associates......... -- (524)
Equity results in
joint ventures..... -- (13,665)
Other information
Segment assets....... (725,589) 700,803
</TABLE>
F-14
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS
In October 1999, the Company's subsidiary, OpenTV Corp. (OpenTV), completed a
private placement of convertible preference shares and warrants to America
Online, Inc., General Instrument Corp., Liberty Digital, Inc., News Corporation,
Time Warner, Inc., and Sun Microsystems, Inc. In November 1999, OpenTV completed
an initial public offering (IPO) of its common stock, listing shares on both the
Nasdaq National Market and the Amsterdam Stock Exchange. As part of the IPO, the
convertible preference shares were converted into common stock. OpenTV also
entered into operating agreements with America Online, Inc., News Corporation
and Time Warner, Inc. to increase its market penetration in the United States
and to expand the range of interactive applications available to its global
client base. More recently, OpenTV entered into a strategic agreement with
General Instrument Corp. and, in connection with this agreement, agreed to issue
warrants to General Instrument Corp. to purchase up to 700,000 ordinary shares
of OpenTV. These warrants will vest if and when certain performance goals are
satisfied by General Instrument Corp. To date, one-quarter of these warrants
have vested. After OpenTV's IPO and conversion of preference shares, we remain
the majority shareholder with 65.0% of OpenTV's outstanding shares.
18. COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Net loss.............................................. $(47,872) $ (734)
Foreign currency translation adjustment............... (3,041) 2,499
-------- --------
Comprehensive (loss)/gain............................. $(50,913) $ 1,765
======== ========
</TABLE>
19. DIFFERENCE 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 significant differences which
affect the Company's results and shareholders' equity are as follows:
EQUITY ACCOUNTING FOR UBC
Under IAS, the investment in UBC was carried at cost through to June 1998.
In June 1998, the Company increased its shareholding in UBC to approximately
26.1% and, as a result, excercises significant influence in UBC. Under IAS, the
Company thereafter applied 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 the
investee becomes qualified for use of the equity method. The adjustment in the
previous financial period therefore reflects the effect of applying the equity
method to the investment in UBC determined under US GAAP.
F-15
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
19. DIFFERENCE BETWEEN IAS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES --CONTINUED
STOCK COMPENSATION
Under IAS, the Company does not recognize a compensation expense for stock
option and stock purchase plans. Under US GAAP, Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") requires
that the instrinsic 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 vesting period of the related options. In
connection with certain option grants to employees during the six months ended
September 30, 1999, the Company recorded deferred compensation, for stock based
compensation totalling $19.9 million which is being amortized over the vesting
period of the related options, which is generally between four and five years.
Additionally, under US GAAP, the Company recorded compensation in accordance
with Emerging Issues Task Force Issue No. 96-18 and SFAS No. 123, "Accounting
for Stock-Based Compensation," in connection with the grant of options to
purchase common stock to non-employees. As of September 30, 1999, the Company
has recorded deferred compensation for aggregate deferred compensation of
$4.8 million related to these options, which will be be amortized over the
vesting period of these options.
PROFIT ON SALE OF INTEREST IN ORBICOM (PROPRIETARY) LIMITED
On August 24, 1999, the Company disposed of its 20% interest and its loan
claims in Orbicom to MIH Holdings Limited, who in turn, together with its
interest of 80%, sold the total investment in Orbicom to M-Cell Limited in
exchange for 23,952,096 M-Cell Limited shares with a market value of $39
million. Of this total consideration, $21 million was allocated to the Company,
which was received in the form of 4,432,273 shares in M-Cell Limited with a
market value of $7.2 million and a $13.4 million note receivable from MIH
Holdings Limited. The consideration received by the Company, after allocating
$6 million to settle the loan claims, gave rise to a profit on sale of the
associate of $15 million, as the carrying value of the Orbicom investment was
recorded at no value in the accounting records of the Company.
Under IAS, it is appropriate for MIH Limited to recognize the gain on the
sale of interest in Orbicom, regardless of the related party nature of the
transaction and the disproportionate allocation of proceeds. Based on positions
taken by the SEC, under US GAAP this transaction is evaluated as a transaction
between entities under common control, whereby generally no gains or losses are
recognized on the sale of an asset. Any gains or losses are accounted for as a
capital contribution or distribution. The sale of Orbicom to a third party was
executed simultaneously with the sale of the 20% interest by MIH Limited to MIH
Holdings Limited. The sale of MIH Limited's interest in Orbicom to MIH
Holdings Limited was a way to convenience the transaction with the third party
and it is, therefore, appropriate to recognize a proportionate share of the
profit generated in the transaction. However, the excess of the consideration
received over the proportionate share of the total consideration is accounted
for as a capital contribution by MIH Holdings Limited under US GAAP.
F-16
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
19. DIFFERENCE BETWEEN IAS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES --CONTINUED
RECONCILIATION OF NET LOSS AND SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER
SHARE DATA):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX-MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Net loss under IAS................................. $ (47,872) $ (734)
US GAAP adjustments:
Equity accounting for UBC.......................... -- $ (5,193)
Profit on sale of interest in Orbicom (Proprietary)
Limited.......................................... (8,557) --
Stock compensation................................. (2,159) --
----------- -----------
$ (58,588) $ (5,927)
=========== ===========
Weighted average common shares outstanding......... 50,230,474 38,235,000
Net basic and diluted loss per share under US
GAAP............................................. $ (1.17) $ (0.16)
Net loss under US GAAP consists of:
Loss from continuing operations.................... $ (51,196) $ (5,016)
Loss arising on discontinuing operations........... $ (3,388) --
Loss from discontinuing operations................. $ (4,004) $ (911)
----------- -----------
$ (58,588) $ (5,927)
=========== ===========
BASIC AND DILUTED PER SHARE AMOUNTS:
Continuing operations............................ $ (1.02) $ (0.13)
Discontinuing operations......................... $ (0.15) $ (0.03)
----------- -----------
Net basic and diluted loss....................... $ (1.17) $ (0.16)
=========== ===========
RECONCILIATION OF SHAREHOLDERS' EQUITY
Total shareholders' equity under IAS............... $ 343,334 $ 255,338
US GAAP adjustments:
Equity accounting for UBC.......................... $ (29,930) $ (29,930)
Stock compensation................................. $ (2,159) --
----------- -----------
Total shareholders' equity under US GAAP........... $ 311,245 $ 225,408
=========== ===========
</TABLE>
F-17
<PAGE>
REPORT OF THE 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, 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, 1999, 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 three years in the period ended March 31, 1999 and
shareholders' equity as of March 1999 and 1998 to the extent summarized in Note
29 to the consolidated financial statements.
<TABLE>
<S> <C>
Sunninghill, Republic of South Africa PricewaterhouseCoopers Inc.
June 17, 1999 (except for Note 30, as to Chartered Accountants (SA)
which the date is September 6, 1999) Registered Accountants and Auditors
</TABLE>
F-18
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES 1999 1998
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 56,099 $153,412
Accounts receivable, net.................................. 4 50,557 36,999
Other receivables......................................... 5 28,229 29,444
Program and film rights................................... 11 38,935 22,543
Amounts owing by related parties.......................... 20 14,221 14,784
Inventories, net.......................................... 6 21,368 18,283
-------- --------
Total current assets.................................... 209,409 275,465
-------- --------
NON-CURRENT ASSETS
Tangible fixed assets, net................................ 8 237,104 114,248
Intangible assets, net.................................... 9 207,201 163,611
Long-term investments..................................... 10 70,114 77,020
Program and film rights................................... 11 52,399 15,711
-------- --------
Total non-current assets................................ 566,818 370,590
-------- --------
TOTAL ASSETS............................................ $776,227 $646,055
======== ========
LIABILITIES
CURRENT LIABILITIES
Bank overdrafts and short-term loans...................... $ 64,117 $ 16,399
Current portion of long-term debt......................... 14 15,512 36,369
Current portion of program and film rights................ 14 37,857 6,431
Accounts payable.......................................... 43,164 52,344
Accrued expenses and other current liabilities............ 12 161,472 115,446
Amounts owing to related parties.......................... 20 16,298 25,804
Provisions................................................ 13 11,933 57,019
-------- --------
Total current liabilities............................... 350,353 309,812
-------- --------
NON-CURRENT LIABILITIES
Long-term debt............................................ 14 204,770 54,787
Program and film rights................................... 14 43,777 24,608
Deferred taxation......................................... 15 120 3,275
-------- --------
Total non-current liabilities........................... 248,667 82,670
-------- --------
TOTAL LIABILITIES....................................... 599,020 392,482
======== ========
Minority interest........................................... 524 --
Commitments and contingencies............................... 22 -- --
SHAREHOLDERS' EQUITY
Share capital
Class A Ordinary Shares no par value:
Authorized: 1999 and 1998: 103,468,878
Issued: 1999 and 1998: 7,447,681...................... 113,986 113,986
Class B Ordinary Shares no par value:
Authorized: 1999 and 1998: 55,920,509
Issued: 1999 and 1998: 30,787,319..................... 475,566 475,566
Accumulated loss............................................ (382,386) (313,547)
Foreign currency translation adjustment..................... (30,483) (22,432)
-------- --------
TOTAL SHAREHOLDERS' EQUITY............................ 176,683 253,573
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $776,227 $646,055
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
(IN THOUSANDS OF US DOLLARS,
EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES 1999 1998 1997
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues.................................... 16 $ 607,855 $ 500,538 $ --
Operating expenses:
Cost of providing services.................... (390,492) (308,809) --
Selling, general and administrative........... (203,751) (175,201) (899)
Depreciation and amortization................. (51,390) (58,010) --
----------- ----------- -----------
Total operating expenses........................ (645,633) (542,020) (899)
----------- ----------- -----------
Operating loss.................................. (37,778) (41,482) (899)
Financial results, net........................ 17 (9,078) (5,488) (107)
Equity results in joint ventures.............. (41,219) (5,091) (129,858)
Equity results in associates.................. (2,053) (2,783) --
Profit on sale of joint venture............... 31,093 -- 540,028
----------- ----------- -----------
(Loss)/profit before taxation................... (59,035) (54,844) 409,164
Income taxation............................... 18 (309) (7,570) --
----------- ----------- -----------
(Loss)/profit after taxation.................... (59,344) (62,414) 409,164
Minority interest............................. 371 3,793 --
----------- ----------- -----------
(Loss)/profit from continuing operations........ (58,973) (58,621) 409,164
Loss from discontinued operations............... 19,30 (9,866) (5,181) --
----------- ----------- -----------
Net (loss)/profit........................... $ (68,839) $ (63,802) $ 409,164
=========== =========== ===========
Per share amounts:
(Loss)/profit from continuing operations
Basic and diluted............................. $ (1.54) $ (1.53) $ 10.70
Net (loss)/profit
Basic and diluted............................. $ (1.80) $ (1.67) $ 10.70
Shares used to compute (loss)/profit per
share......................................... 38,235,000 38,235,000 38,235,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
(IN THOUSANDS OF US DOLLARS,
EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES 1999 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Operating loss.......................................... $(37,778) $(41,482) $ (899)
Adjustments for:
Depreciation and amortization......................... 51,390 58,010 --
Amortization of program and film rights............... 32,237 32,599 --
Taxation (paid)/refunded.............................. (5,755) 2,849 --
(Profit)/loss on sale of tangible fixed assets........ (371) 1,653 --
(Increase)/decrease in receivables.................... (3,454) (9,553) 12,072
Payments for program and film rights.................. (84,034) (26,048) --
Net decrease/(increase) in amounts owing to/(owing by)
related parties..................................... 12,191 (18,790) --
Increase in inventories............................... (1,997) (6,783) --
Decrease/(increase) in payables....................... 28,263 17,941 (5,194)
Utilized in discontinued operations................... (9,866) (5,181) --
-------- -------- --------
NET CASH (USED IN)/FROM OPERATING ACTIVITIES.......... (19,174) 5,215 5,979
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of tangible fixed assets....................... (11,352) (31,664) --
Proceeds on sale of tangible fixed assets............... 7,389 5,276 --
Dividends received from associates...................... 2,573 1,539 --
Proceeds on disposal of Internet businesses............. -- 21,546 --
Proceeds on disposal of Canal Plus shares............... -- 261,536 --
Acquisition of subsidiaries, net of cash acquired....... 27 (13,245) (33,911) 54,045
Investment in OpenTV.................................... (9,513) (9,100) --
Investment in UBC....................................... (66,701) (45,797) (10,348)
Net (increase)/decrease in other investments............ (4,704) 1,052 --
-------- -------- --------
NET CASH (USED IN)/FROM INVESTING ACTIVITIES.......... (95,553) 170,477 43,697
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance costs........................................... (11,651) (11,312) (107)
Funds raised from outside shareholders.................. -- 3,793 --
Net repayment of long-term debt......................... (29,070) (20,556) --
Capital leases repaid................................... (10,995) (4,550) --
Proceeds on transfer of M-Net/SuperSport shares......... 22,243 -- --
Dividends paid.......................................... -- (51,817) --
Bank overdrafts raised.................................. 47,581 7,479 9,913
-------- -------- --------
NET CASH (USED IN)/FROM FINANCING ACTIVITIES.......... 18,108 (76,963) 9,806
-------- -------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS.... (96,619) 98,729 59,482
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......... 153,412 60,773 1,466
TRANSLATION ADJUSTMENT ON CASH AND CASH EQUIVALENTS..... (694) (6,090) (175)
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 56,099 $153,412 $ 60,773
======== ======== ========
</TABLE>
NON-CASH TRANSACTIONS
The principal non-cash transactions are the acquisition of OpenTV Inc. and
the acquisition of property, plant and equipment using capital leases.
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
MIH LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
(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, 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
Net loss................................ -- -- (68,839) -- (68,839)
Translation adjustment.................. -- -- -- (8,051) (8,051)
-------- -------- --------- -------- --------
At March 31, 1999....................... $113,986 $475,566 $(382,386) $(30,483) $176,683
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<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.
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.
The consolidated financial statements reflect the Company's International
Gaming Networks operations as a discontinued operation as described in Note 30.
(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
F-23
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
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.
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.
F-24
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
(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............................... 10-12
Decoders.................................................... 2
</TABLE>
Land is not depreciated. Improvements to leasehold properties are amortized
over the period of the respective leases.
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 intangible assets relating to the subscriber base
and intellectual property rights 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.
F-25
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
(J) 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 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.
(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 POST-RETIREMENT BENEFITS
The Company has various post-retirement 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.
(O) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the financial period during
which they are incurred.
(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.
F-26
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
(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)/PROFIT PER SHARE
Net (loss)/profit per share and (loss)/profit per share from continuing
operations is based on net (loss)/profit 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 BV (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 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
($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.
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.
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
F-27
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES --CONTINUED
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. 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 translation
was accounted for as a capital contribution.
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 was due in the
1999 financial year. 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 was converted on April 13, 1999 into 2,581,775 Class A
Ordinary Shares at $18.00 per Class A Ordinary Share. The disposal to the
subsidiary of Sun Microsystems was for approximately $9.2 million in cash. The
excess purchase price over the net liabilities acquired of approximately $36.7
million has been allocated to goodwill and is amortized over five years.
The Company invested an additional $17.7 million in United Broadcasting
Corporation Public Company Limited (UBC), a company listed on the Stock Exchange
of Thailand, during the 1998 financial 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%. In June 1998, the Company increased its shareholding in UBC
from 17.3% to 26.1% for a purchase consideration of $62.1 million, paid in cash.
In February 1999, the Company acquired an additional 1.7% interest for $4.5
million in cash. The Company intends to exercise an option to purchase an
additional 3.3% of UBC for $8.8 million in cash, taking its interest to 31.1%.
The excess of the consideration of the Company's share of the fair value of the
net assets acquired, amounting to $59.5 million, was allocated to goodwill, and
is amortized over its estimated useful life of five 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.
On April 4, 1998, the Company transferred 28 million of its shares in
Electronic Media Network Holdings Limited/SuperSport International Holdings
Limited (M-Net/SuperSport) into a trust (the Trust), with the objective to
increase share ownership in M-Net/SuperSport 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 1, 2001 and re-acquire ownership of the M-Net/SuperSport shares. The
shares of M-Net/SuperSport transferred 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 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
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/SuperSport.
F-28
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACQUISITIONS AND DIVESTITURES --CONTINUED
During November 1998, the Company acquired a 100% interest in TV/Com
International Inc. for $14.5 million, paid in cash. The excess of the
consideration over the fair value of the net assets amounting to $12.3 million,
was allocated to intellectual property rights.
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Trade accounts receivable............................. $ 70,937 $ 47,148
Less: provision for doubtful accounts................. (20,380) (10,149)
-------- --------
$ 50,557 $ 36,999
======== ========
</TABLE>
Included in accounts receivable are $27.5 million and $14.3 million at
March 31, 1999 and March 31, 1998, respectively, pre-billed to customers and
credit balances which have been recorded as deferred income (Note 12).
5. OTHER RECEIVABLES
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Payments and accrued income........................... $ 8,490 $ 14,272
Other receivables..................................... 19,739 15,172
-------- --------
$ 28,229 $ 29,444
======== ========
</TABLE>
6. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Decoders and associated components.................... $ 31,828 $ 28,689
Less: provision for slow-moving and obsolete
inventories......................................... (10,460) (10,406)
-------- --------
$ 21,368 $ 18,283
======== ========
</TABLE>
F-29
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ARISING ON CHARGED/
AT ACQUISITION (CREDITED) AT
MARCH 31, TRANSLATION OF TO COST AND MARCH 31,
1999 1998 ADJUSTMENT SUBSIDIARY DEDUCTIONS EXPENSES 1999
- ---- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Provision for:
Doubtful accounts--Note 4.................. $ 10,149 $ (904) $ 1,323 $ -- $ 9,812 $20,380
Slow-moving and obsolete
inventories--Note 6...................... 10,406 139 -- -- (85) 10,460
Program and film rights.................... 1,872 25 -- -- (1,897) --
Decoder technology......................... 22,734 (524) -- -- (22,210) --
Post-retirement benefits................... 3,766 (700) -- -- (399) 2,667
Programming costs.......................... 9,093 210 -- -- (9,303) --
Write-down of carrying values of assets in
certain African countries................ 4,341 (807) -- -- (227) 3,307
Development costs/losses in joint
ventures................................. 10,629 108 -- (10,737) -- --
Warranties................................. 4,960 65 -- -- 435 5,460
Intellectual property infringement......... 1,496 20 -- -- (1,017) 499
-------- -------- ------- -------- -------- -------
$ 79,446 $ (2,368) $ 1,323 $(10,737) $(24,891) $42,773
======== ======== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
ARISING ON CHARGED/
AT ACQUISITION (CREDITED) AT
MARCH 31, TRANSLATION OF TO COST AND MARCH 31,
1998 1997 ADJUSTMENT SUBSIDIARY DEDUCTIONS EXPENSES 1998
- ---- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Provision for:
Doubtful accounts--Note 4.................. $ 7,067 $ (708) $ 6,251 $ -- $ (2,461) $10,149
Slow-moving and obsolete
inventories--Note 6...................... 6,466 (648) 4,135 -- 453 10,406
Program and film rights.................... 476 (48) -- -- 1,444 1,872
Decoder technology......................... 29,358 (2,942) -- (3,682) -- 22,734
Post-retirement benefits................... 4,678 (469) -- -- (443) 3,766
Subscriber guarantees...................... 42,203 (4,229) -- (37,974) -- --
Programming costs.......................... 9,125 (914) -- -- 882 9,093
Write down of carrying values of assets in
certain African countries................ 7,963 (798) -- -- (2,824) 4,341
Development costs/losses in joint
ventures................................. -- -- 3,398 -- 7,231 10,629
Warranties................................. 3,857 (349) -- -- 1,452 4,960
Intellectual property infringement......... -- -- -- -- 1,496 1,496
-------- -------- ------- -------- -------- -------
$111,193 $(11,105) $13,784 $(41,656) $ 7,230 $79,446
======== ======== ======= ======== ======== =======
</TABLE>
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
($22.7 million) and guarantees of the number of subscribers ($42.2 million) and
the potential reimbursement of programming costs ($9.1 million). 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
current financial year.
F-30
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. VALUATION AND QUALIFYING ACCOUNTS --CONTINUED
The provision for the write-down of the carrying value of assets in certain
African countries relates to management's estimates regarding the recoverability
of such assets, given the current economic and political environment in certain
African countries.
Following the termination of an agreement with a joint venture partner, the
provision for development costs/losses in joint ventures has been deducted from
the long-term loan and the net amount disclosed as a short-term receivable.
The warranty provision has been raised to cover smart cards and conditional
access modules supplied to customers.
The intellectual property infringement provision relates to the expected
settlement amount in respect of a patent used in the conditional access system.
8. TANGIBLE FIXED ASSETS (IN THOUSANDS)
<TABLE>
<CAPTION>
LAND, BUILDINGS MACHINERY,
AND LEASEHOLD FURNITURE TRANSPONDERS
IMPROVEMENTS AND EQUIPMENT AND TRANSMITTERS DECODERS
-------------------- -------------------- -------------------- --------------------
PURCHASED LEASED PURCHASED LEASED PURCHASED LEASED PURCHASED LEASED TOTAL
--------- -------- --------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COST
At April 1, 1998....... $ 3,939 $10,311 $ 68,726 $ 6,644 $ 8,438 $ 45,822 $ -- $ 7,840 $151,720
Translation
adjustment........... (809) (1,901) (10,777) (1,227) 261 (1,423) -- 2,816 (13,060)
Additions.............. 1,619 -- 7,072 166 6,122 138,212 3,633 8,782 165,606
Disposals.............. -- -- (6,790) (2,783) (16) (9) -- -- (9,598)
------- ------- -------- ------- ------- -------- ------- -------- --------
At March 31, 1999...... 4,749 8,410 58,231 2,800 14,805 182,602 3,633 19,438 294,668
------- ------- -------- ------- ------- -------- ------- -------- --------
ACCUMULATED
DEPRECIATION
At April 1, 1998....... (563) (282) (24,548) (1,954) (1,329) (3,223) -- (5,573) (37,472)
Translation
adjustment........... 29 59 3,077 380 (620) 234 (84) (2,289) 786
Reclassifications...... (812) 66 5,572 43 (766) (140) (2,204) (1,759) --
Charge for the year.... (893) (178) (8,624) (414) (2,133) (7,178) (217) (3,230) (22,867)
Disposals.............. -- -- 1,973 -- 16 -- -- -- 1,989
------- ------- -------- ------- ------- -------- ------- -------- --------
At March 31, 1999...... (2,239) (335) (22,550) (1,945) (4,832) (10,307) (2,505) (12,851) (57,564)
------- ------- -------- ------- ------- -------- ------- -------- --------
NET BOOK VALUE
At March 31, 1999...... $ 2,510 $ 8,075 $ 35,681 $ 855 $ 9,973 $172,295 $ 1,128 $ 6,587 $237,104
======= ======= ======== ======= ======= ======== ======= ======== ========
At March 31, 1998...... $ 3,376 $10,029 $ 44,178 $ 4,690 $ 7,109 $ 42,599 $ -- $ 2,267 $114,248
======= ======= ======== ======= ======= ======== ======= ======== ========
</TABLE>
F-31
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. TANGIBLE FIXED ASSETS (IN THOUSANDS) --CONTINUED
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, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
FOR THE YEARS ENDED MARCH 31:
2000.................................................. $ 32,836 $15,103
2001.................................................. 30,528 16,688
2002.................................................. 28,179 11,648
2003.................................................. 26,041 11,155
2004 and after........................................ 190,280 33,575
--------- -------
Total minimum lease repayments........................ 307,864 $88,169
=======
Less: amount representing interest.................... (110,254)
---------
$ 197,610
=========
</TABLE>
Operating rental expenses for the year ended March 31, 1999 amounted to
approximately $37 million (1998: $33 million). Capital leases bear interest
ranging from 6%-21% as of March 31, 1999. The weighted average interest rate was
9.68%.
9. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY SUBSCRIBER
RIGHTS BASE GOODWILL TOTAL
1999 ------------ ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C>
COST
At April 1, 1998........................ $ -- $ 48,250 $151,531 $199,781
Translation difference.................. -- (8,946) (5,193) (14,139)
Additions............................... 12,372 -- 84,986 97,358
------- -------- -------- --------
At March 31, 1999....................... 12,372 39,304 231,324 283,000
------- -------- -------- --------
ACCUMULATED AMORTIZATION
At April 1, 1998........................ -- (9,650) (26,520) (36,170)
Amortization for the year............... (825) (8,293) (34,684) (43,802)
Translation difference.................. -- 2,248 1,925 4,173
------- -------- -------- --------
At March 31, 1999....................... (825) (15,695) (59,279) (75,799)
------- -------- -------- --------
NET BOOK VALUE............................ $11,547 $ 23,609 $172,045 $207,201
======= ======== ======== ========
</TABLE>
F-32
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INTANGIBLE ASSETS --CONTINUED
<TABLE>
<CAPTION>
INTELLECTUAL
PROPERTY SUBSCRIBER
RIGHTS BASE GOODWILL TOTAL
1998 ------------ ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <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
Disposal................................ -- -- (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>
10. LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Marketable securities(a).................................... $ 1,190 $ 56,924
Associates(b)............................................... 14,000 12,992
Joint ventures(c)........................................... 54,924 7,104
-------- --------
$ 70,114 $ 77,020
======== ========
(A) MARKETABLE SECURITIES AT COST
LISTED SHARES
UBC (1999: joint venture)................................. $ -- $ 52,840
UNLISTED SHARES
Cable News Egypt S.A.E. (CNE)............................. 1,190 2,985
Croco Beteiligungs Gesellschaft GmbH...................... -- 1,004
LTH AE.................................................... -- 95
-------- --------
$ 1,190 $ 56,924
======== ========
(B) ASSOCIATES
M-Net/SuperSport............................................ $ 8,394 $ 10,312
Orbicom (Proprietary) Limited (Orbicom)..................... -- --
Share of post-acquisition retained profits.................. 5,606 2,680
-------- --------
$ 14,000 $ 12,992
======== ========
</TABLE>
F-33
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM INVESTMENTS --CONTINUED
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
(C) JOINT VENTURES
Digco BV ("Digco").......................................... $ -- $ 7,762
MultiChoice Supplies (Proprietary) Limited
("MultiChoice Supplies").................................. 2,447 3,686
MultiChoice Middle East..................................... 7,055 --
UBC (1998: marketable security)............................. 73,550 --
Share of post-acquisition retained profits less losses...... (28,128) (4,344)
-------- --------
$ 54,924 $ 7,104
======== ========
LISTED SHARES AT MARKET VALUE
UBC....................................................... $ 91,774 $104,817
M-Net/SuperSport.......................................... 30,375 54,483
-------- --------
$122,149 $159,300
======== ========
</TABLE>
F-34
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM INVESTMENTS --CONTINUED
The following information relates to the Company's significant investments:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1999 1998
-------- --------
TYPE OF INVESTMENT % % NATURE OF BUSINESS COUNTRY
- ------------------ --------------------------------- ----------------------
<S> <C> <C> <C> <C>
MARKETABLE SECURITIES AT COST
UBC (1999: joint venture)........ -- 17.3 Management of television Thailand
platforms
CNE.............................. 10.0 10.0 Television Egypt
ASSOCIATES
M-Net/SuperSport................. 19.8(1) 19.8 Premium television channel South Africa
provider
Orbicom.......................... 20.0 20.0 Signal distribution South Africa
JOINT VENTURES
Digco............................ 50.0 50.0 Decoder technology The Netherlands
UBC (1998: marketable security)
(including option)............... 31.1 -- Management of television Thailand
platforms
MultiChoice Supplies............. 50.0 50.0 Decoder rentals South Africa
OpenTV (1999: subsidiary)........ -- 44.5 Technology development USA
MultiChoice Middle East.......... 45.0 45.0 Management of television Middle East
platforms
SUBSIDIARIES
Myriad Africa BV................. 100.0 100.0 Investment holding The Netherlands
MultiChoice Africa (Proprietary)
Limited ("MultiChoice Africa")... 100.0 100.0 Management of television South Africa
platforms
MultiChoice Africa Limited....... 100.0 100.0 Investment holding British Virgin Islands
NetMed BV........................ 100.0 100.0 Investment holding The Netherlands
NetMed Hellas SA................. 52.0 52.0 Management of television Greece
platforms
MultiChoice Hellas SA............ 52.0 52.0 Management of television Greece
platforms
Irdeto........................... 100.0 100.0 Technology development The Netherlands
TV/Com........................... 100.0 -- Technology development USA
OpenTV (1998: joint venture)..... 80.1 -- Technology development USA
</TABLE>
- ------------------------------
(1) The Company accounts for its investment in M-Net/SuperSport using the equity
method of accounting because of the significant influence the Company
exercises over M-Net/SuperSport as a result of common ownership, the
Company's management and directors' representation on the board of directors
of M-Net/SuperSport and the fact that substantially all of
M-Net/SuperSport's revenues are derived from the Company.
<TABLE>
<CAPTION>
MARCH 31,
SIGNIFICANT JOINT VENTURE INFORMATION ---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
Net loss............................................ $(34,401) $ (5,091) $ --
Current assets...................................... 38,091 11,110 --
Long-term assets.................................... 304,184 5,320 --
Current liabilities................................. (32,619) (26,173) --
Long-term liabilities............................... (36,773) (25,388) --
</TABLE>
F-35
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
COST
Program rights............................................ $112,319 $ 60,893
Film rights............................................... 8,832 13,554
-------- --------
121,151 74,447
-------- --------
ACCUMULATED AMORTIZATION
Program rights............................................ 27,366 26,266
Film rights............................................... 2,451 9,927
-------- --------
29,817 36,193
-------- --------
NET BOOK VALUE
Program rights............................................ 84,953 34,627
Film rights............................................... 6,381 3,627
-------- --------
$ 91,334 $ 38,254
======== ========
Classified on the balance sheets as follows:
Current assets............................................ $ 38,935 $ 22,543
Non-current assets........................................ 52,399 15,711
-------- --------
$ 91,334 $ 38,254
======== ========
</TABLE>
12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Deferred income............................................. $ 27,508 $ 14,344
Accrued expenses............................................ 50,226 35,517
Taxes and social securities................................. 10,341 12,630
Amounts owing in respect of investments acquired............ 46,287 6,400
Other current liabilities................................... 27,110 46,555
-------- --------
$161,472 $115,446
======== ========
</TABLE>
F-36
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. PROVISIONS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Decoder technology.......................................... $ -- $ 22,734
Post-retirement benefits (Note 26).......................... 2,667 3,766
Write-down of carrying values of assets in certain African
countries................................................. 3,307 4,341
Programming costs........................................... -- 9,093
Development costs/losses in joint ventures.................. -- 10,629
Warranties.................................................. 5,460 4,960
Intellectual property infringement.......................... 499 1,496
-------- --------
$ 11,933 $ 57,019
======== ========
</TABLE>
14. LONG-TERM DEBT AND PROGRAM AND FILM RIGHTS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Long-term debt comprises:
Capital leases--Note 8.............................. $197,610 $ 67,172
NetHold Finance VOF................................. -- 23,984
Other long-term debt--Note 3........................ 22,672 --
-------- --------
220,282 91,156
Less: short-term portion included in current
liabilities................................................. (15,512) (36,369)
-------- --------
$204,770 $ 54,787
======== ========
</TABLE>
Program and film rights payable are non-interest-bearing and amounts due in
future fiscal years are $37.9 million in 2000, $28.3 million in 2001 and $15.5
million thereafter.
The loan from NetHold Finance VOF bore interest at 2% above the Amsterdam
Interbank Benchmark Rate and was settled on October 5, 1998.
The currency mix of the long-term debt as at March 31, 1999 and 1998 is:
<TABLE>
<CAPTION>
% %
--------- ---------
<S> <C> <C>
European currency unit................................ 17.5 39.0
Greek drachmae........................................ 18.5 29.0
Netherlands guilders.................................. 0.8 19.0
South African rand.................................... 12.8 11.0
US dollars............................................ 50.4 2.0
-------- -------
100.0 100.0
======== =======
</TABLE>
F-37
<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,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
DEFERRED TAXATION LIABILITIES
Leased tangible assets................................ $ -- $ 1,097
Purchased intangible fixed assets..................... 3 3,275
Prepayments........................................... -- 1,995
Subscriber base....................................... 7,082 13,472
Intellectual property rights.......................... 3,464 --
-------- --------
Gross deferred taxation liabilities................... 10,549 19,839
-------- --------
DEFERRED TAXATION ASSETS
Purchased intangible fixed assets..................... -- 2,062
Purchased tangible fixed assets....................... 302 350
Accounts receivable and other assets.................. 4,992 1,387
Accrued expenses and other current liabilities........ 7,050 23,791
Program and film rights............................... 72 3,113
Leased tangible fixed assets.......................... 2,939 2,881
Deferred income....................................... 4,594 4,929
Tax loss carry forwards............................... 33,033 36,156
-------- --------
Gross deferred taxation assets........................ 52,982 74,669
-------- --------
Net deferred taxation assets.......................... 42,433 54,830
Less: valuation allowance............................. (42,553) (58,105)
-------- --------
Net deferred tax liabilities.......................... $ (120) $ (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.
F-38
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. NET REVENUES
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
Subscription revenues...................... $442,734 $404,479 $ --
Decoder sales and repairs.................. 71,998 63,082 --
Technology................................. 63,911 12,781 --
Other...................................... 29,212 20,196 --
-------- -------- -----
$607,855 $500,538 $ --
======== ======== =====
</TABLE>
17. FINANCIAL RESULTS, NET
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
Dividend income............................ $ 2,573 $ 3,177 $ --
Gain on disposal of investments............ -- 2,647 --
Interest income............................ 10,328 7,898 --
Exchange losses............................ (556) (6,049) --
Interest expense........................... (21,423) (13,161) (107)
-------- -------- -----
$ (9,078) $ (5,488) $(107)
======== ======== =====
</TABLE>
18. INCOME TAXATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
Taxation
Current.................................. $ (3,464) $ (5,964) $ --
Deferred................................. 3,155 (1,606) --
-------- -------- -----
Charged against income..................... $ (309) $ (7,570) $ --
======== ======== =====
</TABLE>
F-39
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXATION --CONTINUED
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,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
Income taxation benefit at statutory
rates.................................... $ 3,615 $ 19,631 $ --
Unprovided timing differences.............. (11,798) (22,080) --
Permanent differences
Exempt income............................ 16,248 -- --
Profit on sale of investments............ -- 1,692 --
Profit on dilution of interest in
associates............................. -- 315 --
Non-deductible charges................... (6,876) (13,961) --
(Expenditure)/income of a capital
nature................................. (658) 156 --
Other taxes.............................. (1,430) (3,064) --
Change in taxation rates................. 590 9,741 --
-------- -------- -----
Income taxation expense.................... $ (309) $ (7,570) $ --
======== ======== =====
</TABLE>
The Company has tax loss carry-forwards of approximately $110.1 million. A
summary of the tax loss carry-forwards at March 31, 1999 (in thousands) by tax
jurisdiction, and the expiry dates is set out below:
<TABLE>
<CAPTION>
AFRICA MEDITERRANEAN TOTAL
-------- ------------- --------
<S> <C> <C> <C>
1999........................................ $ 2,300 $ 6,000 $ 8,300
2000........................................ 2,300 22,500 24,800
2001........................................ 3,000 6,800 9,800
2002........................................ 1,400 14,200 15,600
2003........................................ 8,000 15,700 23,700
Indefinite.................................. 27,910 -- 27,910
------- ------- --------
$44,910 $65,200 $110,110
======= ======= ========
</TABLE>
Tax loss carry-forwards of $17 million are only available for offset against
future taxable income from the same category of income which created the loss.
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(k)) and are,
therefore, effectively a valuation allowance.
F-40
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. DISCONTINUED OPERATIONS
1999
With effect from November 24, 1998, the group discontinued the operations of
TV/Com. The costs incurred relate to the termination of the operations.
1998
With effect from October 1, 1997, the Company sold its Internet-related
businesses to M-Web, 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 business 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.
(See Note 30.)
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,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
INCOME
Transmission costs(a)...................... $ 1,656 $ 1,308 $ --
Management fee(b).......................... 340 -- --
Dividend(c)................................ 2,573 1,448 --
Licensing and consulting fees(d)........... 2,270 956 --
Interest income(e)......................... -- -- 11,916
-------- -------- --------
$ 6,839 $ 3,712 $ 11,916
======== ======== ========
COSTS
Channel of programming costs(f)............ $136,000 $133,047 $ --
Transmission costs(g)...................... 28,784 23,854 --
Licensing fees(h).......................... -- 2,671 --
Directors' emoluments(i)................... 1,716 -- --
-------- -------- --------
$166,500 $159,572 $ --
======== ======== ========
</TABLE>
- ------------------------
(a) Certain costs related to the lease and maintenance of signal distribution
are charged on by the Company to one of its affiliated companies.
(b) Management fee charged by the company to UBC.
(c) Dividends received from M-Net/SuperSport.
(d) Licensing and consulting fees charged to affiliated companies.
(e) 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.
(f) The Company purchases the right to transmit certain channels and programs
from affiliated companies.
(g) The Company is charged by an affiliate for services relating to the lease
and maintenance of signal distribution equipment.
(h) Licensing fees are charged by an affiliated company for the use of certain
subscriber technology and software.
(i) Total remuneration of the directors.
F-41
<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,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
RECEIVABLES
MIH Holdings Limited................................ $ 6,993 $ 8,657
OpenTV (1999: subsidiary)........................... -- 323
Computicket......................................... -- 434
UBC (1999: joint venture)........................... -- 3,872
Myriad International Holdings BV.................... -- 1,498
M-Web Holdings Limited.............................. 1,786 --
Orbicom (Proprietary) Limited....................... 5,442 --
------- -------
$14,221 $14,784
======= =======
PAYABLES
M-Web Holdings Limited.............................. $ -- $ 2,223
M-Cell Limited...................................... -- 237
M-Net/SuperSport.................................... 16,298 23,128
Orbicom (Proprietary) Limited....................... -- 216
------- -------
$16,298 $25,804
======= =======
</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 management of television platforms and technology. The
business segment relating to the management of television platforms is conducted
in Africa and the Middle East, the Mediterranean and Thailand. The technology
business segment consists of Irdeto, based in the Netherlands, and the Company's
joint venture interest in OpenTV (subsidiary March 31, 1999) and TV/Com, 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-42
<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>
MANAGEMENT OF
TELEVISION PLATFORMS TECHNOLOGY
--------------------------------------- -----------
AFRICA
AND THE MEDITER- SEGMENTAL RECONCILING
1999 MIDDLE EAST RANEAN THAILAND TOTAL CORPORATE ITEMS
- ---- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
External sales................. $406,959 $136,985 $ -- $ 63,911 $607,855 $ -- $ --
Inter-segment sales............ -- 551 -- 9,355 9,906 -- (9,906)
-------- -------- -------- -------- -------- -------- --------
Total revenue.................. $406,959 $137,536 $ -- $ 73,266 $617,761 $ -- $ (9,906)
======== ======== ======== ======== ======== ======== ========
RESULTS
Operating loss................. $ (1,624) $(19,290) $ -- $ (4,947) $(25,861) $(11,917) $ --
Depreciation and
amortization(c).............. (28,808) (18,667) -- (3,690) (51,166) (224) --
Amortization of program and
film rights.................. -- (32,237) -- -- (32,237) -- --
Operating loss is stated before
the following items:
Exchange gains/(losses)........ 1,339 3,359 -- (1,516) 3,182 (3,738) --
Dividend income................ 2,573 -- -- -- 2,573 -- --
Interest expense............... (40,333) (15,070) -- (3,064) (58,467) (15,501) (52,545)(a)
Interest income................ 4,129 832 -- 4,181 9,141 53,732 (52,545)(a)
Equity results in associates... (2,053) -- -- -- (2,053) -- --
Equity results in joint
ventures..................... (1,885) -- (32,694) (6,640) (41,219) -- --
Income taxation/(benefit)...... 520 1,694 -- (2,155) 59 250 --
OTHER INFORMATION
Segment assets................. 362,843 213,288 107,616 137,376 821,123 712,663 (757,559)(b)
Investments in equity
companies.................... 18,218 -- 50,706 -- 68,924 -- --
Other investments at cost...... 1,190 -- -- -- 1,190 -- --
Segment liabilities............ 529,697 324,936 -- 71,240 925,873 430,706 (757,559)(b)
Capital expenditure............ 5,091 4,495 -- 1,766 11,352 -- --
<CAPTION>
CONSOLI-
DATED
1999 TOTAL
- ---- -----------
(THOUSANDS)
<S> <C>
SALES
External sales................. $607,855
Inter-segment sales............ --
--------
Total revenue.................. $607,855
========
RESULTS
Operating loss................. $(37,778)
Depreciation and
amortization(c).............. (51,390)
Amortization of program and
film rights.................. (32,237)
Operating loss is stated before
the following items:
Exchange gains/(losses)........ (556)
Dividend income................ 2,573
Interest expense............... (21,423)
Interest income................ 10,328
Equity results in associates... (2,053)
Equity results in joint
ventures..................... (41,219)
Income taxation/(benefit)...... 309
OTHER INFORMATION
Segment assets................. 776,227
Investments in equity
companies.................... 68,924
Other investments at cost...... 1,190
Segment liabilities............ 599,020
Capital expenditure............ 11,352
</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 inter-group 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 and equity results in
associates.
F-43
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. SEGMENT AND GEOGRAPHIC INFORMATION --CONTINUED
<TABLE>
<CAPTION>
MANAGEMENT OF
TELEVISION PLATFORMS TECHNOLOGY
------------------------- -----------
AFRICA CONSOLI-
AND THE MEDITER- SEGMENTAL RECONCILING DATED
1998 MIDDLE EAST RANEAN TOTAL CORPORATE ITEMS TOTAL
- ---- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
External sales.................. $381,354 $106,403 $ 12,781 $500,538 $ -- $ -- $500,538
Inter-segment sales............. -- -- 4,719 4,719 -- (4,719) --
-------- -------- -------- -------- -------- ----------- --------
Total revenue................... $381,354 $106,403 $ 17,500 $505,257 $ -- $ (4,719) $500,538
======== ======== ======== ======== ======== =========== ========
RESULTS
Operating loss.................. $ (3,656) $(26,626) $ (3,035) $(33,317) $ (8,165) $ -- $(41,482)
Depreciation and
amortization(c)............... (36,994) (18,243) (2,711) (57,948) (62) -- (58,010)
Amortization of program and film
rights........................ -- (32,599) -- (32,599) -- -- (32,599)
Operating loss is stated before
the following items:
Exchange (losses)/gains......... (1,464) (8,042) 672 (8,834) 2,785 -- (6,049)
Dividend income................. -- -- -- -- 3,177 -- 3,177
Interest expense................ (46,890) (10,814) (555) (58,259) (1,825) 46,923 (a) (13,161)
Gain on disposal of
investments................... -- -- -- -- 2,647 -- 2,647
Interest income................. 3,078 474 1,647 5,199 49,001 (46,302 )(a) 7,898
Equity results in associates.... (2,783) -- -- (2,783) -- -- (2,783)
Equity results in joint
ventures...................... (556) -- (4,535) (5,091) -- -- (5,091)
Income taxation................. -- (1,658) (2,777) (4,435) (3,135) -- (7,570)
OTHER INFORMATION
Segment assets.................. 290,671 164,561 101,806 557,038 539,631 (450,614)(b) 646,055
Investments in equity
companies..................... 13,857 -- 6,239 20,096 -- -- 20,096
Other investments at cost....... 3,080 -- 1,004 4,084 52,840 -- 56,924
Segment liabilities............. 426,907 228,322 52,478 707,707 135,389 (450,614)(b) 392,482
Capital expenditure............. 23,356 7,085 1,223 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 $1.5 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, 1999, the Company had entered into contracts for the purchase
of program, film and related rights and decoders. The Company's commitments in
respect of these contracts amount to $34.4 million (1998: $16.3 million) and $20
million (1998: $12.6 million), respectively.
F-44
<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, 1999 and
1998 of $3.3 million and $17.5 million, respectively.
(D) LINES OF CREDIT
At March 31, 1999, the Company had overdraft borrowing facilities of $56
million and guarantee line facilities of $17.5 million in an aggregate 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.
(F) GUARANTEES
At March 31, 1999, the Company had guarantees of $10.3 million in respect of
office and line rental contracts. No losses are expected to arise from these
arrangements.
At March 31, 1999, the Company had various performance guarantees issued on
behalf of its affiliates. These guarantees relate to obligations arising out of
license agreements, the settlement of which there is currently no limit, is
determined at the time of non-performance.
(G) PLEDGES AND RESTRICTIONS
At March 31, 1999, the Company pledged tangible fixed assets of $0.2
million, receivables of $5.4 million and cash and cash equivalents of $3.8
million as security for certain lines of credit referred to in (d) above.
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, 1999, hedging South African rand and
Greek drachmae against the US dollar. 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, 1999 are set out below:
<TABLE>
<CAPTION>
AVERAGE
CONTRACTUAL EXCHANGE
AMOUNTS RATES SETTLEMENT DATES
----------- --------- ------------------------------
(THOUSANDS)
<S> <C> <C> <C>
Greek drachmae/US dollar...... $ 2,000 320.34 April 26, 1999 to May 25, 1999
South African rand/US April 6, 1999 to June 1, 2000
dollar...................... 67,385 6.31
</TABLE>
F-45
<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, 1999 MARCH 31, 1998
------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.............. $ 56,099 $ 56,099 $153,412 $153,412
Receivables............................ 93,007 93,007 81,227 81,227
Marketable securities.................. 1,190 1,190 56,924 104,817
LIABILITIES:
Payables and provisions................ 232,867 232,867 250,613 250,613
Short-term borrowings.................. 117,486 117,486 59,199 59,199
Long-term debt......................... 248,547 248,547 79,395 79,395
OFF-BALANCE-SHEET INSTRUMENTS
Forward exchange contracts............. 70,885 67,457 47,576 45,999
</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 $3.7 million for 1999 (1998: $2.4 million).
26. POST-RETIREMENT BENEFITS
MultiChoice Africa provides post-retirement benefits by way of medical aid
contributions. At March 31, 1999 and 1998, the provision for benefits was $2.7
million and $3.8 million, respectively. During the year ended March 31, 1998, an
agreement was reached with employees of MultiChoice Africa to terminate the
post-retirement medical aid benefits plan in exchange for an increase of
MultiChoice Africa's annual contributions to the retirement benefit fund. The
provision is released to operating results to match the additional contributions
to the retirement benefit plan.
F-46
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. ACQUISITION OF SUBSIDIARIES, NET OF CASH ACQUIRED
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Fair value of tangible assets:
Fixed assets.......................................... $ (7,094) $(23,451)
Investments and loans................................. -- (19,638)
Current assets........................................ (13,912) (25,127)
Current liabilities................................... 16,752 40,865
Long-term liabilities................................. -- 16,928
Minority interest..................................... 175 --
-------- --------
(4,079) (10,423)
-------- --------
Carrying value of equity investment................... 107 --
Goodwill.............................................. (47,810) (31,223)
-------- --------
Consideration......................................... (51,782) (41,646)
-------- --------
Amounts owing in respect of investments acquired...... 37,282 --
Cash acquired......................................... 1,255 7,735
-------- --------
Net cash paid for acquisitions........................ $(13,245) $(33,911)
======== ========
</TABLE>
28. SHARE CAPITAL
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.
During April 1999, the Company issued 10,435,000 Class A Ordinary Shares in
an initial public offering for net proceeds of $174.7 million. Simultaneously
with the completion of the public offering, the $46.2 million note payable to
Thomson converted into 2,581,775 Class A Ordinary Shares.
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 was carried at cost through June 30, 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 applies the equity method of accounting for UBC. US GAAP requires a
retroactive adjustment of
F-47
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
29. DIFFERENCES BETWEEN IAS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES --CONTINUED
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.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
I. RECONCILIATION OF NET LOSS AND SHAREHOLDERS' EQUITY (IN
THOUSANDS, EXCEPT PER SHARE DATA):
Net loss under IAS........................................ $ (68,839) $ (63,802)
US GAAP adjustment:
Equity accounting for UBC................................. (5,193) (15,482)
---------- ----------
Net loss under US GAAP.................................... $ (74,032) $ (79,284)
========== ==========
Weighted average common shares outstanding................ 38,235,000 38,235,000
========== ==========
Net loss per share under US GAAP.......................... $ (1.94) $ (2.07)
========== ==========
Net loss under US GAAP consists of:
Loss from continuing operations........................... $ (64,166) $ (74,103)
Loss from discontinued operations......................... (9,866) (5,181)
---------- ----------
Net loss.................................................. $ (74,032) $ (79,284)
========== ==========
Per share amounts:
Continuing operations................................... $ (1.68) $ (1.94)
Discontinued operations................................. (0.26) (0.13)
---------- ----------
Net loss per share under US GAAP.......................... $ (1.94) $ (2.07)
========== ==========
Reconciliation of shareholders' equity:
Total shareholders' equity under IAS...................... $ 176,683 $ 253,573
US GAAP adjustment:
Equity accounting for UBC................................. (29,930) (24,883)
---------- ----------
Total shareholders' equity under US GAAP.................. $ 146,753 $ 228,690
========== ==========
</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, 1999, cash and current investments were held with
numerous financial institutions.
F-48
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
II. ADDITIONAL DISCLOSURE REQUIREMENTS --CONTINUED
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
satellites is beyond the control of the Company. Disruption of the transmissions
of satellites could have a material adverse effect on the Company.
(B) STOCK COMPENSATION
Through March 31, 1999, 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 26.4
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 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>
YEAR ENDED MARCH 31,
-------------------------------------------------------
1999 1998
-------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES (RAND) SHARES (RAND)
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at April 1, 1998 and 1997.......... 3,514,976 14.95 734,749 10.40
Granted........................................ 2,467,690 11.96 3,082,000 15.79
Exercised...................................... (393,523) 13.56 (150,856) 10.39
Forfeited...................................... (156,973) 16.15 (150,917) 14.47
--------- ----- --------- -----
Outstanding at March 31, 1999 and 1998......... 5,432,170 14.01 3,514,976 14.95
========= ===== ========= =====
</TABLE>
The following table summarizes information about the stock options
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
RANGE OF OUTSTANDING WEIGHTED EXERCISABLE WEIGHTED
EXERCISE AS OF REMAINING AVERAGE AS OF AVERAGE
PRICE MARCH 31, CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, EXERCISE PRICE
(RAND) 1999 (YEARS) (RAND) 1999 (RAND)
- -------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
5.60 - 10.00........ 500,526 7.93 8.58 146,106 6.63
10.01 - 15.00....... 2,990,265 9.02 12.37 255,671 12.50
15.01 - 22.50....... 1,991,379 8.29 16.39
</TABLE>
For purposes of US GAAP, the Company applies Accounting Principles Board
("APB") Opinion No. 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
F-49
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
II. ADDITIONAL DISCLOSURE REQUIREMENTS --CONTINUED
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 YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS EXCEPT FOR PER SHARE
DATA)
Net loss............................... As reported $(68,839) $(63,802)
Pro forma (70,079) (64,678)
Net loss per share..................... As reported (1.80) (1.67)
Pro forma (1.83) (1.69)
</TABLE>
The weighted average grant date fair value of options granted during fiscal
1999 was Rand 6.19. 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 1999, respectively:
dividend yield of 0%; expected volatility of 30%; an expected risk-free interest
rate of 14.9% and 12.7%, for 1998 and 1999, respectively; and an expected life
of six years.
On March 25, 1999, the Company established the MIH Limited Share Scheme
under which it may award options for no more than 10% of the total number of
Ordinary Shares.
(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, 1999, amounts to approximately $70.3 million (1998: $120.5 million).
The following are the condensed balance sheets and statements of operations
and cash flow for MIH Limited as of March 31, 1999 and 1998 and the years then
ended. Investments in subsidiaries, associated and joint venture companies are
accounted for using the equity method of accounting.
F-50
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
II. ADDITIONAL DISCLOSURE REQUIREMENTS --CONTINUED
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 5,669 $ 89,226
Other receivables......................................... 2,207 --
Net amounts owing by related parties...................... 4,525 5,370
--------- ---------
12,401 94,596
NON-CURRENT ASSETS
Long-term investments..................................... 299,801 225,400
--------- ---------
TOTAL ASSETS............................................ $ 312,202 $ 319,996
========= =========
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 33,012 $ 23,984
Accrued expenses and other current liabilities............ 46,880 10,568
Amounts owing to related parties.......................... 55,627 --
Provisions................................................ -- 31,871
--------- ---------
TOTAL LIABILITIES....................................... 135,519 66,423
--------- ---------
SHAREHOLDERS' EQUITY
Share capital............................................... 589,552 589,552
Accumulated loss............................................ (382,386) (313,547)
Foreign currency translation adjustment..................... (30,483) (22,432)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 176,683 253,573
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 312,202 $ 319,996
========= =========
STATEMENTS OF OPERATIONS
General and administrative expenses......................... $ (2,850) $ (6,587)
Financial results, net...................................... (4,181) 8,311
Equity results in associates, joint ventures and
subsidiaries.............................................. (92,901) (59,812)
Profit on sale of joint venture............................. 31,093 --
Income taxation............................................. -- (5,714)
--------- ---------
Net loss for the year....................................... $ (68,839) $ (63,802)
========= =========
STATEMENTS OF CASH FLOW
Net cash used in operating activities....................... $ (2,850) $ (20,528)
--------- ---------
Disposal of investments..................................... -- 269,222
Acquisition of associates and subsidiaries.................. (76,214) (103,474)
--------- ---------
Net cash used in investing activities....................... (76,214) (165,748)
--------- ---------
Finance (cost)/income....................................... (4,181) 2,488
Dividends paid.............................................. -- (51,816)
Bank overdrafts repaid...................................... -- (12,720)
--------- ---------
Net cash used in financing activities....................... (4,181) (62,048)
--------- ---------
Net (decrease)/increase in cash and cash equivalents........ (83,245) 83,172
Cash and cash equivalents at beginning of year.............. 89,226 6,728
Translation adjustment on cash and cash equivalents......... (312) (674)
--------- ---------
Cash and cash equivalents at end of year.................... $ 5,669 $ 89,226
========= =========
</TABLE>
F-51
<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 M-Net/ SuperSport, as derived from its audited financial statements and
converted to US dollars.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 55,419 $ 157,300
Non-current assets.......................................... 70,815 74,325
--------- ---------
Total assets................................................ 126,233 (231,625)
--------- ---------
Current liabilities......................................... 43,339 137,107
Non-current liabilities..................................... 5,944 29,586
--------- ---------
Total liabilities........................................... 49,283 166,693
--------- ---------
Total shareholders' equity.................................. 76,951 64,932
--------- ---------
Total liabilities and shareholders' equity.................. $ 126,233 $ 231,625
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Net sales................................................... $231,060 $216,971
-------- --------
Operating profit............................................ 23,596 28,053
Net profit.................................................. 11,946 10,446
</TABLE>
(E) COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net (loss)/profit........................................... $(68,839) $(63,802) $409,164
Foreign currency translation adjustment..................... (8,051) (32,461) 17,958
-------- -------- --------
Comprehensive (loss)/profit................................. $(76,890) $(96,263) $427,122
======== ======== ========
</TABLE>
(F) RECENTLY ISSUED ACCOUNTING STANDARDS
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 unless the required implementation date is postponed by the Financial
Accounting Standards Board. 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.
F-52
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
II. ADDITIONAL DISCLOSURE REQUIREMENTS --CONTINUED
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-53
<PAGE>
MIH LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30. SUBSEQUENT EVENTS
With effect from September 6, 1999, the Company discontinued the operations
of International Gaming Networks ("IGN"), the gaming entity of MultiChoice
Africa (Proprietary) Limited, the business of which was spread and sports
betting. A condensed statement of operations for the discontinuing operations is
set out below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1999 1998
----------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Net revenues.......................................... 2,244 954
Cost of providing services............................ (1,624) (187)
Selling, general and administrative................... (6,656) (2,012)
------ ------
Net loss.............................................. (6,036) (1,245)
====== ======
</TABLE>
The consolidated statements of operations and cash flows were restated to
reflect IGN as a discontinued operation.
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the directors and shareholders of MIH Limited
We have audited the accompanying combined balance sheet of the Acquired MIH
Businesses (predecessor to MIH Limited) as of March 31, 1997 and the related
combined statement of operations and cash flow and changes in net deficit for
the year 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 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 had no material effect on the
determination of the combined results for the year ended March 31, 1997 and the
net deficit as of March 31, 1997. The additional disclosure requirements are
summarized in Note 24 to the combined financial statements.
Johannesburg, Republic of South Africa Coopers & Lybrand
June 15, 1997 Chartered Accountants (SA)
Registered Accountants and Auditors
F-55
<PAGE>
ACQUIRED MIH BUSINESSES
(PREDECESSOR TO MIH LIMITED)
COMBINED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 53,908
Accounts receivable, net.................................. 4 22,331
Other receivables......................................... 5 21,292
Program and film rights................................... 10 32,599
Amounts owing by related parties.......................... 17 10,247
Inventories, net.......................................... 6 12,781
--------
Total current assets.................................... 153,158
NON-CURRENT ASSETS
Tangible fixed assets, net................................ 8 87,449
Long-term investments..................................... 9 23,672
Program and film rights................................... 10 22,874
--------
Total non-current assets.................................. 133,995
--------
TOTAL ASSETS............................................ $287,153
========
LIABILITIES
CURRENT LIABILITIES
Bank overdrafts........................................... $ 753
Current portion of long-term debt......................... 13 15,476
Current portion of program and film rights................ 13 7,251
Accounts payable.......................................... 42,540
Accrued expenses and other current liabilities............ 11 79,673
Amounts owing to related parties.......................... 17 83,817
Provisions................................................ 12 16,865
--------
Total current liabilities............................... 246,375
NON-CURRENT LIABILITIES
Long-term debt............................................ 13 60,610
Program and film rights................................... 13 30,758
--------
Total non-current liabilities........................... 91,368
--------
TOTAL LIABILITIES....................................... 337,743
--------
Commitments and contingencies............................... 19 --
NET DEFICIT............................................. (50,590)
--------
TOTAL LIABILITIES AND NET DEFICIT....................... $287,153
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-56
<PAGE>
ACQUIRED MIH BUSINESSES
(PREDECESSOR TO MIH LIMITED)
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES 1997
-------- --------
<S> <C> <C>
Net revenues................................................ 14 $391,898
Operating expenses:
Cost of providing services................................ (259,391)
Selling, general and administrative....................... (140,446)
Depreciation and amortization............................. (16,191)
--------
Total operating expenses.................................... (416,028)
--------
Operating loss.............................................. (24,130)
Financial results, net...................................... 15 (5,267)
Equity results in joint ventures............................ 1,144
Equity results in associates................................ 2,644
--------
Loss before taxation........................................ (25,609)
--------
Income taxation............................................. 16 (1,158)
--------
Loss after taxation......................................... (26,767)
Minority interest........................................... 738
--------
NET LOSS.................................................. $(26,029)
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-57
<PAGE>
ACQUIRED MIH BUSINESSES
(PREDECESSOR TO MIH LIMITED)
COMBINED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
1997
--------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Operating loss.............................................. $(24,130)
Adjustments for:
Depreciation and amortization............................. 16,191
Amortization of program and film rights................... 18,796
Taxation refunded......................................... 3,863
Loss on sale of tangible fixed assets..................... 5,223
Increase in receivables................................... 3,934
Payments for program and film rights...................... (32,747)
Net increase in amounts owing to related parties.......... 27,139
Increase in inventories................................... (964)
Increase in payables...................................... 53,509
Decrease in current portion of long-term debt to related
parties................................................. (2,268)
--------
NET CASH FROM OPERATING ACTIVITIES...................... 68,546
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of tangible fixed assets........................... (17,649)
Proceeds on sale of tangible fixed assets................... 4,227
Dividends received from associates.......................... 1,490
Investments acquired........................................ (658)
Increase in unsecured loan.................................. (2,050)
--------
NET CASH USED IN INVESTING ACTIVITIES................... (14,640)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance costs............................................... (5,267)
Funds raised from outside shareholders...................... 738
Long-term debt raised....................................... 27,174
Long-term debt repaid from related party.................... (11,272)
Capital leases repaid....................................... (18,422)
Bank overdrafts repaid...................................... (6,219)
--------
NET CASH USED IN FINANCING ACTIVITIES................... (13,268)
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 40,638
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR...... 15,063
TRANSLATION ADJUSTMENT ON CASH AND CASH EQUIVALENTS......... (1,793)
--------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR................ $ 53,908
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-58
<PAGE>
ACQUIRED MIH BUSINESSES
(PREDECESSOR TO MIH LIMITED)
COMBINED STATEMENT OF CHANGES IN NET DEFICIT
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
MYRIAD AFRICA NETMED TOTAL
------------- ----------- -----------
(THOUSANDS) (THOUSANDS) (THOUSANDS)
<S> <C> <C> <C>
SHARE CAPITAL
At March 31, 1997......................................... 48 26 74
-------- -------- --------
SHARE PREMIUM
At March 31, 1997......................................... 24,869 -- 24,869
-------- -------- --------
ACCUMULATED LOSS
At March 31, 1996......................................... 9,482 (65,390) (55,908)
Loss for the year......................................... (8,175) (20,914) (29,089)
-------- -------- --------
March 31, 1997............................................ $ 1,307 $(86,304) $(84,997)
-------- -------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
At March 31, 1996......................................... (1,801) 1,266 (535)
Translation adjustment.................................... 319 7,779 8,098
-------- -------- --------
March 31, 1997............................................ $ (1,482) $ 9,045 $ 7,563
-------- -------- --------
TOTAL COMBINED NET DEFICIT
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
-------- -------- --------
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, 1997 and
the net loss recorded in the statements of operations amounting to $3,060, and
the difference between the total net deficit at March 31, 1997 and the net
deficit in the combined balance sheet amounting to $1,901 is attributable to
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-59
<PAGE>
ACQUIRED MIH BUSINESS
(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 year ended March 31, 1997 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
Scandinavian countries. 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
F-60
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
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.
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.
F-61
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
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) 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.
F-62
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
(H) SPORTS 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.
(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 year ended
March 31, 1997 was 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.
F-63
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PRINCIPAL ACCOUNTING POLICIES AND REPORTING CURRENCY --CONTINUED
(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
-----------
(THOUSANDS)
<S> <C>
Trade accounts receivable................................... $29,398
Less: Provision for doubtful accounts....................... (7,067)
-------
$22,331
=======
</TABLE>
Included in accounts receivable are $22.2 million, pre-billed to customers
and credit balances which have been recorded as deferred income (Note 11).
5. OTHER RECEIVABLES
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Prepayments and accrued income.............................. $15,469
Other receivables........................................... 5,823
-------
$21,292
=======
</TABLE>
6. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Decoders and associated components.......................... $19,247
Less: Provision for slow moving and obsolete inventories.... (6,466)
-------
$12,781
=======
</TABLE>
7. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CHARGED TO
AT APRIL 1, 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>
F-64
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. TANGIBLE FIXED ASSETS (IN THOUSANDS)
<TABLE>
<CAPTION>
LAND, BUILDINGS MACHINERY,
AND LEASEHOLD FURNITURE AND TRANSPONDERS AND
IMPROVEMENTS EQUIPMENT TRANSMITTERS DECODERS
-------------------- -------------------- -------------------- --------
PURCHASED LEASED PURCHASED LEASED PURCHASED LEASED LEASED TOTAL
--------- -------- --------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COST
At April 1, 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 April 1, 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
====== ====== ======= ======= ======= ======= ======= ========
</TABLE>
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 OPERATING
LEASES LEASES
----------- -----------
(THOUSANDS) (THOUSANDS)
<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.
Capital leases bear interest ranging from 6%--20% as of March 31, 1997. The
weighted average interest rate was 12%.
F-65
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Associates (a).............................................. $12,051
Joint ventures (b).......................................... 5,265
Unlisted investments........................................ 1,126
Unsecured loans to joint ventures........................... 5,230
-------
$23,672
=======
(A) ASSOCIATES
Electronic Media Network Limited ("M-Net")................ $10,224
Orbicom (Proprietary) Limited ("Orbicom")................. --
Share of post-acquisition retained profits less losses.... 1,827
-------
$12,051
=======
(B) JOINT VENTURES
MultiChoice Supplies (Proprietary) Limited
("MultiChoice Supplies").................................. $ 4,790
Irdeto.................................................... 20
MultiChoice Middle East................................... 983
Share of post-acquisition retained profits less losses.... (528)
-------
$ 5,265
=======
MARKET VALUE OF LISTED SHARES
M-Net..................................................... $71,022
=======
</TABLE>
F-66
<PAGE>
ACQUIRED MIH BUSINESS
(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,
TYPE OF INVESTMENT 1997 NATURE OF BUSINESS COUNTRY
- ------------------ --------- ----------------------- -----------------------
%
<S> <C> <C> <C>
UNLISTED MARKETABLE SECURITIES AT
COST
Cable News Egypt S.A.E. 10.0 Television Egypt
ASSOCIATES
M-Net 20.0 Pay-television South Africa
Orbicom 20.0 Signal distribution South Africa
JOINT VENTURES
MultiChoice Supplies 50.0 Decoder rentals South Africa
Irdeto 49.0 Technology development The Netherlands
MultiChoice Middle East 45.0 Pay-television Mauritius
SUBSIDIARIES
Myriad Africa BV 100 Investment holding The Netherlands
MultiChoice Africa (Pty) Limited
("MultiChoice Africa") 100.0 Pay-television South Africa
MultiChoice Africa Limited 100.0 Investment Holding British Virgin Islands
NetMed 100.0 Investment Holding The Netherlands
NetMed Hellas S.A. 52.0 Pay-television Greece
MultiChoice Hellas S.A. 52.0 Pay-television Greece
</TABLE>
The aggregate summarized financial information of the joint ventures at
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Current assets.............................................. $ 2,220
Long-term assets............................................ 5,485
Current liabilities......................................... (3,680)
Long-term liabilities....................................... (379)
Shareholders' deficit....................................... (3,646)
Revenues.................................................... 10,455
Expenses.................................................... (12,552)
-------
Net loss before taxation.................................... (2,097)
Taxation benefit............................................ 43
-------
Net loss.................................................... $(2,054)
=======
</TABLE>
F-67
<PAGE>
ACQUIRED MIH BUSINESS
(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
-----------
(THOUSANDS)
<S> <C>
COST
Program rights............................................ $70,944
Film rights............................................... 10,291
-------
81,235
=======
ACCUMULATED AMORTIZATION
Program rights............................................ 17,337
Film rights............................................... 8,425
-------
25,762
=======
NET BOOK VALUE
Program rights............................................ 53,607
Film rights............................................... 1,866
-------
$55,473
=======
Classified on the balance sheet as follows:
Currents assets............................................. $32,599
Non-current assets.......................................... 22,874
-------
$55,473
=======
</TABLE>
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Deferred income............................................. $22,213
Accrued expenses............................................ 35,968
Taxes and social securities................................. 5,086
Other current liabilities................................... 16,406
-------
$79,673
=======
</TABLE>
F-68
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
12. PROVISIONS
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Post-retirement benefits.................................... $ 4,678
Write-down of carrying values of assets in certain African
countries................................................. 5,001
Decoder technology.......................................... 4,098
Programming costs........................................... 2,885
Other provisions............................................ 203
-------
$16,865
=======
</TABLE>
13. LONG-TERM DEBT AND PROGRAM AND FILM RIGHTS
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Long-term debt comprises:
Capital leases--Note 8.................................... $ 48,912
NetHold Finance VOF....................................... 26,655
Other long-term debt...................................... 519
--------
76,086
Less: Short-term portion included in current liabilities.... (15,476)
--------
$ 60,610
========
</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>
F-69
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. NET REVENUES
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Subscription revenues....................................... $315,463
Decoder sales and repairs................................... 60,183
Other....................................................... 16,252
--------
$391,898
========
</TABLE>
15. FINANCIAL RESULTS
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Interest income............................................. $ 4,005
Interest expense............................................ (7,780)
Exchange losses............................................. (1,492)
-------
$(5,267)
=======
</TABLE>
16. INCOME TAXATION
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Foreign taxation
Current................................................... $(1,158)
Deferred.................................................. --
-------
Charged against income...................................... $(1,158)
=======
</TABLE>
The difference between income taxation expense computed at statutory rates
of the respective businesses and income taxation expense provided on earnings is
as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
Income taxation benefit at statutory rates.................. $10,252
Unprovided timing differences............................... (6,107)
Permanent differences:
Non-deductible charges.................................... (2,469)
Expenditure of a capital nature........................... 54
Dividends received........................................ (504)
Utilisation of losses carried forward..................... (2,384)
-------
Income taxation expense..................................... $(1,158)
=======
</TABLE>
F-70
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
16. INCOME TAXATION --CONTINUED
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.
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
-----------
(THOUSANDS)
<S> <C>
DEFERRED TAXATION LIABILITIES
Leased assets............................................... $ 2,648
Prepayments................................................. 2,386
--------
Gross deferred taxation liabilities......................... 5,034
--------
DEFERRED TAXATION ASSETS
Purchased intangible fixed assets........................... 2,053
Purchased tangible fixed assets............................. 153
Accounts receivable and other assets........................ 175
Accrued expenses and other current liabilities.............. 21,870
Program and film rights..................................... 566
Leased tangible fixed assets................................ 209
Deferred income............................................. 6,275
Tax loss carry-forwards..................................... 26,770
--------
Gross deferred taxation assets.............................. 58,071
--------
Net deferred taxation assets................................ 53,037
Less: Valuation allowance................................... (53,037)
--------
$ --
========
</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-71
<PAGE>
ACQUIRED MIH BUSINESS
(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>
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
INCOME
Satellite transmission costs (a).......................... $ 227
COSTS
Channel and programming costs (b)......................... $137,804
Satellite transmission costs (c).......................... 12,767
Use of broadcasting facilities (d)........................ 741
Licensing fees (e)........................................ 2,404
--------
$153,716
========
</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 certain
subscriber technology and software.
The balances of advances, deposits, receivables and payables between the
Acquired MIH Businesses and affiliates are:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1997
-----------
(THOUSANDS)
<S> <C>
RECEIVABLES:
M-Net..................................................... $ 1,000
Orbicom................................................... 3,350
MIH Holdings.............................................. 2,324
MultiChoice Nigeria....................................... 3,020
Other..................................................... 553
-------
$10,247
=======
PAYABLES:
MIH Limited............................................... $78,527
Irdeto.................................................... 4,317
MultiChoice Belgium N.V................................... 841
Other..................................................... 132
-------
$83,817
=======
</TABLE>
F-72
<PAGE>
ACQUIRED MIH BUSINESS
(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>
PAY TELEVISION
SERVICES
---------------------------
AFRICA
AND THE SEGMENTAL
1997 (IN THOUSANDS) MIDDLE EAST MEDITERRANEAN TECHNOLOGY TOTAL
- ------------------- ----------- ------------- ---------- ---------
<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.................. (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>
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.
F-73
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
19. COMMITMENTS AND CONTINGENCIES --CONTINUED
(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.
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 April 30, 1997 to February 27, 1998
sterling......................... $ 1,954 7,12
</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.
F-74
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
21. FAIR VALUE OF FINANCIAL INSTRUMENTS --CONTINUED
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
----------------------------
CARRYING VALUE FAIR VALUE
-------------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents......................... $ 53,908 $ 53,908
Receivables....................................... 53,870 53,870
LIABILITIES:
Payables and provision............................ 222,895 222,895
Short-term borrowings............................. 23,480 23,480
Long-term debt.................................... 91,368 91,368
OFF-BALANCE-SHEET INSTRUMENTS
Forward exchange contracts........................ 28,024 24,610
</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.
23. POST-RETIREMENT 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 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
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 post-retirement 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.
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").
No material differences exist between the net loss and total net deficit as
determined under IAS and US GAAP.
F-75
<PAGE>
ACQUIRED MIH BUSINESS
(PREDECESSOR TO MIH LIMITED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
24. DIFFERENCES BETWEEN IAS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES --CONTINUED
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 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-76
<PAGE>
ACQUIRED MIH BUSINESS
(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>
OUTSTANDING WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
MARCH 31, CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, EXERCISE PRICE
RANGE OF EXERCISE PRICES (RAND) 1997 (YEARS) (RAND) 1997 (RAND)
- ------------------------------- ----------- ---------------- -------------- ----------- --------------
<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 No. 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
options were 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-77
<PAGE>
AUDITORS' REPORT
To the Shareholders of United Broadcasting Corporation Public Company Limited
We have audited the accompanying consolidated balance sheet of United
Broadcasting Corporation Public Company Limited and its subsidiaries as at March
31, 1999 and the related statement of loss and deficit, change in shareholders'
equity and cash flow for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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 audit provides a
reasonable basis for our opinion.
As set out in Note 2, the consolidated financial statements for the year ended
March 31, 1999 have been prepared to comply with the requirements of the U.S.
Securities and Exchange Commission. The consolidated financial statements for
the year ended March 31, 1999 are prepared in accordance with and comply with
accounting principles generally accepted in Thailand, except that no comparative
information has been presented. Our opinion is not qualified in this respect.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United
Broadcasting Corporation Public Company Limited and its subsidiaries as at March
31, 1999 and the consolidated results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles in Thailand.
We draw attention to Note 33 which is marked "unaudited". Information regarding
the Year 2000 issue as presented in this note has not been subjected to auditing
procedures, and accordingly, we express no opinion on it.
Generally accepted accounting principles in Thailand vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Application of the latter would have affected the determination of
consolidated results for the year ended March 31, 1999 and shareholders' equity
as of March 31, 1999 to the extent summarised in Note 32 to the consolidated
financial statements.
Bangkok PricewaterhouseCoopers
August 24, 1999
F-78
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES AS AT MARCH 31, 1999
-------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in hand and at banks................................. 5 $ 58,317
Short term investments.................................... 6 234
Trade receivables, net.................................... 7 3,852
Amounts due from related companies........................ 8 1,747
Inventories, net.......................................... 9 5,164
Other current assets...................................... 10 11,826
---------
Total current assets.................................... 81,140
NON-CURRENT ASSETS
Investments held to maturity.............................. 11 138
Property, plant and equipment, net........................ 12 145,235
Equipment held under concession agreements, net........... 13 6,560
Deferred charges, net..................................... 13 7,889
Other..................................................... 1,004
---------
Total non-current assets................................ 160,826
---------
TOTAL ASSETS............................................ 241,966
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable--trade................................... 36,953
Advances from customers................................... 3,354
Short term loans and advances from related parties........ 8 670
Current portion of obligations under finance leases....... 15 2,124
Accrued expenses.......................................... 14 5,471
Provisions for liabilities and charges.................... 8,18 5,182
Other current liabilities................................. 3,426
---------
Total current liabilities............................... 57,180
---------
NON-CURRENT LIABILITIES
Foreign subsidiaries provision............................ 6,483
Obligations under finance leases.......................... 15 54,765
Other liabilities......................................... 19 7,363
---------
Total non-current liabilities........................... 68,611
---------
TOTAL LIABILITIES....................................... 125,791
---------
Minorities' interest in subsidiaries........................ 21 2,431
SHAREHOLDERS' EQUITY
Share capital............................................... 22 183,877
Share premium............................................... 22 157,265
Retained deficit
Appropriated--legal reserve............................... 380
Unappropriated............................................ (249,817)
Foreign currency translation adjustment................... 22,039
---------
TOTAL SHAREHOLDERS' EQUITY.............................. 113,744
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 241,966
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
CONDOLIDATED STATEMENT OF LOSS
FOR THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES CONSOLIDATED
-------- ------------
1999
<S> <C> <C>
Net revenues
Subscriber-based television service....................... $ 72,050
Equipment installation.................................... 5,852
Other services............................................ 1,277
Interest income........................................... 24 3,196
Other income.............................................. 1,800
--------
Total revenues.......................................... 84,175
--------
Expenses
Cost of service and equipment installation................ 105,397
Cost of sales............................................. 719
Selling and administrative expenses....................... 29,231
Directors' remuneration................................... 23 6
Loss on exchange rate..................................... 24 4,624
Interest expense.......................................... 24 12,622
Other expenses............................................ 25 18,420
Abnormal non-recurring items.............................. 26 5,017
Income tax expense........................................ --
--------
Total expenses.............................................. 176,036
--------
Net loss before minority interest........................... (91,861)
Share of net loss in subsidiaries to minority interest...... 21 764
--------
Net loss.................................................... $(91,097)
========
Loss per share (US $ per share)
Basic and diluted loss share before considering minority
interests............................................... 27 (0.14)
Less share in net basic and diluted loss to minority
interest................................................ --
--------
Basic and diluted loss per share............................ (0.14)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES CONSOLIDATED
-------- ------------
1999
<S> <C> <C>
Share capital
Common shares
Balance at beginning of year.............................. $ 61,990
Increase during the year.................................. 121,887
---------
Balance at end of year.................................... 183,877
---------
Premium on share capital
Balance at beginning of year.............................. 58,520
Increase during the year.................................. 98,745
---------
Balance at end of year.................................... 157,265
---------
Retained earnings (deficit)
Appropriated--legal reserve
Balance at beginning of year.............................. 380
Increase during the year.................................. --
---------
Balance at end of year.................................... 380
---------
Deficit
Balance at beginning of year.............................. (105,447)
Increase during the year--net loss........................ (91,097)
Increase during the year--goodwill........................ 29 (53,273)
---------
Balance at end of year...................................... (249,817)
---------
Foreign currency translation adjustment
Balance at beginning of year.............................. (2,245)
Increase during the year.................................. 24,284
---------
Balance at end of year.................................... 22,039
---------
Total shareholders' equity.................................. $ 113,744
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF DEFICIT IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES CONSOLIDATED
-------- ------------
1999
<S> <C> <C>
Deficit
Deficit at beginning of year.............................. $(105,447)
Net loss for the year..................................... (91,097)
Excess of the costs of investments in subsidiaries over
their book values....................................... 29 (53,273)
---------
(144,370)
---------
Deficit at end of year.................................... (249,817)
---------
Appropriated retained earnings
Legal reserve............................................... 380
---------
Foreign currency translation adjustment
Balance at beginning of year.............................. (2,245)
Exchange translation...................................... 24,284
---------
Balance at end of year.................................... 22,039
Total deficit at end of year................................ $(227,398)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
NOTES CONSOLIDATED
-------- ------------
1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash outflows from operations............................. 28 $ (47,861)
Interest received......................................... 3,285
Interest paid............................................. (12,623)
Tax paid.................................................. --
---------
NET CASH FROM OPERATING ACTIVITIES...................... (57,199)
CASH FLOW FROM INVESTING ACTIVITIES
Net decrease in short term investments.................... 1,891
Net increase in short term loans to related parties....... 2,392
Addition to investment in shares of subsidiaries.......... (46,990)
Addition to other investments............................. (3,832)
Purchase of leasehold improvements and equipment.......... (61,699)
Addition to cost of subscriber based television network... (333)
Addition to investment in deferred charges................ (20,155)
Exchange rate adjustments derived from the translation of
foreign subsidiaries' financial statements.............. 390
---------
NET CASH USED IN INVESTING ACTIVITIES................... (128,336)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in share capital................................. 239,587
Installments paid for finance lease....................... (1,413)
Loan from bank............................................ (5,595)
---------
NET CASH USED IN FINANCING ACTIVITIES................... 232,579
---------
Increase in cash and cash equivalents....................... 47,044
---------
Movement in cash and cash equivalents
At start of year.......................................... 7,445
Increase in year.......................................... 47,044
Cash of subsidiaries of which the related share capital
were acquired on May 5, 1998............................ 2,006
Exchange translation in cash and cost equivalents......... 1,822
---------
At end of year.............................................. 5 $ 58,317
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
1. GENERAL INFORMATION
The principal business operations of the Company and its subsidiaries are
summarized as follows:
The Company and a subsidiary, namely UBC Cable Network Public Company
Limited ("UBC Cable") are engaged in the operations of subscriber-based
television networks (Digital Satellite Television and Cable Television,
respectively) under concessions received from the Mass Communication
Organization of Thailand, under agreements dated April 17, 1989 and June 6, 1994
respectively, and amendments thereto dated May 19, 1994 and November 9, 1994,
respectively, which expire on September 30, 2014 and December 31, 2019,
respectively. Under the aforesaid agreements, the Company and UBC Cable have to
pay annual fees to the Mass Communication Organization of Thailand based on
certain percentages of certain service income or at the minimum fee as specified
in each of those agreements, whichever is higher. In addition, the Company and
UBC Cable, according to the aforesaid agreements, have to transfer the ownership
of certain equipment procured for the operation of television networks to the
Mass Communication Organization of Thailand within the specified period in each
of those agreements.
A Company's subsidiary, Satellite Service Company Limited, is principally
engaged in rental and trading equipment for receiving services via satellite and
cable platforms, providing subscriber-based control systems and Digital
Direct-To-Home services relating to the subscriber-based television businesses
of the Company and UBC Cable.
A Company's subsidiary, Cineplex Company Limited, is principally engaged in
producing programs and rendering related services to support the
subscriber-based digital and cable television businesses. In addition, the said
subsidiary is engaged in the home shopping business through digital and cable
television, and selling space for advertisements in its television magazines.
Two subsidiaries of the Company, Rainbow Media Company Limited and IBC
Symphony Company Limited, were formerly engaged in rendering television airtime
service, trading motion picture films with local and overseas customers and
suppliers, and producing spots to support television programs. In the year ended
March 31, 1999, both companies did not engage in their major business
activities.
As of March 31, 1999, a subsidiary in Laos and another subsidiary in
Cambodia had ceased their operations. The Company has already set up provisions
to cover losses on the collection of amounts due from both these subsidiaries.
On September 29, 1998, the Company registered with the Ministry of Commerce
to change its name from "International Broadcasting Corporation Public Company
Limited" to "United Broadcasting Corporation Public Company Limited".
2. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below:
(A) BASIS OF PREPARATION
These consolidated financial statements have been prepared for certain Stock
Exchange compliance requirements for a major shareholder of the Company.
F-84
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
The consolidated financial statements are prepared in accordance with and
comply with accounting principles generally accepted in Thailand except that
comparative financial information has not been included. Comparative financial
information is not presented as it is not required by the shareholder for its
special purpose. Thai GAAP differs in certain significant respects from US GAAP.
The effect of the adjustments to net income and shareholders'equity are set out
in Note 32.
The consolidated financial statements are prepared under the historical cost
convention.
(B) CONSOLIDATION
Subsidiary undertakings, which are those companies in which the Group,
directly or indirectly, has an interest of more than one half of the voting
rights or otherwise has power to exercise control over the operations, have been
consolidated. Subsidiaries are consolidated from the date on which effective
control is transferred to the Group and are no longer consolidated from the date
of disposal. All intercompany transactions, balances and unrealised surpluses
and deficits on transactions between group companies have been eliminated. Where
necessary, accounting policies for subsidiaries have been changed to ensure
consistency with the policies adopted by the Group. Separate disclosure is made
of minority interests.
A listing of the Group's principal subsidiaries is set out below.
<TABLE>
<CAPTION>
% OF HOLDING
NAME OF SUBSIDIARY BUSINESS 1999 COUNTRY CURRENCY
- ------------------ ---------------------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Rainbow Media Co., Ltd. Rendering television airtime 99.99 Thailand Baht
services
IBC Symphony Co., Ltd. Television support 99.99 Thailand Baht
activities and trading
movies
Home Vision Entertainment
Co., Ltd. Mass Communication Services 99.99 Thailand Baht
Cineplex Co., Ltd. Programme production 99.99 Thailand Baht
UBC Cable Network Public
Co., Ltd. (formerly
UTVCable Network Public
Co., Ltd.) Pay television via cable 97.85 Thailand Baht
system
Satellite Services Co., Ltd. Sale and rental of equipment 96.22 Thailand Baht
for DTH and cable
transmission, signal
compression service and
signal installation and
connection service
International Broadcasting
Corporation (Cambodia)
Co., Ltd. Operation of television and 70.00 Cambodia US dollars
radio in Cambodia
International Broadcasting
Corporation (Laos) Co.,
Ltd. Operation of television and 70.00 Laos US dollars
radio in Laos.
</TABLE>
F-85
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
On May 4, 1998, the Company acquired, from Telecom Holding Company Limited,
an investment of 97.85% in the common share capital (227,864,600 common shares)
of UBC Cable Network Public Company Limited at a total value of US$37,730
thousand, and an investment of 99.99% in the common share capital (31,943,000
common shares) of Cineplex Company Limited at a total value of US$10,842
thousand.
Details of these acquisitions are set out in Note 29.
On September 30, 1997, the Company acquired an investment of 70% in the
common share capital (111,999,993 common shares) of Satellite Service Company
Limited ("SSV") from Shinawatra Satellite Public Company Limited at a total
value of US$33,642 thousand. Additional investments of 13% in the common share
capital (20,800,000 common shares) of SSV were also acquired from other former
shareholders on that date at a total value of US$6,248 thousand. On May 6, 1998,
SSV increased its share capital from 160 million shares to 360 million shares.
All the newly issued shares were fully subscribed by the Company, and therefore
its investment in the common share capital of SSV increased from 83% to 92.44%.
On July 1, 1998, the company acquired a further 13.6 million shares in SSV from
Dhana Siam Finance Public Company Limited at a total value of US$2,859 thousand
and the company's shareholding in SSV as at March 31, 1999 had increased to
96.22%. Details of the increase in interest in SSV in the year ended March 31,
1999 are set out in Note 29.
(C) FOREIGN CURRENCIES
The income statement of the Group is translated into the Group's reporting
currency at the average exchange rate for the year and the balance sheet is
translated at the balance sheet exchange rate. Exchange differences arising from
the translation of the net investment in foreign subsidiaries, are recorded in
the 'Translation reserve' in shareholders' equity. On disposal of foreign
entities, such translation differences are recognized in the income statement as
part of the gain or loss on sale.
Foreign currency transactions in Group companies are accounted for at the
exchange rates prevailing at the date of the transactions: gains and losses
resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies, are
recognized in the income statement. Such balances are translated at year-end
exchange rates unless hedged by forward foreign exchange contracts, in which
case the rates specified in such forward contracts are used.
Forward exchange contract receivables and payables are recorded in Baht at
the spot rate on the date of contract inception, and the balances at the balance
sheet date are translated into Baht at the prevailing spot rate. Exchange gains
or losses arising on translation at the balance sheet date are recognized in the
income statements for the period; all other exchange gains or losses arising are
recognized in the income statement in the same period as the exchange
differences on the items covered by the hedge.
Costs on such contracts are amortized over the life of the hedge contract.
Gains and losses on contracts which are no longer designated as hedges are
included in the income statement.
F-86
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
(D) FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY RISK MANAGEMENT
Financial instruments carried on the balance sheet include cash and bank
balances, investments, receivables, trade creditors, leases and borrowings. The
particular recognition methods adopted are disclosed in the individual policy
statements associated with each item.
The Company and the Group are also parties to financial instruments that
reduce exposure to fluctuations in foreign currency exchange. The purpose of
these instruments is to reduce risk. The accounting to these instruments is
included in Note 2(c) above.
Disclosures about financial instruments to which the Group is a party are
provided in Note 30.
(E) GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net assets of the acquired subsidiary at the
date of acquisition. Goodwill on acquisitions is charged directly to reserves.
(F) COMPUTER SOFTWARE DEVELOPMENT COSTS
Generally, costs associated with developing computer software programmes are
recognized as an expense as incurred. However, costs that are clearly associated
with an identifiable and unique product which will be controlled by the Group
and has a probable benefit exceeding the cost beyond one year, are recognized as
an intangible asset. Associated costs include staff costs of the development
team and an appropriate portion of relevant overheads.
Expenditure which enhances and extends the benefits of computer software
programmes beyond their original specifications and lives is recognized as a
capital improvement and added to the original cost of the software. Computer
software development costs recognized as assets are amortized using the
straight-line method over their useful lives, not exceeding 3 years.
Costs associated with the maintenance of existing computer software
programmes and for modifications for the Year 2000 are expensed as incurred.
(G) OTHER INTANGIBLE ASSETS
Costs of subscriber based television networks:
Costs of subscriber based television networks under concession agreements
represent costs of certain equipment and other assets which have been or have to
be transferred to the Mass Communication Organisation of Thailand. Costs of
subscriber based television networks under concession agreements are amortized
as expenses on a straight line basis over the shorter of the period of the
concession agreement being until September 30, 2014 for the Company and until
December 31, 2019 for UBC Cable Network Public Company Limited and the useful
life of the asset.
F-87
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
Deferred charges:
Deferred charges represent pre-operating expenses, fees paid to the Mass
Communications Organisation of Thailand for permitting the Company and UBC Cable
to provide services to customers nationwide, costs of supplementary equipment
for the operation of subscriber based television services other than those
specified in the concession agreement, and costs of motion picture films.
Pre-operating expenses are amortized over a period of 5 years.
Fees paid to the Mass Communication Organisation of Thailand ("MCOT") for
permitting the Company to provide services to customers nationwide are amortized
over the remaining period of the concession agreement until September 30, 2014.
Motion picture firms, included in deferred charges, are amortized to cost of
service by the straight-line method over the licensed period of each motion
picture film.
Intangible assets are not revalued. The carrying amount of each intangible
asset is reviewed annually and adjusted for permanent impairment where the
carrying value of the asset exceeds the estimated recoverable amount. Where the
carrying amount of an asset is greater than its estimated recoverable amount, it
is written down immediately to its recoverable amount. Estimated recoverable
amount is the higher of the anticipated discounted cash flows from the use of
the asset and the fair market value of the asset reduced by any costs of
disposal.
(H) INVESTMENTS
Investments held for maturity, being negotiated certificates of deposit, are
recorded at face value. Provision is made against cost where, in the opinion of
the Directors, there is a permanent diminution in value. Where there has been a
permanent diminution in the value of an investment, it is recognized as an
expense in the year in which the diminution is identified. On disposal of an
investment the difference between the net disposal proceeds and the carrying
amount is charged or credited to the income statement.
(I) PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is initially recorded at cost and is
stated at historical cost less accumulated depreciation.
Depreciation is calculated on the straight line method to write off the cost
of each asset to its residual value over its estimated useful life as follows:
<TABLE>
<CAPTION>
%
-----------
<S> <C>
Leasehold improvements...................................... 20
Operating equipment......................................... 10.00-33.33
Furniture, fixtures and office equipment.................... 20.00-33.33
Vehicles.................................................... 20
</TABLE>
Leased transponder equipment is depreciated over the lease term. The lease
term does not exceed the useful life of the equipment.
F-88
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
The Group's policy is to review asset values annually and to adjust
depreciation schedules to match estimated useful lives.
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable amount.
Estimated recoverable amount is the higher of the anticipated discounted cash
flows from the use of the asset and the fair market value of the asset reduced
by any costs of disposal.
Gains and losses on disposal of property, plant and equipment are determined
by reference to their carrying amount and are taken into account in determining
operating profit.
(J) ACCOUNTING FOR LEASES--WHERE A GROUP COMPANY IS THE LESSEE
Leases of property, plant and equipment where the Group assumes
substantially all the benefits and risks of ownership are classified as finance
leases. Finance leases are capitalized at the estimated present value of the
underlying lease payments. Each lease payment is allocated between the liability
and finance charges so as to achieve a constant rate on the finance balance
outstanding. The corresponding rental obligations, net of finance charges, are
included in other long-term payables. The interest element of the finance charge
is charged to the income statement over the lease period. The property, plant
and equipment acquired under finance leasing contracts is depreciated over the
useful life of the asset.
Leases of assets under which all the risks and benefits of ownership are
effectively retained by the lessor are classified as operating leases. Payments
made under operating leases are charged to the income statement on a
straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired,
any payment required to be made to the lessor by way of penalty is recognized as
an expense in the period in which termination takes place.
(K) INVENTORIES
Inventories comprise equipment for receiving subscription television
services via a satellite platform, equipment for receiving subscription cable
television services and MMDS equipment.
Inventories on hand are valued at the lower of average cost or net
realizable value. Cost of equipment for receiving subscription services via a
satellite platform is determined by the average cost method. Costs of equipment
for receiving subscription cable television services and MMDS equipment are
determined on the first-in, first-out method. Net realizable value is the
estimate of the selling price in the ordinary course of business, less provision
for selling expenses. Provision is made where necessary for obsolete,
slow-moving and defective inventories.
(L) TRADE RECEIVABLES
Trade receivables are carried at anticipated realizable value. The Group
provides allowance for doubtful accounts which is equivalent to the estimated
collection losses that may be incurred in the
F-89
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
collection of all receivables. The estimated losses are based on historical
collection experience combined with a review of the current status of the
existing receivables at the balance sheet date.
(M) CASH AND CASH EQUIVALENTS
For the purposes of the cash flow statement, cash and cash equivalents
comprise cash in hand and deposits held at banks as defined in the Thai
Accounting Standard with respect to the preparation of the statement of cash
flows which is in line with the definition prescribed in the regulation relating
to the financial statements issued under the Ministerial Regulation No. 7 (B.E.
2539) under the Public Companies Limited Act B.E. 2535.
Cash and cash equivalents therefore represent cash and short term highly
liquid investments with original maturities of three months or less.
(N) PROVISIONS
Provisions are recognized when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation,
and a reliable estimate of the amount of the obligation can be made.
Employee entitlements to annual leave are recognized when they accrue to
employees. A provision is made for the estimated liability for annual leave as a
result of services rendered by employees up to the balance sheet date.
(O) RESTRUCTURING PROVISIONS
Costs specifically attributable to a restructuring mainly comprise employee
termination payments, and are recognized in the period in which they become
probable and can be determined with reasonable certainty.
(P) PENSION OBLIGATIONS AND EMPLOYEE BENEFITS
The Group operates a provident fund, being a defined contribution plan, the
assets of which are held in a separate trustee-administered fund. The provident
fund is funded by payments from employees and by the relevant Group companies.
The Group's contributions to the provident fund are charged to the income
statement in the period to which they relate.
Annual leave is accrued and charged to the income statement as employees
provide service.
(Q) DEFERRED INCOME TAXES
Deferred income tax is provided, using the liability method, for all
temporary differences arising between the tax bases of assets and liabilities
and their carrying values for financial reporting purposes. Currently enacted
tax rates are used to determine deferred income tax.
F-90
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
2. ACCOUNTING POLICIES --CONTINUED
The principal temporary differences arise from provisions, asset impairment
and write off of fixed assets and tax losses carried forward. Deferred tax
assets relating to the carryforward of unused tax losses are recognized to the
extent that it is more likely than not that future taxable profit will be
available against which the unused tax losses can be utilized.
(R) REVENUE RECOGNITION
Revenue from the subscriber based television service is recognized over the
period prescribed in each agreement.
Revenue from equipment installation is recognized when the installation is
accomplished.
Revenue from other services is recognized when services are rendered to
customers.
(S) LOSS PER SHARE
Basic loss per share is calculated by dividing the consolidated net loss,
after considering the minority interest in subsidiaries, attributable to
shareholders by the weighted average number of ordinary shares in issue during
the year.
3. ACCOUNTING FOR TRANSPONDER SERVICE AGREEMENT
The Company entered into a transponder service agreement with a related
company in September 1997 to procure transponder space on the related company's
satellite for provision of its Digital Direct To Home Service. Under the
agreement, the Company secures the right to use six non-preemptible unprotected
Ku-band transponders for an initial term expiring in November 2008, with an
option to renew the agreement under certain items and conditions for the
remaining operational life of the satellite.
In the year ended March 31, 1999, the Company's management reviewed its
accounting for the transponder service agreement and considered that the
transponder service agreement should be accounted for as a finance lease to
reflect the underlying risks and rewards arising under the agreement. Previously
it had been accounted for as an operating lease. The lessor ceased to be a
related party in the period ended March 31, 1999.
The Company has accounted for the transponder service agreement as a finance
lease with effect from the date of the agreement, September 26, 1997. The effect
of this change on the balance sheet at March 31, 1999 has been to increase
leasehold improvements and equipment by US$42,963 thousand, short term
liabilities denominated in foreign currencies by US$2,124 thousand, long term
liabilities denominated in foreign currencies by US$54,765 thousand and to
reduce opening reserves by US$12,824 thousand. The effect on the results for the
period ended March 31, 1999 has been to increase depreciation charged to cost of
service by US$4,266 thousand, to reduce rental payments charged to cost of
service by US$12,862 thousand, to increase exchange gains by US$2,070 thousand,
and to increase interest expense by US$11,500 thousand.
F-91
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
4. SEGMENT INFORMATION
The Company and its subsidiaries do not present segment information as the
major operations for the year ended March 31, 1999 were in respect of the
operation of subscriber based television services, which are classified as
entertainment and recreation business in accordance with the Stock Exchange of
Thailand.
5. CASH IN HAND AND AT BANKS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Cash in hand and at banks................................... $58,317
Short term bank deposits.................................... --
-------
$58,317
-------
</TABLE>
6. SHORT TERM INVESTMENTS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Fixed deposits with local banks............................. $ --
Fixed deposits with foreign banks........................... 234
----
$234
----
</TABLE>
7. TRADE RECEIVABLES, NET
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Trade receivables........................................... $14,422
Less: Provision for doubtful accounts....................... (10,570)
-------
Trade receivables, net...................................... $ 3,852
-------
</TABLE>
Outstanding trade receivables as at March 31, 1999 can be analyzed as
follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Current..................................................... $ 3,898
3-6 months.................................................. 595
6-12 months................................................. 801
Over 12 months.............................................. 9,128
-------
14,422
Less: Provision for doubtful accounts....................... (10,570)
-------
$ 3,852
=======
</TABLE>
F-92
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
8. RELATED PARTY TRANSACTIONS
At March 31, 1999, no single shareholder group owned in excess of 50% of the
Company's shares. The major shareholders of the Company (shareholdings in excess
of 5.0% of the issued shares excluding Thailand Securities Depositing Co., Ltd.
for depositors) at March 31, were:
<TABLE>
<CAPTION>
1999
%
--------
<S> <C>
Telecom Holdings Co., Ltd................................... 40.96
MIH Ltd..................................................... 26.11
</TABLE>
Shinawatra Computers & Communications Public Company Ltd held in excess of
5.0% of the issued shares during the year ended March 31, 1999, reducing its
interest to 5.0% on 29 January 1999. The Group ceased to recognize Shinawatra
Computers & Communications Public Company Ltd as a related party from that date;
it has been treated as a related party for the disclosure of revenues and
expenses below.
F-93
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THE NOTES ALL AMOUNTS ARE SHOWN IN US$ THOUSANDS UNLESS OTHERWISE STATED)
8. RELATED PARTY TRANSACTIONS --CONTINUED
The Company has transactions with its related companies as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Shinawatra Computers & Communications Public Co., Ltd. and
its related companies
Revenues
- interest.............................................. --
- commission............................................ --
- advertising........................................... --
Expenses
- transponder services (Note 3)......................... --
- satellite uplink services............................. $ 596
- rental and other services............................. 1,059
- consulting and management services.................... 62
- interest expenses..................................... 198
Telecom Holdings Co., Ltd. and its related companies
Revenues.................................................... --
Expenses
- installation equipment services....................... 7,810
- multimedia network services........................... 18,318
- rental and other services............................. 3,018
- interest expenses..................................... 48
MIH Ltd. and its related companies
Revenues.................................................... --
Expenses
- operating system services............................. 2,639
- interest.............................................. 68
- consulting and management services.................... 1,756
As at March 31, 1999
Amount due from related companies
- Shinawatra Computers & Communications Public Co., Ltd.
and its related companies............................. --
- Telecom Holdings Co., Ltd. and its related
companies............................................. 1,570
- MIH Ltd. and its related companies.................... 177
------
$1,747
------
Short-term loans and advances from related companies
- Shinawatra Computers & Communications Public Co., Ltd.
and its related companies............................. --
- Telecom Holdings Co., Ltd. And its related
companies............................................. --
- MIH Ltd. and its related companies.................... 670
------
$ 670
------
</TABLE>
F-94
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS --CONTINUED
COMMITMENTS AND CONTINGENCIES
Commitments and contingencies to related parties are set out in Note 31.
As set out in Note 18, the Group has provided US$5,017 thousand in respect
of a probable claim from a purchaser of equipment, the purchaser being a related
party.
9. INVENTORIES
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Aerials..................................................... $ 723
Supplies and spare parts.................................... 40
Digital Direct-To-Home equipment............................ 5,260
Set-top boxes............................................... 1,774
Inventories in transit...................................... 179
-------
7,976
Less: Allowance for obsolescence............................ (2,812)
-------
$ 5,164
=======
</TABLE>
10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Recoverable taxes........................................... $22,180
Prepaid expenses............................................ 1,563
Account receivable--other................................... 823
Accrued income.............................................. 1,796
Others...................................................... 293
-------
26,655
Less: Provision for unclaimed taxes......................... (14,829)
-------
$11,826
=======
</TABLE>
11. INVESTMENTS HELD TO MATURITY
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Opening net book amount..................................... $138
Additions................................................... --
Provision for diminution.................................... --
----
Closing net book amount..................................... $138
====
</TABLE>
F-95
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
FURNITURE,
LEASED FIXTURES
LEASEHOLD OPERATING TRANSPONDER AND OFFICE PREPAID CONSOLIDATED
IMPROVEMENTS EQUIPMENT EQUIPMENT EQUIPMENT VEHICLES ASSETS TOTAL
------------ --------- ----------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
AT APRIL 1, 1998
Cost.......................... $ 302 $ 65,824 $49,209 $2,704 $481 $9,426 $127,946
Accumulated depreciation...... (271) (13,072) (3,540) (1,419) (392) -- (18,694)
Provision for unused assets... -- -- -- (511) -- -- (511)
Provision for equipment
losses...................... -- (7,255) -- -- -- -- (7,255)
------ -------- ------- ------ ---- ------ --------
Net book amount............... 31 45,497 45,669 774 89 9,426 101,486
------ -------- ------- ------ ---- ------ --------
YEAR ENDED MARCH 31, 1999
Opening net book amount....... 31 45,497 45,669 774 89 9,426 101,486
Additions and transfers....... 3,402 64,852 -- 8,615 331 -- 77,200
Reclassifications............. -- -- -- -- -- (7,312) (7,312)
Provision for unused assets... -- (1,676) -- (290) -- -- (1,966)
Provision for equipment
losses...................... -- (5,105) -- -- -- -- (5,105)
Depreciation charge........... (630) (14,611) (4,407) (3,117) (85) -- (22,850)
Translation adjustment........ 1 1,696 1,702 29 3 351 3,782
------ -------- ------- ------ ---- ------ --------
Closing net book amount....... 2,804 90,653 42,964 6,011 338 2,465 145,235
------ -------- ------- ------ ---- ------ --------
AT MARCH 31, 1999
Cost.......................... 3,715 133,130 51,043 11,419 830 2,465 202,602
Accumulated depreciation...... (911) (28,170) (8,079) (4,589) (492) -- (42,241)
Provision for unused assets... -- (1,676) -- (819) -- -- (2,495)
Provision for equipment
losses...................... -- (12,631) -- -- -- -- (12,631)
------ -------- ------- ------ ---- ------ --------
Net book amount............... $2,804 $ 90,653 $42,964 $6,011 $338 $2,465 $145,235
====== ======== ======= ====== ==== ====== ========
</TABLE>
In the year ended March 31, 1999, the Group relocated to new offices. As a
result of relocation, certain furniture, fittings and office equipment and
operating equipment ceased to be used by the Group and is unlikely to be used in
the future. Full provision was made against the carrying value of such
equipment, and the provision was charged to the statement of loss as other
expense (refer to Note 25).
In the year ended March 31, 1999, the Group identified US$5,105 thousand of
equipment rented to subscribers which could not be located. The Group made full
provision against the carrying value of such equipment in the year ended March
31, 1999, and the provision was charged to the statement of loss as other
expense (refer to Note 25).
F-96
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------
TELEVISION DEFERRED
NETWORK CHARGES
---------- --------
<S> <C> <C>
AT APRIL 1, 1998
Cost........................................................ $23,781 $35,892
Accumulated amortization.................................... (5,407) (23,916)
Allowance for equipment which will not be used in
the future.................................................. (14,035) --
Allowance for loss on motion picture films.................. -- (6,028)
------- -------
Net book amount............................................. 4,339 5,948
------- -------
YEAR ENDED MARCH 31, 1999
Opening net book amount..................................... 4,339 5,948
Additions................................................... 2,728 27,525
Allowance for equipment which will not be used in future
(net)..................................................... 804 --
Allowance for loss on motion picture films (net)............ -- 2,011
Amortization charge......................................... (1,473) (27,817)
Translation adjustment...................................... 162 222
------- -------
Closing net book amount..................................... 6,560 7,889
======= =======
AT MARCH 31, 1999
Cost........................................................ 27,395 64,755
Accumulated amortization.................................... (7,082) (52,625)
Allowance for equipment which will not be used in .. the
future.................................................... (13,753) --
Allowance for loss on motion picture films.................. -- (4,241)
------- -------
Net book amount............................................. $ 6,560 $ 7,889
======= =======
</TABLE>
In the year ended March 31, 1998, UBC announced its intention to cease
offering pay TV services distributed through the analogue MMDs network as it
considered the continued use of the analogue MMDs network had ceased to be
economically viable. In recognition of this intention, UBC reviewed the carrying
amount of certain intangible assets related to the analogue MMDs network and
raised provisions totaling US$14,035 thousand in recognition of permanent
impairment of these assets. In the year ended March 31, 1999 an additional US$57
thousand provision was recognized and charged to the statement of loss (Note
25).
As a result of the acquisition of Cineplex Company Limited, the Group
acquired additional programming rights. As a result of the acquisition of
additional programming rights, the Group reviewed the carrying value of its
motion picture films and in recognition that certain older programming would not
be able to generate future earnings in excess of its carrying value, raised a
provision for permanent impairment of such programming of US$6,028 thousand in
the year ended March 31, 1998.
The Group continues to amortize these assets over the remaining concession
life and releases the provision on an annual basis on a basis consistent with
the amortization of these assets.
F-97
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. ACCRUED EXPENSES
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Accrued taxes............................................... $3,460
Other expenses.............................................. 2,011
------
$5,471
======
</TABLE>
15. OBLIGATIONS UNDER FINANCE LEASES
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Finance lease liabilities--minimum lease payments:.......... $129,485
Not later than 1 year................................... 13,395
Later than 1 year and not later than 5 years............ 53,580
Later than 5 years...................................... 62,510
--------
Future finance charges on finance leases................ 72,596
--------
Present value of finance lease liabilities.............. 56,889
--------
Representing lease liabilities:
- current............................................... 2,124
- non current........................................... 54,765
--------
$ 56,889
--------
The present value of finance lease liabilities may be
analysed as follows:
Not later than 1 year................................... 2,124
Later than 1 year and not later than 5 years............ 14,298
Later than 5 years...................................... 40,467
--------
$ 56,889
========
</TABLE>
16. DEFERRED INCOME TAXES
Deferred income taxes are calculated on all temporary differences under the
liability method using a principal tax rate of 30% (1998 30%).
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
At beginning of year
Income statement credit................................. $33,742
Valuation provision..................................... (33,742)
-------
At end of year...................................... $ --
-------
</TABLE>
F-98
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. DEFERRED INCOME TAXES --CONTINUED
Deferred tax assets and liabilities and the deferred tax credit in the
income statement are attributable to the following items:
<TABLE>
<CAPTION>
CREDIT TO ACQUISI-
APRIL 1, INCOME TION EXCHANGE MARCH 31,
1998 STATEMENT (NOTE 29) TRANSLATION 1999
-------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Deferred income tax liabilities
Other.................................... $ (427) $ 376 $ (927) $ (2) $ (980)
------- ------- ------- ------ -------
(427) 376 (927) (2) (980)
------- ------- ------- ------ -------
Deferred income tax assets
Provisions............................... 4,097 4,146 985 132 9,360
Impairment of assets..................... 6,189 2,603 -- 316 9,108
Tax loss carry forwards.................. 10,991 26,423 19,289 1,263 57,966
Other deductible temporary differences... -- 194 -- 6 200
------- ------- ------- ------ -------
21,277 33,366 20,274 1,717 76,634
------- ------- ------- ------ -------
Net deferred income tax asset............ 20,850 33,742 19,347 1,715 75,654
Less valuation allowance................. (20,850) (33,742) (19,347) (1,715) (75,654)
------- ------- ------- ------ -------
$ -- $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
</TABLE>
The Group has raised a valuation allowance against the deferred taxation
asset as it is management's estimate that it is more likely than not that the
deferred taxation asset will not be realized, due to the historical taxation
losses incurred by the companies in the Group and the timing limits on the
taxation loss carry forwards that arose on these losses. The Group had taxation
loss carry forwards at December 31, 1998 (its most recent taxation year) of
approximately US$183 million expiring within December 31, 2003.
17. PENSIONS AND OTHER POST RETIREMENT OBLIGATIONS
The Group operates a registered provident fund, being a pension scheme of
the defined contribution type.
The assets of the provident fund are held independently of the Group's
assets in separate trustee administered fund.
The pension cost for defined contribution schemes, which represents
contributions payable by the Group, amounted to US$99 thousand. Included in
creditors is US$188 thousand in respect of contributions to the schemes.
F-99
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
CONSOLIDATED
-----------------------------------
RESTRUCTURING CUSTOMER
PROVISION CLAIM TOTAL
------------- -------- --------
<S> <C> <C> <C>
At April 1, 1998............................................ $830 $ -- $ 830
Additional provisions (note 8).............................. -- 5,017 5,017
Unused amounts reversed..................................... -- -- --
---- ------ ------
Charged to income statement................................. 830 5,017 5,847
---- ------ ------
Utilised during year........................................ (833) -- (833)
Exchange translation........................................ 3 165 168
---- ------ ------
At March 31, 1999........................................... $ -- $5,182 $5,182
---- ------ ------
</TABLE>
CUSTOMER CLAIM PROVISION
The customer claim provision has been set up to provide for a probable claim
from a purchaser of equipment that a subsidiary sold to that customer (a related
party to the subsidiary at the date of sale and a related party at March 31,
1999) in a prior year (Note 8). The expenses has been charged to the statement
of loss in the year (refer to Note 26). The amount of the provision has been
determined based on an independent valuation of the equipment sold.
The restructuring charge was made and utilised in respect of the acquisition
of UBC Cable Network Public Company Limited and Cineplex Company Limited (refer
to Note 29).
19. OTHER LIABILITIES
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Deposits received from customers............................ $4,829
Unamortised deferred income................................. 2,534
------
$7,363
======
</TABLE>
Unamortised deferred income relates to amounts receivable from a customer
for services provided by a subsidiary. The customer has defaulted on payment and
legal actions are being taken by the subsidiary.
20. UNUTILISED CREDIT FACILITIES
<TABLE>
<CAPTION>
CONSOLIDATED
-------------------
SHORT LONG
TERM TERM
-------- --------
<S> <C> <C>
United Broadcasting Corporation Public Company Limited and
subsidiaries.............................................. 31,701 --
</TABLE>
Terms and conditions of the short term loan facilities are not specified and
are subject to mutual agreement between the Company, its subsidiaries and
lenders if required.
F-100
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. MINORITY INTERESTS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
-------------
<S> <C>
At beginning of year........................................ 4,660
Acquisitions of increased interest in Satellite Services
Co., Ltd.................................................. (1,562)
Share of net loss of subsidiaries........................... (764)
Exchange translation........................................ 97
------
At end of year.............................................. $2,431
======
</TABLE>
22. ORDINARY SHARES AND SHARE PREMIUM
<TABLE>
<CAPTION>
NUMBER OF SHARE SHARE
SHARES CAPITAL PREMIUM TOTAL
------------ -------- -------- --------
<S> <C> <C> <C> <C>
At April 1, 1998................................. 243,000,000 61,990 58,520 120,510
Issued, registered May 7, 1998................... 237,782,376 60,179 30,089 90,268
Issued, registered June 15, 1998................. 77,940,202 17,739 17,739 35,478
Issued, registered July 3, 1998.................. 60,000,000 14,320 14,320 28,640
Issued, registered July 10, 1998................. 32,050,992 7,733 7,733 15,466
Issued, registered July 29, 1998................. 90,000,000 21,916 28,864 50,780
------------ -------- -------- --------
At March 31, 1999................................ $740,773,570 $183,877 $157,265 $341,142
============ ======== ======== ========
</TABLE>
SHARE CAPITAL
On March 27, 1998, the shareholders at the Extraordinary meeting passed a
resolution to approve the decrease of authorized share capital from 500,000,000
common shares of Baht 10 par value to 243,000,000 common shares of Baht 10 par
value, and to increase the authorized share of Baht par value. The increase of
authorized share capital was registered with the Ministry of Commerce on March
31, 1998. The shareholders also passed a resolution to approve the issuance of
237,782,376 new common shares to sell specifically to a new strategic partner at
Baht 15 per share, and authorized the Executive Committee to allot new common
shares but not exceeding 150,000,000 shares for selling to the existing
shareholders, and to issue new common shares but not exceeding 150,000,000
shares for selling specifically to other strategic partners, at the price and at
the time to be deemed appropriate. The aforementioned 237,782,376 shares were
issued and sold to the new strategic partner and registered with the Ministry of
Commerce on May 7, 1998.
On April 30, 1998, the Executive Committee passed a resolution to approve
the issuance of 110,018,850 new common shares and to offer to the existing
shareholders at the rate of 4.37 old shares for 1 new share, Baht 20 per share.
Such ratio is based on 243,000,000 common shares which have been officially
registered with the Ministry of Commerce for their issuance, plus 237,782,376
new common shares for the new strategic partner as discussed in the previous
paragraph. According to the aforesaid offer, only 77,940,202 common shares were
registered with the Ministry of Commerce on June 15, 1998. Certain existing
shareholders, as agreed by the Executive Committee Meeting on June 9, 1998, had
subsequently subscribed another 32,050,992 common shares which had not been
subscribed by other
F-101
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. ORDINARY SHARES AND SHARE PREMIUM --CONTINUED
shareholders as part of the rights offer, at Baht 20 per share. The said newly
issued shares were registered with the Ministry of Commerce on July 10, 1998.
On June 10, 1998, the shareholders at the Extraordinary meeting passed a
resolution to approve the issuance of 60,000,000 common shares to sell
specifically to an existing major shareholder at Baht 25 per share. The said
newly issued were registered with the Ministry of Commerce on July 3, 1998.
On July 10, 1998, the Executive Committee Meeting, in accordance with the
Extraordinary Shareholder Meeting on March 27, 1998 and the Executive Committee
on April 30, 1998, approved the allocation of up to 90 million new ordinary
shares, of Baht 10 par value, to Institutional Investors by way of private
placement, at a price of no less than Baht 24 per share. The said newly issued
shares were fully subscribed and subsequently registered with the Ministry of
Commerce on July 29, 1998. The premium on share capital in respect of the offer
of 50 million shares issued to institutional investors and registered with the
Ministry of Commerce on July 29, 1998 is net of management and underwriting
commission and selling commission incurred in the offer amounting to some
US$1,818 thousand.
No share options are granted to directors or employees.
23. STAFF COSTS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Wages and salaries.......................................... $6,977
Termination benefits........................................ 307
Social security costs....................................... 46
Pension costs--defined contribution plans................... 90
------
$7,420
------
Number of persons employed by the group at March 31, 1999
Full time................................................... 1,177
Part time................................................... 100
------
1,277
------
</TABLE>
DIRECTORS' REMUNERATION
In the year ended March 31, 1999, the remuneration of the directors amounted
to US$6,149. Directors remuneration represents meeting fees and gratuities as
approved by the shareholders of the Company in their annual general meeting.
LOANS TO DIRECTORS
There are no loans to directors.
F-102
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. FINANCE COSTS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Interest income--bank interest.............................. $ 3,196
Net foreign exchange transaction losses..................... 4,624
Interest expense
- bank interest......................................... 1,023
- related party borrowings.............................. 99
- finance leases........................................ 11,500
-------
$12,622
-------
$20,442
=======
</TABLE>
25. OTHER EXPENSES
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Provision for unclaimed taxes (Note 10)..................... $11,542
Provision for loss on equipment (Note 12)................... 5,105
Provision for loss on collection from other receivable...... (558)
Provision for loss on office equipment which will not be
used in the future (Note 12).............................. 1,966
Annual leave compensation................................... 308
Provision for loss on subscriber-based television network
equipment under concession agreement (Note 13)............ 57
-------
$18,420
=======
</TABLE>
26. ABNORMAL NON-RECURRING ITEMS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Provision for loss on probable claim from purchaser relating
to value of assets sold in prior year (Notes 8, 18)....... $5,017
------
Total....................................................... $5,017
------
</TABLE>
27. BASIC AND DILUTED LOSS PER SHARE
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
US$ per share
Net loss attributable to shareholders....................... 91,097
Weighted average number of ordinary shares in issue
(thousands)............................................... 642,556
Basic and diluted loss per share............................ 0.14
</TABLE>
F-103
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
28. CASH GENERATED FROM OPERATIONS
RECONCILIATION OF LOSS BEFORE TAX TO CASH GENERATED FROM OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Loss before tax and interest................................ $(81,671)
Adjustment for:
Depreciation (Note 12)...................................... 22,123
Amortization (Note 13)...................................... 26,932
Amortization of costs of subscriber based television
networks (Note 13)........................................ 1,426
Unrealised gain on exchange rate............................ 3,247
Net loss of minority interest in subsidiaries............... (764)
Decrease in provision for loss on subscriber based
television network which will not be used................. (779)
Decrease in provision for loss on motion picture films which
may not be able to generate earnings...................... (1,947)
Changes in working capital (excluding the effects of
acquisition)
Increase in allowance for doubtful accounts................. 7,953
Increase in allowance for obsolete inventories.............. 916
Increase in provision for equipment losses.................. 4,943
Increase in provision for equipment which will not be used
in the future............................................. 1,903
Provision for probable losses on collection from other
receivables............................................... 11,542
Increase in customer claim.................................. 5,017
Increase in accounts and notes receivable................... (3,851)
Increase in inventories..................................... (2,468)
Increase in amount due from related parties................. (1,207)
Decrease in VAT refundable.................................. 17,597
Decrease in allowance for unclaimed taxes
Decrease in other current assets............................ (34,501)
Decrease in deposits and other assets....................... (114)
Decrease in accounts payable................................ (4,255)
Increase in advance from customer........................... 1,362
Increase in accrued expenses................................ 1,273
Decrease in accounts payable and accrued expenses--related
parties................................................... (6,792)
Increase in advances from related parties................... (14,963)
Decrease in other current liabilities and other
liabilities............................................... (783)
--------
Cash generated from operations.............................. $(47,861)
========
</TABLE>
F-104
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
29. ACQUISITION
On May 4, 1998, the Company acquired certain subsidiaries, 97.85% of UBC
Cable Network Public Company Limited and 99.99% of Cineplex Company Limited.
Details of net assets acquired and goodwill are as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Purchase consideration:
Cash paid
UBC Cable Network Public Company Limited.............. $37,730
Cineplex Co., Ltd..................................... 10,842
-------
Purchase consideration...................................... 48,572
-------
Fair value of net assets/(liabilities) acquired:
UBC Cable Network Public Company Limited.............. (6,089)
Cineplex Co., Ltd..................................... 3,247
-------
Net assets/(liabilities) acquired........................... (2,842)
-------
Goodwill charged to reserves
UBC Cable Network Public Company Limited.............. 43,819
Cineplex Co., Ltd..................................... 7,595
-------
Goodwill charged to reserves on acquisition of
subsidiaries.............................................. $51,414
-------
</TABLE>
No fair value adjustments were required to the book value of net assets
acquired as in management's opinion book value approximated fair value at the
date of acquisition.
A restructuring charge of US$830,000 was made in the prior year and utilized
in the year (Note 18).
F-105
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
29. ACQUISITION --CONTINUED
The book value of assets and liabilities acquired on the acquisitions of UBC
Cable Network Public Company Limited and Cineplex Company Limited were as
follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Cash in hand and at banks................................... $ 2,006
Short term investments...................................... --
Accounts and notes receivable--net.......................... 5,058
Short-term loans and advances to related parties............ 2,473
Inventories--net............................................ 282
Other current assets........................................ 3,515
Leasehold building improvements and equipment--net.......... 6,166
Cost of subscriber-based television network under concession
agreement--net............................................ 2,386
Deferred charges--net....................................... 6,713
Others...................................................... 369
Accounts payable and accrued expenses....................... (16,783)
Accounts payable and accrued expenses-related parties....... (4,602)
Short term loans and advances from related parties.......... (5,832)
Other current liabilities................................... (1,201)
Other liabilities........................................... (3,392)
Minority interests in subsidiaries.......................... --
-------
Fair value of net liabilities............................... (2,842)
Goodwill.................................................... 51,414
-------
Total purchase consideration................................ 48,572
Less: Cash and cash equivalents in subsidiaries acquired.... (2,006)
-------
Net cash outflow on acquisition............................. $46,566
-------
</TABLE>
In the year ended March 31, 1999, the Company acquired an additional 13.22%
in Satellite Services Company Limited as follows (refer to Note 2b):
<TABLE>
<CAPTION>
INTEREST SHARE OF
ACQUIRED SHARES CONSIDERATION NET ASSETS GOODWILL
----------- ----------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
July 1, 1998....................... 4.72% 13,600,000 $ 2,859 $ 1,651 $1,208
May 6, 1998........................ 8.5% 200,000,000 51,348 50,697 651
----------- ------- ------- ------
213,600,000 $54,207 $52,348 $1,859
=========== ======= ======= ======
</TABLE>
July 1, 1998 was the date that the Company became the legal registered owner
of the shares. The shares were acquired from a suspended finance company and the
valuation attributed to the shares and the consideration paid were determined
based on the net assets of the subsidiary as at January 31, 1998.
F-106
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
29. ACQUISITION --CONTINUED
Goodwill arising on acquisition has been charged against shareholders'
equity as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
UBC Cable Network Public Company Limited.................... $43,819
Cineplex Company Limited.................................... 7,595
Satellite Services Company Limited.......................... 1,859
-------
Total goodwill charged to reserves.......................... $53,273
-------
</TABLE>
30. FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY RISK MANAGEMENT
In order to mange the risks arising from fluctuations in currency exchange
rates, the Company and the Group adopt the following foreign currency risk
management practices:
- entering onto foreign exchange contracts
- to the extent that approval is granted by the Bank of Thailand the Company
retains funds raised in US dollars from capital increases and loans from
foreign shareholders in US dollars
- negotiating payment terms for foreign currency settlements on an
individual transaction basis
- negotiating with foreign suppliers to share the foreign exchange exposure
Transaction risk is calculated in each foreign currency and is projected six
months forward. Exchange rates are monitored and forecasting information
supplied by recognized research and financial analysis enterprises is used to
estimate the future exchange rates. These are compared against premiums on
forward exchange contracts and after making adjustments for the related risk a
decision is taken on whether to cover foreign currency transactions.
Transactions if hedged with forward exchange contracts are not hedged on a
net basis but rather on a transaction by transaction basis.
At March 31, 1999, the Company and its subsidiaries had outstanding foreign
currency assets and liabilities as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
CURRENCY MILLION
----------------
<S> <C>
Assets
US dollars.............................................. 51.03
Liabilities
US dollars.............................................. 59.34
</TABLE>
Foreign currency assets represent US dollar deposits with foreign and local
banks for the future payments of foreign currency liabilities, whilst the above
foreign currency liabilities represent trade accounts payable and advances from
related companies.
The foreign currency liabilities have been hedged using the foreign currency
assets above.
F-107
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30. FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY RISK MANAGEMENT --CONTINUED
Effects derived from changes in the exchange rate between March 31, 1999 and
August 6, 1999 to the financial position and results of operations of the Group
due to outstanding unhedged foreign currency assets and liabilities as at
March 31, 1999 are not significant.
31. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and a subsidiary, UBC Cable Network Public Company Limited, have
concession agreements with the Mass Communications Organization of Thailand
("MCOT") to provide subscriber-based television services. Under the terms of
agreements, dated April 17, 1989 and June 6, 1994 respectively and amendments
dated May 19, 1994 and November 9, 1994 respectively which will expire on
September 30, 2014 and December 31, 2019 respectively, the Company and its
subsidiary have certain commitments, including to acquire, install, manage and
maintain the subscriber-based television service systems and to transfer to MCOT
all headend and studio equipment pertaining to such systems. In addition, the
company and the subsidiary are committed to pay annual benefits to MCOT at the
rate of 6.5% of certain revenues or the minimum amount as prescribed in the
agreements.
The minimum revenue share under the Company's concession is US$10,849
thousand of which US$1,522 million had been paid at March 31, 1999. The minimum
revenue share under the subsidiary's concession is US$15,215 thousand of which
approximately US$1,323 thousand had been paid at March 31, 1999. No accrual is
made in the financial statements for remaining unpaid minimum fees as management
is of the opinion that payments will be made on the revenue percentage basis as
a period cost in the ordinary course of business.
CAPITAL AND OTHER COMMITMENTS
Capital expenditure contracted for at the balance sheet date but not
recognized in the financial statements is as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
US$ thousand
(Baht contracts)
DTH equipment........................................... 851
Intangible assets--Programming.......................... 28,274
(US$ contracts)
Intangible assets--Programming.......................... 1,690
((pound) contracts)
Intangible assets--Programming.............................. 210
</TABLE>
At March 31, 1999, the Company and its subsidiaries had commitments with
overseas suppliers to acquire television programming via satellite. Costs of
programmes acquired are varied by the number of subscribers.
At March 31, 1999, the Company and its subsidiaries had commitments with
banks whereby the latter issued letters of guarantees in respect of customs
duties and other transactions in the ordinary course of business amounting to
approximately US$1,099 thousand.
F-108
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. COMMITMENTS AND CONTINGENT LIABILITIES --CONTINUED
At March 31, 1999, the Group had commitments under business agreements with
major local and overseas suppliers amounting to US$2,826 thousand.
The Company has entered into agreements with a company to receive satellite
uplink services for a remaining period until December 2003 with an option to
renew. The Company is committed to pay for services in respect of the agreement
in the amount of approximately US$68 thousand per month. The Company providing
the satellite uplink services was related to the Company until January 29, 1999.
COMMITMENTS WITH RELATED PARTIES
Significant commitments with related parties are as follows:
(a) Three subsidiary companies have entered into agreements to receive
consulting and management services from the Company until terminated by either
party. These subsidiaries are committed to pay fees to the Company in respect of
the said agreements amounting to approximately US$35 thousand per month.
(b) A subsidiary company has entered into a license agreement to broadcast
movie programs, drama programs and other programs with another subsidiary
company for a period of 5 years which expires on May 31, 2002 with an opinion to
renew. This subsidiary is committed to pay fees in respect of the said agreement
which are varied by the number of customers.
(c) The Company has entered into a Digital Direct-To-Home agreement with a
subsidiary to receive services relating to data encryption and modulation and
conditional access control, for a period of 10 years, which expires on May 31,
2005 with an option to renew. Other than the entry fee and connection fee which
have already been paid to the subsidiary, the Company is committed to pay
monthly fee for the aforesaid services which are variable by the number of
customers.
(d) A subsidiary has entered into a multimedia network service agreement
with a related company for a period of 5 years which expires on February 16,
2003, with an option to renew. The subsidiary is committed to pay fees in
respect of the agreement amounting to approximately US$1,720 thousand per month
where subscribers connected to network do not exceed 165,000. The excess of
165,000 subscribers will be charged at the rate of US$3.70 per subscriber per
month.
(e) At March 31, 1999, the Company was contingently liable to a bank for
guaranteeing a related company in respect of business contracts amounting to
approximately US$686 thousand.
(f) The Company has entered into an agreement with a shareholder to receive
consulting and management services for a period of two years. The Company is
committed to paying an annual fee of US$1,588 thousand.
(g) In March 1997, a Company's subsidiary, UBC Cable, (formerly UTV Cable
Network Public Company Limited), which became the Company's subsidiary as from
May 4, 1998, sold its multimedia network and associated assets to a related
company. Under the terms of the sale and purchase agreement, both parties agreed
to adjust the selling price to the appraisal value to be determined by an
independent appraiser. As at March 31, 1999, the management of UBC Cable has set
up a provision of approximately US$5,182 thousand to cover the difference
between the selling price, approximately US$65,688 thousand, and the lower
appraised value of assets, approximately US$60,506 thousand (Note 18).
F-109
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. COMMITMENTS AND CONTINGENT LIABILITIES --CONTINUED
As part of the sale of the multimedia network and associated assets
discussed in the previous paragraph, UBC Cable also assigned its rights and
obligations to the aforesaid related company in respect of agreements with
contracts or relating to the buildout of the multimedia network. Under the terms
of the assignment UBC Cable guarantees the obligations assigned. UBC Cable has
full recourse against the assignee. Management do not have access to sufficient
information to reliably quantify the potential obligations under the guarantees.
As of August 6, 1999, management are not aware of any claims resulting from such
guarantees.
LITIGATION
On July 1, 1998 the Company received a summons in relation to an action
brought by Thai Sky TV ("TST") in the civil court in Thailand against Shinawatra
Satellite Public Company Limited ("SSA"), Satellite Services Company Limited,
("SSV"), C. S. Communications Company Limited ("CSC") and the Company. TST
claims that each of them is jointly and severally liable in tort in relation to
the alleged unlawful cancellation by SSA of two transponder use agreements, the
alleged unlawful cancellation by SSV of a digital direct-to-home service
agreement and a signal compression agreement and the alleged unlawful
cancellation by SSA of two transponder use agreements. It is further alleged
that at about the same time as these agreements were terminated, the first three
defendants worked with the Company to broadcast advertisements encouraging TST's
customers to subscribe to the television services provided by the Company. The
total amount claimed by TST is Baht 125,614 million (US$3,328,870 thousand)
comprising:
(a) Baht 2,924 million (US$77,372 thousand) in respect of loss of future
profits expected to be earned over the remaining 19 years of TST's concession
from the Mass Communication Organization of Thailand based on the number of
TST's subscribers at the time of the termination of the agreements
(approximately 15,000).
(b) Baht 122,648 million (US$3,245,396 thousand) in respect of loss of
future profits over that period assuming increases in the number of subscribers
at the rate of 60,000 per annum.
(c) Baht 442 million (US$11,700 thousand) in respect of sums expended on
programming rights which could not be used.
On October 6, 1998, the civil court cancelled the law suit filed by TST
against SSV and asked both parties to settle the claim through an arbitrator.
No provision for the above claims has been set up in the financial
statements of the Company or its subsidiary, SSV, as the management of the
Company and SSV are of the opinion that the TST claims are groundless and that,
based on their considerable experience in the subscription television business,
the methodology used in computing TST's damages is fundamentally misconceived
and unsustainable.
F-110
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31. COMMITMENTS AND CONTINGENT LIABILITIES --CONTINUED
OPERATING LEASE COMMITMENTS--WHERE A GROUP COMPANY IS THE LESSEE
The future minimum lease payments under non cancellable operating leases are
as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1999
------------
<S> <C>
Not later than 1 year....................................... $21,308
Later than 1 year and not later than 5 years................ 47,322
Later than 5 years.......................................... 1,746
-------
$70,376
-------
</TABLE>
32. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Group's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in Thailand ("Thai GAAP"), which
differ in certain respects from United States generally accepted accounting
principles ("US GAAP"). These differences are described below together, where
appropriate, with an explanation of the method used to determine the adjustments
attributable to shareholders' equity as at and for the year ended March 31,
1999.
The following statement summarises the material adjustments, gross of their
tax effect, which reconcile the net profit attributable to group shareholders
amount and the equity shareholders'funds amount under Thai GAAP to the amounts
which would have been reported had US GAAP been applied.
Reconciliation of net income:
<TABLE>
<CAPTION>
CONSOLIDATED
NOTES 1999
-------- ------------
<S> <C> <C>
Net loss attributable to group shareholders under
Thai GAAP................................................... $ (91,097)
US GAAP adjustments:
Goodwill.................................................... (a) (11,539)
Pre-operating costs......................................... (b) 1,201
Restructuring provision..................................... (c) (833)
---------
Net loss under US GAAP...................................... (102,268)
Foreign currency translation adjustment..................... 24,284
---------
Comprehensive and net income under US GAAP.................. (77,984)
---------
Basic and diluted loss per ordinary share under US GAAP..... $ (0.12)
---------
Number of shares used to calculate basic and diluted
earnings per ordinary share (thousands)................... 642,556
---------
</TABLE>
F-111
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
32. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
- --CONTINUED
Reconciliation of shareholders'equity:
<TABLE>
<CAPTION>
MARCH 31, 1999
NOTES --------------
<S> <C> <C>
Equity shareholders' funds under Thai GAAP.................. 113,744
US GAAP adjustments:
Goodwill.................................................... (a) 51,825
Pre-operating costs......................................... (b) (1,171)
---------
Shareholders' equity under US GAAP.......................... $ 164,398
---------
</TABLE>
(A) GOODWILL
Under Thai GAAP, goodwill on the acquisition of a subsidiary or associated
undertaking can be charged against reserves. Under US GAAP, goodwill is
capitalized as an intangible fixed asset and amortized against net income over
its estimated economic life of 5 years. The amount of goodwill capitalized under
US GAAP amounted to US$64,856 thousand at March 31, 1999 and the accumulated
amortization adjustment amounted to US$13,031 thousand at March 31, 1999. The
amount of goodwill amortization charged to the statement of loss under US GAAP
for the year ended March 31, 1999 was US$11,539 thousand.
(B) DEFERRED CHARGES
Under Thai GAAP, the Group capitalises pre-operating costs being operating
costs incurred prior to the commencement of commercial pay tv services, and
amortizes such pre-operating costs over 5 years. Under US GAAP such
pre-operating costs are expensed as incurred. Adjustments of the amounts
reportable under Thai GAAP would result in a reduction of gross deferred charges
by US$4,977 thousand at March 31,1999 and a decrease in accumulated amortization
of US$3,806 thousand at March 31,1999 and a reduction in the amortization charge
for the year of US$1,201.
(C) RESTRUCTURING CHARGES
Under Thai GAAP, there is no specific standard for restructuring charges and
the Group recognised the restructuring charge anticipated to be incurred as a
result of the acquisition of UBC Cable Public Network Company Limited when the
Board of Directors ratified and approved the acquisitions. Under US GAAP
restructuring charges related to costs for involuntary employee terminations and
other exit costs are recognised when a business combination is consummated and
the criteria of Emerging Issues Task Force Issue No. 95-3 "Recognition of
Liabilities in Connection with a Purchase Business Combination" are met.
33. YEAR 2000 (UNAUDITED BY THE AUDITOR)
The Year 2000 problem arises because many computerized systems use two
digits rather than four to identify year. Date-sensitive systems may recognize
the year 2000 as some other date, resulting in errors when information using
year 2000 dates is processed. Entities may recognize the effects of the Year
2000 problem before, on, or after January 1, 2000, and the effects on operations
and financial reporting, if not addressed and repaired properly and on a timely
basis, may range from minor errors
F-112
<PAGE>
UNITED BROADCASTING CORPORATION PUBLIC COMPANY LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
33. YEAR 2000 (UNAUDITED BY THE AUDITOR) --CONTINUED
to significant systems failure which could affect an entity's ability to conduct
normal business operations. In addition, it is not possible to be certain that
all aspects of the Year 2000 problem affecting the entity, including those
related to the efforts of customers, suppliers, or other third parties, will be
fully resolved.
The Company and its subsidiaries have established a working committee
comprising members from the executive management, the project office manager of
the information systems department and representatives from all work units to
study the existing computer systems, applications and hardware, to develop a
computer remediation plan for the Year 2000 Project. As at August 6, 1999, the
computer remedy project had not been complete. Estimated expenditure of the
computer remedy project for the Company and its subsidiaries amounts to
approximately Baht 21.54 million (US$570 thousand), comprising:
<TABLE>
<CAPTION>
US $'000
--------
<S> <C>
- --Upgrade and replacement of hardware and software.......... 252
---
- --Other related expenditure................................. 318
---
570
---
</TABLE>
Expenses incurred in the year ended March 31, 1999 for the Year 2000 project
amounted to Approximately US$100 thousand. Expenditure of the computer remedy
project will be recorded as assets if replacement of computer systems,
applications and hardware are made; and will be recorded as period costs when
incurred if modifications for year 2000 compliance are made. Although the
computer remedy project of the Company and its subsidiaries is expected to be
completed and implemented before the year 2000, the Company and its subsidiaries
still face risks that other parties with which the Company and its subsidiaries
do business may be unsuccessful in their computer remedy projects within the
time limit. The company and its subsidiaries, however, expect that the impact,
if any, will not be significant to the operations of the Company and its
subsidiaries.
F-113
<PAGE>
SPYGLASS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
1999 1998
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenues:
Internet technology....................................... $ 3,311 $ 1,865
Service................................................... 4,902 3,907
------- -------
Total net revenues.................................... 8,213 5,772
Cost of revenues:
Internet technology....................................... 279 311
Service................................................... 3,318 1,898
------- -------
Total cost of revenues................................ 3,597 2,209
------- -------
Gross profit................................................ 4,616 3,563
Operating expenses and other:
Sales and marketing....................................... 2,135 2,174
Research and development.................................. 1,582 1,821
General and administrative................................ 2,095 1,578
Restructuring charge...................................... 859 --
------- -------
Total operating expenses and other.................... 6,671 5,573
------- -------
Loss from operations........................................ (2,055) (2,010)
Gain on sale of Surfwatch subsidiary........................ 27,380 --
Other income, net........................................... 528 317
------- -------
Income (loss) before income taxes........................... 25,853 (1,693)
Income tax provision........................................ 1,041 --
------- -------
Net income (loss)........................................... $24,812 $(1,693)
======= =======
Net income (loss) per common share--basic................... $ 1.49 $ (0.11)
Net income (loss) per common share--diluted................. $ 1.32 $ (0.11)
Weighted average number of common shares
outstanding--basic........................................ 16,598 15,714
======= =======
Weighted average number of common shares
outstanding--diluted...................................... 18,775 15,714
======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-114
<PAGE>
SPYGLASS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 33,960 $ 18,613
Short-term investments.................................... 14,443 10,735
Marketable securities--JSB................................ 26,400 --
Accounts receivable, net of allowance for doubtful
accounts of $489 and $494, respectively................. 6,055 8,731
Unbilled accounts receivable.............................. 1,508 899
Prepaid expenses and other current assets................. 2,179 2,420
-------- --------
Total current assets.................................. 84,545 41,398
Properties and equipment, net............................... 3,793 3,897
Investment in restricted securities--JSB.................... 4,000 --
Other assets................................................ 329 478
-------- --------
Total assets.......................................... $ 92,667 $ 45,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,059 $ 2,396
Royalties payable......................................... 308 397
Deferred revenues......................................... 906 1,477
Income taxes payable...................................... 988 --
Deferred income taxes..................................... 3,783 --
Accrued compensation and related benefits................. 1,302 1,680
Accrued expenses and other liabilities.................... 1,248 249
-------- --------
Total current liabilities............................. 10,594 6,199
Long-term deferred revenues................................. 110 326
-------- --------
Total liabilities..................................... 10,704 6,525
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued................................. -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 17,005,280 and 16,581,731 shares issued and
16,995,566 and 16,504,517 shares outstanding,
respectively............................................ 169 165
Additional paid-in capital................................ 66,146 62,221
Retained earnings (deficit)............................... 2,618 (22,194)
Accumulated Other Comprehensive Income.................... 14,617 --
Treasury stock at cost, 9,714 and 77,214 shares,
respectively............................................ (55) (56)
Unamortized value of restricted stock issued.............. (1,532) (888)
-------- --------
Total stockholders' equity............................ 81,963 39,248
-------- --------
Total Liabilities and Stockholders' Equity............ $ 92,667 $ 45,773
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-115
<PAGE>
SPYGLASS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
TREASURY UNREALIZED UNAMORTIZED
COMMON STOCK ADDITIONAL RETAINED COMMON STOCK GAIN ON VALUE OF
---------------------- PAID-IN EARNINGS ------------------- EQUITY RESTRICTED
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT SECURITIES STOCK ISSUED
----------- -------- ------------ ----------- -------- -------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30,
1999.................. 16,581,731 $165 $62,221 $(22,194) 77,214 $(56) $ 0 $ (888)
Exercise of stock
options............. 413,049 4 3,085
Issuance of restricted
stock............... 10,500 840 (67,500) 1 (841)
Amortization of
deferred
compensation
relating to issuance
of restricted
stock............... 197
Unrealized gain on
equity securities... 14,617
Net Income............ 24,812
----------- ---- ------- -------- -------- ---- ------- -------
BALANCE AT DECEMBER 31,
1999.................. 17,005,280 $169 $66,146 $ 2,618 9,714 $(55) $14,617 $(1,532)
=========== ==== ======= ======== ======== ==== ======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-116
<PAGE>
SPYGLASS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)......................................... $ 24,812 $ (1,693)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Gain on sale of Surfwatch subsidiary.................... (27,380) --
Depreciation............................................ 468 507
Amortization............................................ 67 211
Loss on disposal of fixed assets...................... 5 30
Amortization of deferred compensation related to
issuance of restricted stock.......................... 197 32
Bad debt provision...................................... 197 175
Changes in operating assets and liabilities:
Accounts and long-term receivables...................... 1,194 (457)
Unbilled accounts receivable............................ (609) (43)
Prepaid expenses, other current assets and other
assets................................................ 248 (232)
Accounts payable........................................ (235) 96
Royalties payable....................................... (89) (129)
Deferred revenues....................................... (212) 291
Current tax liability................................... 988 --
Accrued compensation and related benefits............... (193) (456)
Accrued expenses and other liabilities.................. 57 (32)
-------- --------
Net cash used in operating activities................... (485) (1,700)
-------- --------
Cash Flows From Investing Activities:
Cash received from sale of Surfwatch subsidiary........... 17,000 --
Short-term investments, net activity...................... (3,708) --
Net proceeds from sale of fixed assets.................... 5 --
Capital expenditures...................................... (554) (82)
-------- --------
Net cash used in investing activities................... 12,743 (82)
-------- --------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options................... 3,089 1,604
Sale of common stock to General Instrument................ -- 7,392
-------- --------
Net cash provided by financing activities............... 3,089 8,996
-------- --------
Net increase in cash and cash equivalents................... 15,347 7,214
Cash and cash equivalents at beginning of period............ 18,613 22,706
-------- --------
Cash and cash equivalents at end of period.................. $ 33,960 $ 29,920
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-117
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1999
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by Spyglass, Inc.
(the "Company") in accordance with generally accepted accounting principles,
although certain information and footnote disclosures normally included in the
Company's audited annual financial statements have been condensed or omitted. In
the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the Company's financial position, results of
operations and cash flows at the dates and for the periods indicated. It is
suggested that these interim financial statements be read in conjunction with
the audited financial statements for the fiscal years ended September 30, 1999,
1998 and 1997 which are included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1999.
The results of operations for the three months ended December 31, 1999 are
not necessarily indicative of the results of operations to be expected for the
full fiscal year.
NOTE 2. PER SHARE INFORMATION
Earnings per share-basic was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Earnings
per share-diluted was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all common shares that
would have been outstanding if potentially dilutive common shares had been
issued.
The table below reconciles the number of shares utilized in the earnings per
share calculations for the three months ended December 31, 1999, and 1998,
respectively.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Weighted average number of common shares
outstanding--basic........................................ 16,598 15,714
Effect of dilutive securities, stock warrants............... 250 --
------ ------
Effect of dilutive securities, stock options................ 1,927 --
------ ------
Weighted average number of common shares
outstanding--diluted...................................... 18,775 15,714
====== ======
</TABLE>
NOTE 3. COMPREHENSIVE INCOME (LOSS)
During the three months ended December 31, 1999, total comprehensive income,
net of taxes, amounted to $39,429,000 compared to a comprehensive loss of
$1,693,000 for the same period in 1998.
F-118
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
DECEMBER 31, 1999
NOTE 3. COMPREHENSIVE INCOME (LOSS) (CONTINUED)
The components of comprehensive income (loss) for the three-month period ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)........................................... $24,812 $(1,693)
Unrealized gains on securities, net of tax.................. 14,617 --
------- -------
Comprehensive income (loss)................................. $39,429 $(1,693)
======= =======
</TABLE>
Accumulated other comprehensive income at December 31, 1999 and
September 30, 1999, which consisted of unrealized gain on securities, were
$14,617 and $0, respectively.
NOTE 4. DEFERRED COMPENSATION PLAN
Effective November 1, 1999 the Company instituted a nonqualified, unfunded
deferred compensation plan which permits officers and highly compensated
employees to elect to defer receipt of up to 75% of their annual salary and up
to 100% of their bonus and/or commission. Effective January 1, 2000, the Company
began to provide a matching contribution of $.50 for each dollar deferred up to
an annual per participant maximum of $10,000. Participants are 100% vested in
their deferral account and vest in the Company's matching account based on the
number of years in which they have participated in the plan. Acceleration to
100% of the Company's matching account may occur under certain circumstances
such as retirement, disability, death, or a change in control, as defined in the
plan. Gains or losses are posted to a participant's account in accordance with
their selection in certain measurement funds specified in the plan.
The accompanying consolidated balance sheet for December 31, 1999 includes
the deferred compensation liability, including investment earnings thereon, that
are owed to the participants. The accompanying consolidated balance sheet for
December 31, 1999 also include investments held in a newly established deferred
compensation trust. The Company believes that its funding of this trust is
adequate to provide, on a present value basis, for its respective future
liabilities created with respect to the combined projected deferral amounts
through December 31, 2000. These investments remain assets of the Company and
are available to general creditors of the Company in the event of the Company's
insolvency.
NOTE 5. TRANSACTION WITH JSB SOFTWARE TECHNOLOGIES
On September 20, 1999 the Company signed a definitive agreement to sell
Surfwatch Software Inc. ("SurfWatch"), a subsidiary of the Company, to JSB
Software Technologies, plc ("JSB"). This transaction was completed on
November 4, 1999 at which time Spyglass received consideration of $17 million
cash and 800,000 shares of JSB (EASDAQ: JSBS) valued at $12 million on the date
of the transaction. This transaction resulted in a pre-tax gain of
$27.4 million. Additionally, as a result of this transaction, $25.4 million of
the Company's net operating loss carryforwards was utilized to offset most of
the related tax liability.
F-119
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
DECEMBER 31, 1999
NOTE 6. RESTRUCTURING CHARGE
In the first quarter of fiscal 2000 the Company recorded a non-recurring
restructuring charge consisting primarily of severance and related personnel
costs associated with the organizational realignment of the Company's
professional services group. This realignment was completed in November 1999 and
resulted in a restructuring charge of $859,000. Approximately $254,000 of this
restructuring charge was included in accrued expenses and other liabilities at
December 31, 1999.
F-120
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Spyglass, Inc.
We have audited the consolidated balance sheets of Spyglass, Inc. and
subsidiaries as of September 30, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the three years in the period ended September 30, 1999. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Spyglass, Inc.
and subsidiaries at September 30, 1999 and 1998, and the consolidated results of
their operations and their cash flows for the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
October 19, 1999,
except for Note 14,
as to which the date is November 4, 1999
F-121
<PAGE>
SPYGLASS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net revenues:
Internet technology....................................... $13,493 $ 11,661 $ 17,194
Service................................................... 16,117 9,508 4,101
------- -------- --------
Total net revenues.................................... 29,610 21,169 21,295
Cost of revenues:
Internet technology....................................... 1,220 1,843 1,535
Service................................................... 8,909 3,716 1,493
------- -------- --------
Total cost of revenues................................ 10,129 5,559 3,028
------- -------- --------
Gross profit................................................ 19,481 15,610 18,267
Operating expenses and other:
Sales and marketing....................................... 8,218 9,101 8,311
Research and development, net of funding received of
$1,606 and $250 in 1998 and 1997, respectively.......... 7,970 10,670 16,768
General and administrative................................ 6,313 6,626 7,965
Restructuring charge...................................... -- -- 900
One-time acquisition costs................................ 259 496 --
------- -------- --------
Total operating expenses and other.................... 22,760 26,893 33,944
Loss from operations........................................ (3,279) (11,283) (15,677)
Other income, net........................................... 1,382 1,251 1,526
------- -------- --------
Loss before income taxes.................................... (1,897) (10,032) (14,151)
Income tax benefit.......................................... -- -- --
------- -------- --------
Net loss.................................................... $(1,897) $(10,032) $(14,151)
======= ======== ========
Net loss per common share-basic and diluted................. $ (0.12) $ (0.69) $ (1.07)
Weighted average number of common shares outstanding--basic
and diluted............................................... 16,029 14,543 13,238
======= ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-122
<PAGE>
SPYGLASS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,613 $ 22,706
Short-term investments.................................... 10,735 --
Accounts receivable, net of allowance for doubtful
accounts of $494 and $429, respectively................. 8,731 4,704
Unbilled accounts receivable.............................. 899 902
Prepaid expenses and other current assets................. 2,420 2,489
-------- --------
Total current assets.................................. 41,398 30,801
Properties and equipment, net............................... 3,897 3,888
Other assets................................................ 478 291
-------- --------
Total Assets.......................................... $ 45,773 $ 34,980
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,396 $ 1,678
Royalties payable......................................... 397 541
Deferred revenues......................................... 1,477 861
Accrued compensation and related benefits................. 1,680 1,624
Accrued expenses and other liabilities.................... 249 419
-------- --------
Total current liabilities............................. 6,199 5,123
Long-term deferred revenues................................. 326 50
-------- --------
Total liabilities..................................... 6,525 5,173
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued................................. -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 16,581,731 and 15,083,239 shares issued and
16,504,517 and 15,073,525 shares outstanding,
respectively............................................ 165 150
Additional paid-in capital................................ 62,221 50,546
Accumulated deficit....................................... (22,194) (20,297)
Treasury stock at cost, 77,214 and 9,714 shares,
respectively............................................ (56) (55)
Unamortized value of restricted stock issued.............. (888) (537)
-------- --------
Total stockholders' equity............................ 39,248 29,807
-------- --------
Total Liabilities and Stockholders' Equity............ $ 45,773 $ 34,980
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-123
<PAGE>
SPYGLASS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TREASURY UNAMORTIZED
ADDITIONAL COMMON STOCK VALUE OF
COMMON STOCK PAID-IN ACCUMULATED ------------------- RESTRICTED
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT STOCK ISSUED
------------ -------- ---------- ----------- -------- -------- ------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1996................ 12,968,065 $129 $ 39,340 $ 3,924 -- $ -- $ --
Exercise of stock options......... 497,882 5 731
Exercise of employee stock
purchase plan stock options..... 45,396 1 362
Issuance of incentive stock
options......................... 80
Conversion of preferred stock into
common stock.................... 5,509
Accelerated vesting of options.... 232
Net loss.......................... (14,151)
---------- ---- -------- -------- ------- ---- ------
BALANCE AT
SEPTEMBER 30, 1997................ 13,511,343 135 46,254 (10,227) -- -- --
Adjustment for acquisition
accounted for as a pooling of
interests....................... 639,246 6 204 (38)
Exercise of stock options......... 658,327 6 1,519
Exercise of employee stock
purchase plan stock options..... 74,323 1 391
Issuance of restricted stock...... 200,000 2 1,011 (1,011)
Amortization of deferred
compensation relating to
issuance of restricted stock.... 474
Purchase of treasury stock........ 9,714 (55)
Conversion of preferred stock into
common stock.................... 1,152
Accelerated vesting of options.... 15
Net loss.......................... (10,032)
---------- ---- -------- -------- ------- ---- ------
BALANCE AT
SEPTEMBER 30, 1998................ 15,083,239 150 50,546 (20,297) 9,714 (55) (537)
Sale of common stock to
General Instrument.............. 700,000 7 7,385
Exercise of stock options......... 656,913 7 3,240
Exercise of employee stock
purchase plan stock options..... 47,979 -- 467
Issuance of restricted stock...... 93,600 1 1,020 (1,020)
Repurchase of restricted stock.... (437) 67,500 (1) 437
Amortization of deferred
compensation relating to
issuance of restricted stock.... 232
Net loss.......................... (1,897)
---------- ---- -------- -------- ------- ---- ------
BALANCE AT
SEPTEMBER 30, 1999................ 16,581,731 $165 $ 62,221 $(22,194) 77,214 $(56) $ (888)
========== ==== ======== ======== ======= ==== ======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-124
<PAGE>
SPYGLASS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $ (1,897) $(10,032) $(14,151)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 1,982 2,097 1,752
Amortization............................................ 869 1,315 157
Loss on disposal of fixed assets...................... 19 15 99
Issuance of warrants to purchase common stock in
exchange for non-cash common stock.................... -- 42 --
Amortization of deferred compensation related to
issuance of restricted stock.......................... 232 474 --
Bad debt provision...................................... 308 309 1,029
Stock option compensation............................... -- 113 312
Changes in operating assets and liabilities:
Accounts and long-term receivables...................... (4,285) (783) 3,155
Unbilled accounts receivable............................ 3 (902) --
Prepaid expenses, other current assets and other
assets................................................ (1,037) (54) (1,015)
Accounts payable........................................ 718 (368) 474
Royalties payable....................................... (144) 196 (358)
Deferred revenues....................................... 892 (819) (307)
Accrued compensation and related benefits............... 56 (993) 955
Research and development funding advance................ -- 144 --
Accrued expenses and other liabilities.................. (170) 52 107
-------- -------- --------
Net cash used in operating activities................... (2,454) (9,194) (7,791)
-------- -------- --------
Cash Flows From Investing Activities:
Cash acquired in business combination..................... -- 574 --
Short-term investments, net activity...................... (10,735) 4,929 12,664
Net proceeds from sale of fixed assets.................... 10 82 32
Capital expenditures...................................... (2,020) (656) (3,524)
-------- -------- --------
Net cash provided by (used in) investing activities..... (12,745) 4,929 9,172
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options................... 3,714 1,917 1,099
Proceeds from issuance of preferred stock................. -- 1,000 3,000
Proceeds from issuance of common stock.................... 1 12 --
Proceeds from issuance of convertible notes payable....... -- -- 2,009
Sale of common stock to General Instrument................ 7,392 -- --
Purchase of treasury stock................................ (1) (55) --
-------- -------- --------
Net cash provided by financing activities............... 11,106 2,874 6,108
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (4,093) (1,391) 7,489
Cash and cash equivalents at beginning of period............ 22,706 24,097 16,608
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 18,613 $ 22,706 $ 24,097
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes.................................. $ -- $ 6 $ 28
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-125
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Spyglass, Inc. ("Spyglass" or the "Company") develops, markets and
distributes Internet client and server technologies designed to be incorporated
into a variety of Internet-based products, including but not limited to wireless
phones, Internet screen phones, televisions, television set-top boxes, office
equipment, network computers and Internet access services. The Company's
technology offerings include Spyglass Device Mosaic, Spyglass Prism, Nokia's WAP
Microbrowser, Spyglass MicroServer, Spyglass Device Mail, Spyglass Thin GUI
Library and SurfWatch products. These technologies are used to bring Internet
functionality to customer's products and services. The Company also offers
Internet consulting and custom engineering services through its professional
services organization.
On November 4, 1999, the Company sold SurfWatch Software, Inc. ("Surfwatch")
to JSB Software Technologies, plc ("JSB") for cash and securities in JSB. See
Note 14.
On April 16, 1999, the Company acquired Navitel Communications, Inc.
("Navitel") in a transaction accounted for as a pooling of interests. Navitel,
located in Menlo Park, California, is engaged in the business of Internet
telephony and software development focused on Internet technology for
information appliances. This transaction was effected through the exchange of
1,148,520 shares of common stock of Spyglass for all of the issued and
outstanding shares of Navitel. As a result, all financial information includes
the accounts and results of operations of Navitel for all periods presented from
its inception date, May 21, 1996.
There were no intercompany transactions between the Company and Navitel
prior to the merger and there were no significant accounting reclassifications
required to conform the financial reporting of the two companies. The following
information shows revenue and net income of the separate companies during the
periods preceding the combination (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
ENDED SEPTEMBER 30,
SIX MONTHS ENDED ---------------------
UNAUDITED MARCH 31, 1999 1998 1997
- --------- ----------------- --------- ---------
<S> <C> <C> <C>
Revenue:
Spyglass............................................. $10,822 $ 20,494 $ 21,295
Navitel.............................................. 2,369 675 --
------- -------- --------
$13,191 $ 21,169 $ 21,295
======= ======== ========
Net income (loss):
Spyglass............................................. $(2,102) (8,016) (9,735)
Navitel.............................................. 518 (2,016) (4,416)
------- -------- --------
$(1,584) $(10,032) $(14,151)
======= ======== ========
</TABLE>
In October 1998, General Instrument Corporation ("GI") acquired 700,000
shares of the Company's common stock for $7,392,000 and also acquired warrants
to purchase an additional 700,000 shares. The warrants have exercise prices
ranging from $13.20 to $14.78 per share (subject to adjustment in certain
circumstances), and become exercisable on varying dates over a five-year period.
In connection with this investment, the Company and GI entered into a three-year
agreement under which the Company is developing and integrating new Internet
cable services and technologies for GI's next generation digital set-top
platforms. This work is being performed through a subsidiary of the
F-126
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company, in which GI holds a 10% minority interest and which GI will have an
option to purchase at fair market value under certain circumstances.
On November 14, 1997, the Company acquired AllPen Software ("AllPen") in a
transaction accounted for as a pooling of interests. AllPen, located in Los
Gatos, California, develops software solutions and technologies and provides
professional services for the information appliance market. This transaction was
effected through the exchange of 639,246 shares of common stock of Spyglass for
all the issued and outstanding shares of AllPen. Because the effect of this
transaction was considered immaterial, Spyglass' financial statements were not
restated; instead, the Company's equity accounts were adjusted for the effect of
the pooling. In connection with the acquisition of AllPen, the Company recorded
a charge to operating expenses of $496,000 or $0.03 per share for direct
acquisition related costs consisting primarily of professional fees.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and each of its wholly-owned subsidiaries. The functional currency of the
Company's wholly-owned foreign subsidiaries is the U.S. dollar. All intercompany
transactions and balances between the companies have been eliminated in
consolidation and certain prior year amounts have been reclassified to conform
with the current year presentation. Furthermore, the consolidated financial
statements have been prepared to reflect the retroactive effect of Spyglass'
acquisition of Navitel, consummated in April 1999.
UNIVERSITY OF ILLINOIS AGREEMENT
The Spyglass Device Mosaic product was initially a commercial derivative
version of NCSA Mosaic-TM-. NCSA Mosaic was developed by the National Center for
Supercomputing Applications at the University of Illinois at Urbana-Champaign.
In May 1994, the Company and the University entered into an agreement which was
subsequently amended (the "University Agreement") granting the Company the
exclusive (subject to approximately 10 previously granted licenses), worldwide
right to develop, distribute and sublicense commercial client browsers based on
NCSA Mosaic. The University Agreement provided for royalties based on Spyglass'
net revenues from Device Mosaic, and included cumulative minimum quarterly
royalties. The University Agreement had an initial term of five years. In
June 1999, the Company and the University amended this Agreement and the Company
will no longer pay royalties for a license to the NCSA Mosaic product and will
only pay the University a minimal royalty associated with the Company's use of
the University's trademark "Mosaic-TM-." The University is no longer restricted
from the commercial licensing of the NCSA Mosaic product.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months or
less are considered cash equivalents.
F-127
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Investments with original maturities between three and twelve months are
considered short-term investments. Short-term investments consist of debt
securities such as commercial paper, time deposits, certificates of deposit,
bankers' acceptances, and marketable direct obligations of the U.S.Treasury.
OTHER ASSETS
The Company licenses certain technologies from third parties and records
prepaid royalty costs associated with these licenses. These prepaid royalty
costs are amortized as a percentage of revenues or over the expected period of
use. It is the Company's policy to periodically review and evaluate whether the
benefits associated with these prepaid royalties are expected to be realized
and, therefore, deferral and amortization are appropriate. Approximately
$162,000 and $857,000 of these prepaid royalties are included in prepaid
expenses and other current assets and approximately $4,000 and $118,000 are
included in other assets at September 30, 1999 and 1998, respectively.
PROPERTIES AND EQUIPMENT
Properties and equipment are stated at cost less accumulated depreciation.
Depreciation is determined for financial reporting purposes using the
straight-line method over the estimated useful lives of the assets, which range
from two to seven years. Depreciation for income tax reporting purposes is
determined using accelerated depreciation methods.
REVENUE RECOGNITION
The Company recognizes revenues from software licensing arrangements in
accordance with the provisions of Statement of Position ("SOP") 97-2, Software
Revenue Recognition. Internet technology revenues are generally recognized after
execution of a license agreement and delivery of the product, provided there are
no remaining obligations relating to development, upgrades, new releases, or
other future deliverables, and provided that the license fee is fixed or
determinable, and collection of the fee is probable. For contracts entered into
after October 1, 1998, the Company allocates revenue between the elements of the
arrangements based on the vendor-specific objective evidence of the fair value
of each of the elements. Service revenues are comprised of revenues from
customer support and professional services agreements. Revenues from the sale of
support agreements are recognized over the term of the agreement using the
straight-line method and related costs are included in operating expenses under
the sales and marketing classification. Revenues from professional services
agreements are recognized on the percentage of completion method based on the
hours incurred relative to total estimated hours for fixed bid contracts or
based on the hours incurred multiplied by the hourly rate for time and material
engagements. Related costs are reported as a cost of service revenues.
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, "Modifications of SOP 97-2, Software Revenue Recognition With
Respect to Certain Transactions." SOP 98-9 amends SOP 98-4 to extend the
deferral of the application of some passages provided by SOP 98-4 through fiscal
years beginning on or before March 15, 1999. All provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after
March 15, 1999. The Company believes the adoption of SOP 98-9 will not have a
material effect on its results of operations or financial condition.
F-128
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. During fiscal 1998
and 1997, Navitel received payments from Microsoft of $1,606,000 and $250,000,
respectively, for funding of software development for an Internet screen phone
product. Research and development expense in these years has been recorded net
of these payments.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
$346,000, $758,000, and $386,000 for the years ended September 30, 1999, 1998,
and 1997, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25, if
the Company's stock option plans are considered fixed plans, no compensation
expense is recognized if the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant. If
the option grants are not fixed at an amount at least equal to fair market
value, the Company recognizes compensation expense based on the intrinsic value
on the measurement date. The Company has included the disclosure provision of
Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting for
Stock-Based Compensation, which requires pro forma information regarding net
income and earnings per share determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement.
PER SHARE INFORMATION
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share, which was adopted by the Company in December 1997. SFAS
No. 128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effect of options, warrants and convertible securities.
Diluted earnings per share assumes the conversion of all securities which are
exercisable or convertible into common stock and which would either dilute or
not affect basic earnings per share. All earnings per share amounts for all
periods have been presented and, where necessary, restated to conform to SFAS
No. 128 requirements.
Earnings per share-basic was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Earnings
per share-diluted was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all common shares that
would have been outstanding if potentially dilutive common shares had been
issued. In years where the company incurs a net loss, the weighted average
number of common shares outstanding, basic and diluted, will be the same.
Accordingly, the weighted average number of common shares outstanding used in
the earnings per share calculations was 16,029,000 shares, 14,543,000 shares and
13,238,000 shares for the fiscal years ended September 30, 1999, 1998, and 1997,
respectively.
F-129
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE LOSS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", as of
December 31, 1998. Under SFAS No. 130, the Company is required to display
comprehensive income (loss) and its components as part of the financial
statements. Other comprehensive income includes changes in equity that are
excluded from net income (loss). Specifically, SFAS No. 130 requires unrealized
holding gains and losses on available-for-sale securities to be included in
accumulated and other comprehensive income. The Company has no material
components of other comprehensive loss and, as a result, the comprehensive loss
is the same as the net loss for all periods presented.
SEGMENT REPORTING
Effective October 1, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." SFAS No. 131 changes
the way companies report selected segment information in annual financial
statements and requires companies to report selected segment information in
interim financial reports to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company operates solely in one segment, and therefore
the adoption of this statement had no impact on the Company's financial
statements.
NOTE 2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The following is a summary of cash equivalents and short-term investments at
amortized cost:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial paper............................................ $ 5,269 $16,680
Money market................................................ 13,075 5,871
------- -------
Cash equivalents.......................................... 18,344 22,551
Cash........................................................ 269 155
------- -------
TOTAL CASH AND CASH EQUIVALENTS............................. $18,613 $22,706
======= =======
Commercial paper............................................ $10,735 $ --
------- -------
TOTAL SHORT-TERM INVESTMENTS................................ $10,735 $ --
======= =======
</TABLE>
Since commercial paper is short-term in nature, changes in market interest
rates would not have a significant impact on the fair value of these securities.
These securities are carried at amortized cost which approximates fair value. It
is the intent of the Company to hold these securities until maturity.
F-130
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. PROPERTIES AND EQUIPMENT
Properties and equipment and related accumulated depreciation were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................. $6,667 $5,650
Furniture, fixtures and office equipment.................... 2,361 2,070
Leasehold improvements and other............................ 1,098 583
------ ------
10,126 8,303
Less: Accumulated depreciation.............................. (6,229) (4,415)
------ ------
PROPERTIES AND EQUIPMENT, NET............................... $3,897 $3,888
====== ======
</TABLE>
NOTE 4. MICROSOFT AGREEMENTS
On January 21, 1997, the Company amended its license arrangement with
Microsoft. This amendment converted Microsoft's existing license for the
Spyglass Mosaic browser technology into a fully paid-up license in consideration
of an additional $8,000,000 payment from Microsoft. This payment consisted of
$7,500,000 in cash and $500,000 in software and product maintenance.
In July 1997, Navitel entered into a Joint Development and License Agreement
("July 1997 Agreement") with Microsoft in which Navitel agreed to jointly
develop software applications for an Internet screen phone running on the
Windows CE operating system. Navitel and Microsoft contributed intellectual
property, development, management and marketing resources to the venture and
maintained joint ownership interests in the Internet screen phone software
applications as developed.
The July 1997 Agreement called for sharing of all licensing revenues
received by either company related to the Internet screen phone software
applications. It also required Microsoft to make minimum payments to Navitel of
$1,000,000 per year for funding of the development efforts, notwithstanding any
licensing revenues received. Neither company received any licensing revenue
during fiscal 1998 or 1997. Navitel received $1,606,000 and $250,000 during
fiscal 1998 and 1997, respectively, which was recorded as received as funding
for research and development expenses and netted against research and
development expenditures.
In February 1998, Navitel entered into an agreement to perform certain
development services on behalf of Microsoft related to Windows CE and the
Internet screen phone software applications for a third-party OEM. The Company
agreed to perform these services for a fixed price of $750,000 which was
recognized using the percentage of completion method. Development services
related to this agreement were approximately 90% complete as of September 30,
1998. As such, Navitel recognized $675,000 of revenue from this agreement during
fiscal 1998. The remaining $75,000 was recognized during fiscal 1999.
F-131
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $ -- $ --
Foreign................................................. 213 121 94
State................................................... -- -- --
----- ----- ----
Total current....................................... 213 121 94
----- ----- ----
Deferred:
Federal................................................. (213) (121) (94)
State................................................... -- -- --
----- ----- ----
Total deferred...................................... (213) (121) (94)
----- ----- ----
PROVISION FOR INCOME TAXES.................................. $ -- $ -- $ --
===== ===== ====
</TABLE>
A reconciliation of income tax expense to the statutory federal income tax
rate follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes at statutory rate...................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit....... 4.8% 4.8% 4.8%
Valuation allowance......................................... (38.8)% (38.8)% (38.8)%
EFFECTIVE TAX RATE.......................................... 0.0% 0.0% 0.0%
===== ===== =====
</TABLE>
F-132
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES (CONTINUED)
Significant components of the Company's net deferred tax assets were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Accounts receivable......................................... $ 230 $ 189
Accrued expenses and other liabilities...................... 191 209
Net operating loss carryforwards............................ 15,774 12,157
Research and development tax credit carryforwards........... 2,440 2,275
Foreign tax credit carryforwards............................ 639 366
Amortization of deferred compensation relating to issuance
of restricted stock....................................... -- 184
Alternative minimum tax credit carryforwards................ 10 10
Other....................................................... -- 85
------- -------
Deferred tax assets..................................... 19,284 15,475
------- -------
DEFERRED TAX LIABILITIES:
Depreciation................................................ (47) (14)
------- -------
Deferred tax liabilities................................ (47) (14)
------- -------
Net deferred tax assets..................................... 19,237 15,461
Deferred tax asset valuation allowance...................... (19,237) (15,461)
------- -------
NET DEFERRED TAX ASSETS..................................... $ -- $ --
======= =======
</TABLE>
The Company changed from the cash to accrual basis for tax reporting
purposes at the time of filing its 1997 tax return; as such, 1997 amounts
included herein have been restated from the cash to accrual basis.
As of September 30, 1999, the Company had net operating loss carryforwards
for income tax purposes of approximately $40,706,000 which expire in the years
2006-2019. Of this amount, $21,426,000 relates to tax deductions generated by
the exercise of certain incentive stock options by employees which will be
available to reduce future income tax liabilities by a total of $8,298,000. Of
this tax benefit, $2,669,000 was credited to paid-in capital to offset deferred
tax liabilities. The remaining $5,629,000 is available to offset future deferred
tax liabilities as a credit to paid-in capital.
As of September 30, 1999, the Company had research and development credit
carryforwards of approximately $2,440,000, which are available to offset future
income tax liabilities and expire in the years 2006-2019.
Under the provisions of the Internal Revenue Code, certain substantial
changes in Navitel's ownership may result in a limitation on the amount of net
operating loss and tax credit carryforwards available annually to offset any
future taxable income. The amount of this annual limitation is determined based
upon Navitel's value prior to the ownership changes taking place.
The valuation allowance increased by $3,776,000 and $5,275,000 for the
fiscal years ended September 30, 1999 and 1998, respectively, and relates
primarily to increases in net operating loss carryforwards. The Company has
established the valuation allowance to defer recognition of potential
F-133
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES (CONTINUED) (CONTINUED)
tax benefits until such time that operating results can provide assurance that
these tax benefits will be recognized.
NOTE 6. CONVERTIBLE PREFERRED STOCK
In July 1997, Navitel issued 7,935,571 shares of Series A, B, and C
convertible preferred stock, $.001 par value per share, for $5,509,103. On
May 27, 1998, Navitel issued 1,204,820 shares of Series C convertible preferred
stock for $1,000,000. All convertible preferred stock was converted to shares of
Spyglass common stock on April 16, 1999 in connection with the acquisition of
Navitel by Spyglass, as discussed in Note 1.
NOTE 7. COMMON STOCK PURCHASE WARRANTS
In connection with the settlement of disputes arising over services
performed by certain vendors, Navitel issued to those vendors 33,500 and 200,000
warrants to purchase common stock at an exercise price of $0.08 on March 30,
1998 and June 11, 1998, respectively. Navitel recorded an expense related to the
issuance of these warrants of $41,638 for the year ended September 30, 1998.
Prior to the acquisition of Navitel by Spyglass, the holders of these common
stock purchase warrants exercised their rights to purchase a combined 233,500
shares of Navitel's common stock, which were converted to Spyglass common stock
in connection with the Navitel acquisition, as discussed in Note 1.
NOTE 8. STOCK INCENTIVE PLANS
The Company has a 1995 Stock Incentive Plan ("1995 Incentive Plan") which
replaced the Company's 1991 Stock Option Plan ("1991 Option Plan"), a 1995
Director Stock Option Plan ("1995 Director Option Plan"), and a 1991 Employee
Stock Bonus Plan ("1991 Bonus Plan") which was terminated effective June 27,
1995, when the Company completed its initial public offering. Accordingly,
options under the 1991 Option Plan and the 1991 Bonus Plan are not granted in
years after 1995 but remain outstanding.
The above plans enable the Company to grant options to purchase common
stock, to make awards of restricted common stock and to issue certain other
equity-related securities of the Company to any full or part-time employees,
officers, directors, consultants or independent contractors of the Company.
Stock options entitle the optionee to purchase common stock from the Company for
a specified exercise price during a period specified in the applicable option
agreement. Restricted stock awards entitle the recipient to purchase common
stock for a nominal amount from the Company under terms which provide for
vesting over a period of time and a right of repurchase in favor of the Company
of the unvested portion of the common stock subject to the award upon the
termination of the recipient's employment or other relationship with the
Company. The plans, except for the 1995 Director Option Plan, are administered
by the Compensation Committee of the Board of Directors, which selects the
persons to whom stock options and restricted stock awards are granted and
determines the number of shares of common stock covered by the option or award,
its exercise price or purchase price, its vesting schedule and, in the case of
stock options, its expiration date.
Furthermore, the above plans stipulate that the exercise price of any
incentive stock option shall not be less than 100% of the fair market value of
the common stock at the date of the grant or less than 110% of the fair market
value in the case of optionees holding more than 10% of the total
F-134
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCK INCENTIVE PLANS (CONTINUED)
combined voting power of all classes of stock of the Company. The exercise
periods of incentive stock options cannot exceed 10 years from the date of
grant, except for incentive stock options granted to optionees holding more than
10% of the total combined voting power of all classes of stock, which must be
exercised within five years. Non-qualified stock options, if any, must be
exercised within the time period set forth in the option agreement. Any portion
not exercised within the terms as stipulated in the option agreement shall be
forfeited.
The Company records as compensation expense the excess, if any, of the fair
market value of the common stock at the date of option grant over the option
exercise price. Any compensation expense is recognized ratably over the vesting
period of the options. The Company recorded compensation expense of
approximately $24,000, $112,000 and $312,000 for the years ended September 30,
1999, 1998 and 1997, respectively, relating to options granted with an exercise
price below the estimated fair market value of the common stock and the
acceleration of the vesting of stock options.
As a result of the acquisition of Navitel described in Note 1, the Company
substituted options covering 100,883 shares of Spyglass common stock for options
issued under the Navitel option plan and assumed the rights and obligations of
Navitel with respect to such outstanding options. The terms of the Navitel
option plan required accelerated vesting of up to 50% of the unvested options in
the event of the sale or merger of Navitel with the remaining unvested options
vesting over a period not to exceed one year from the closing date. As of
September 30, 1999, there were options to purchase 72,055 shares outstanding, of
which options for 63,897 shares were exercisable.
1995 STOCK INCENTIVE PLAN
The maximum number of shares of common stock which may be issued pursuant to
the 1995 Incentive Plan is 4,250,000 shares, subject to certain anti-dilution
adjustments. Options granted under the 1995 Incentive Plan generally become
exercisable over four years, commencing on the one-year anniversary of the date
of grant, and accumulate if not exercised. As of September 30, 1999, options to
purchase approximately 681,000 shares are available for issuance.
The 1995 Incentive Plan further provides for the granting of stock
appreciation rights ("SARs") subject to certain conditions and limitations to
holders of options under the 1995 Incentive Plan. SARs permit optionees to
surrender an exercisable option for any amount equal to the excess of the market
price of the common stock over the option price when the right is exercised.
There have been no SARs issued under this plan.
Furthermore, the 1995 Incentive Plan provides for the granting of awards of
restricted stock entitling recipients to purchase common stock from the Company
under terms which provide for vesting over a period of time, as determined by
the Board of Directors, and a right of repurchase in favor of the Company of the
unvested portion of the common stock subject to the award upon the termination
of the recipient's employment or other relationship with the Company. Awards of
293,600 shares of restricted stock, generally vesting over four years in equal
annual installments commencing on the one-year anniversary of the date of grant,
had been granted for a purchase price of $0.01 per share (and had a fair value
range of $5.063 - $13.25 on the date of issue) under this plan as of
September 30, 1999. As of September 30, 1999, 67,500 of such shares had been
repurchased by the Company at a price of $.01 per share. Upon issuance of stock
under the plan, unearned compensation equivalent to
F-135
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCK INCENTIVE PLANS (CONTINUED)
the excess of the market value at the date of grant over the purchase price is
offset against stockholders' equity and subsequently amortized over the periods
during which the restrictions lapse.
1995 DIRECTOR STOCK OPTION PLAN
Under the Company's 1995 Director Stock Option Plan, the maximum number of
shares of common stock that may be issued is 200,000 shares, subject to certain
anti-dilution adjustments. Each director initially elected to the Board of
Directors, who is not otherwise an employee, is granted an option, on the date
of initial election, to purchase 20,000 shares of common stock. Each such
director is also granted, on the date of each Annual Meeting of Stockholders, an
option to purchase 5,000 shares. Options become exercisable over four years,
commencing on the one-year anniversary of the date of grant, and accumulate if
not exercised. As of September 30, 1999, options for 95,000 shares were
outstanding, of which 31,200 were exercisable.
1995 EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1995 Employee Stock Purchase Plan ("Stock Purchase
Plan"), employees are granted the opportunity to purchase the Company's common
stock. The first offering under the Plan commenced on August 16, 1995 and
concluded February 15, 1996. Subsequent offerings begin on February 16 and
August 16 of each year and conclude on August 15 and February 15, respectively.
The price at which the employees may purchase the common stock is equal to 85%
of the closing price of the Company's common stock on the Nasdaq National Market
on the date the offering period commences or terminates, whichever is lower. A
total of 600,000 shares of common stock have been reserved under this plan. In
fiscal 1999, 1998 and 1997, 47,979 shares, 74,323 shares and 45,396 shares were
issued under the Stock Purchase Plan, respectively. As of September 30, 1999, a
total of 413,901 shares of common stock were reserved for future issuance.
1991 STOCK OPTION PLAN
The 1991 Option Plan was terminated effective June 27, 1995, when the
Company completed its initial public offering, and was replaced by the 1995
Stock Incentive Plan. Options granted under the 1991 Option Plan generally
become exercisable in four equal annual installments, commencing on the date of
grant and continuing through the third anniversary of the date of grant, and
accumulate if not exercised. Options to purchase 1,520,132 shares of common
stock, at prices ranging from $0.08 to $4.125 per share, have been granted.
F-136
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCK INCENTIVE PLANS (CONTINUED)
A summary of activity under the plans is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 2,508,540 $ 5.27 2,107,061 $ 5.49 2,128,801 $ 8.40
Granted.................................. 1,642,260 10.05 1,922,396 3.95 1,339,488 9.38
Exercised................................ (797,051) 4.02 (883,481) 1.75 (497,882) 1.62
Forfeited................................ (488,945) 7.32 (637,436) 6.76 (863,346) 11.86
--------- --------- ---------
Outstanding, end of year................. 2,864,804 $ 7.85 2,508,540 $ 5.27 2,107,061 $ 5.49
========= ========= =========
Weighted average remaining contractual
life................................... 8.45 8.54 8.81
Options exercisable at year-end.......... 753,697 752,313 633,766
Weighted average fair value of options
granted during the year................ $ 8.48 $ 4.93 $ 11.75
</TABLE>
A summary of information on stock options outstanding as of September 30,
1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------ ---------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.08-$4.375 609,086 6.68 $ 2.7632 352,545 $ 1.7070
$ 5.3125-$6.875 581,396 7.99 $ 6.1006 290,407 $ 6.2914
$ 7.00-$9.25 518,941 8.93 $ 8.6628 72,397 $ 7.4328
$ 9.50-$10.6875 480,381 8.93 $ 9.8228 32,748 $ 9.9914
$10.875-$11.375 357,500 9.77 $10.9240 5,600 $11.2500
$ 12.875-$13.25 317,500 9.72 $13.0728 -- --
--------- -------
$ 0.08-$13.25 2,864,804 8.45 $ 7.8539 753,697 $ 4.4540
========= =======
</TABLE>
F-137
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCK INCENTIVE PLANS (CONTINUED)
STOCK BASED COMPENSATION
Pro-forma information, as required by Statement of Financial Accounting
Standards No. 123, is as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS,EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net loss as reported........................................ $(1,897) $(10,032) $(14,151)
======= ======== ========
Pro forma net loss.......................................... $(4,707) $(13,864) $(18,933)
======= ======== ========
Net loss per share as reported.............................. $ (0.12) $ (0.69) $ (1.07)
======= ======== ========
Pro forma net loss per share................................ $ (0.29) $ (0.95) $ (1.43)
======= ======== ========
</TABLE>
In determining the fair value of the options, Spyglass used the
Black-Scholes model and assumed a risk free interest rate of 5.78%, 4.23%, and
6.0% and an expected stock price volatility of 99.8%, 90.0%, and 70.2% for 1999,
1998, and 1997, respectively. Spyglass also assumed expected lives of the
options ranging from five to six years and no dividends for all years. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, it requires the input of highly subjective
assumptions, including the expected stock price volatility. Because Spyglass'
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, the estimated valuations may not necessarily
provide a reliable measure of the fair value of Spyglass' options.
In determining the fair value of the options and warrants, Navitel used the
minimum value method with the following assumptions for grants during 1998 and
1997: no dividend yield or volatility; risk free interest rate of 4.23%, and
6.0%; and a weighted average expected option term of 5 years. Because changes in
the subjective input assumptions can materially affect the fair value estimate,
the estimated valuations may not necessarily provide a reliable measure of the
fair value of Navitel's options.
NOTE 9. STOCK OPTION EXCHANGE PROGRAM
The Company uses stock options as a significant element of the compensation
of employees, in part because it believes options provide an incentive to
employees to maximize shareholder value. Stock options also serve as a means of
retaining employees. Because the market value of the Spyglass' common stock in
early 1997 had fallen significantly below the exercise price of most outstanding
options, the value of such stock options as a means of motivating and retaining
employees had been significantly diminished. The Board of Directors concluded
that Spyglass needed to restore the value of the existing stock options as a
means of motivating and retaining employees in order to promote the successful
implementation of the Company's growth strategies.
As a result, on April 8, 1997, the Board of Directors approved a stock
option exchange program (the "Exchange Program"), pursuant to which full-time
permanent employees holding stock options under Spyglass's 1995 Stock Incentive
Plan were given the opportunity to exchange the unexercised
F-138
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCK OPTION EXCHANGE PROGRAM (CONTINUED)
portion of such options (the "Existing Options") for new options (the "New
Options") on a basis of four shares of common stock for every five shares
covered by the Existing Option and having an exercise price of $6.875 per share
(the fair market value of the Company's common stock on such date). The New
Options expire 10 years from the date of grant and have the same vesting
schedule and other terms as the Existing Options cancelled in exchange therefor.
Option holders who own more than 1% of Spyglass' outstanding common stock and
Directors were excluded from the Exchange Program. Stock option disclosures in
Note 8 have been adjusted to reflect options for approximately 235,000 shares
which were forfeited as a result of the Exchange Program.
NOTE 10. 401(K) SAVINGS PLAN
The Company has a salary reduction 401(k) retirement savings plan (the
"Plan") covering substantially all of the Company's employees. Participating
Spyglass employees may contribute an amount up to 15% of their eligible
compensation, subject to an annual limit. The Company, at the discretion of the
Board of Directors, may make contributions to the Plan. Spyglass contributed
$269,500, $273,200 and $269,000 to the Plan in fiscal 1999, 1998 and 1997,
respectively.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under non-cancelable operating lease
agreements and has sublease agreements expiring at various dates through fiscal
2005. At September 30, 1999, approximate future minimum lease commitments and
receipts under these leases and subleases were as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
COMMITMENTS SUBLEASE RECEIPTS
------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
2000........................................... $2,522 $455
2001........................................... 2,494 455
2002........................................... 2,446 228
2003........................................... 2,304 --
2004........................................... 2,105 --
2005........................................... 727 --
</TABLE>
Total rent expense under non-cancelable operating leases was approximately
$1,565,000, $1,633,000 and $1,429,000 for the years ended September 30, 1999,
1998 and 1997, respectively, net of sublease amounts of $703,000, $243,000 and
$31,000, respectively.
NOTE 12: SIGNIFICANT CUSTOMERS AND EXPORT REVENUES
Sales to a significant customer represented 22.4% and 39.5% of total net
revenues in fiscal 1999 and 1997, respectively. Sales to another significant
customer represented 11.6% of total net revenues in fiscal 1999. Sales to a
third significant customer represented 14.5% of total net revenues in fiscal
1998. Significant accounts receivable balances representing 46.7% of net
accounts receivable were attributable to three customers at the end of fiscal
1999. At the end of fiscal 1998, 38.6% of net accounts receivable were
attributable to three customers. Significant unbilled accounts receivable
balances representing 54.2% of total unbilled accounts receivable were
attributable to two customers at the end of fiscal 1999.
F-139
<PAGE>
SPYGLASS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: SIGNIFICANT CUSTOMERS AND EXPORT REVENUES (CONTINUED)
At the end of fiscal 1998, 84.0% of total unbilled accounts receivable were
attributable to four customers.
The Company exports products to diverse geographic areas. Substantially all
foreign sales, however, are transacted in U.S. dollars and therefore the Company
is not exposed to foreign currency market risk. Net export revenues by
geographic areas were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Japan....................................................... $3,064 $1,488 $ 583
Other International......................................... 2,879 899 1,113
------ ------ ------
Total net export revenues................................... $5,943 $2,387 $1,696
====== ====== ======
</TABLE>
NOTE 13. RESTRUCTURING CHARGE
On March 10, 1997, the Company consolidated its Champaign, Illinois
development operations with its Naperville, Illinois and Cambridge,
Massachusetts operations. This consolidation reflected the Company's evolution
from its desktop focus to the information appliance market and the realignment
of its product development activities with the needs of this market. A pre-tax
restructuring charge of $900,000 was recorded in the second quarter of fiscal
1997 and consisted primarily of severance and related personnel costs of
$730,000 and lease cancellation and other exit costs of $170,000. Included in
the charge for personnel costs was $100,000 of compensation expense related to
the acceleration of the exercisability of certain stock options. The
restructuring was completed as of September 30, 1997.
NOTE 14. SUBSEQUENT EVENTS
On September 20, 1999 the Company signed a definitive agreement to sell
Surfwatch Software Inc. to JSB. This transaction was completed on November 4,
1999, at which time Spyglass received consideration of $17 million cash and
800,000 shares of JSB (EASDAQ: JSBS) valued at $12 million on the date of the
transaction. This transaction resulted in a pre-tax gain of approximately
$27 million.
In the first quarter of the fiscal year ending September 30, 2000 the
Company recorded a non-recurring restructuring charge consisting primarily of
severance and related personnel costs associated with the organizational
realignment of the Company's professional services group. This realignment was
completed in November 1999 and resulted in a restructuring charge of
approximately $860,000.
NOTE 15. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
On March 26, 2000, OpenTV, a Delaware corporation ("OPTV"), agreed to
acquire the Company, as a result of which the stockholders of the Company will
become stockholders of OPTV. Under terms of the merger agreement, OPTV will
issue .7236 of Series A Ordinary Shares for every share of the Company's common
stock held on the record date of the transaction. The merger is subject to
customary conditions, including approval by the Company's stockholders, and if
approved, is expected to close in June 2000.
F-140
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,500,000 SHARES
[LOGO]
CLASS A ORDINARY SHARES
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS DATED APRIL 3, 2000
PROSPECTUS
[LOGO]
6,500,000 SHARES
MIH LIMITED
CLASS A ORDINARY SHARES
---------------
We are offering 2,972,208 of our Class A Ordinary Shares and a selling
stockholder is offering 3,527,792 of our Class A Ordinary Shares. We will not
receive any of the proceeds from the selling stockholder's sale of its shares.
The U.S. underwriters will offer 1,300,000 shares in the United States and
Canada and the international managers will offer 5,200,000 shares outside the
United States and Canada. Our shares are listed on the Nasdaq National Market
and the Amsterdam Stock Exchange under the symbol "MIHL." On March 15, 2000, the
last reported sale price for our shares was $60 1/2 on the Nasdaq National
Market and $74 on the Amsterdam Stock Exchange.
INVESTING IN THE SHARES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discount.................................. $ $
Proceeds, before expenses, to MIH Limited.............. $ $
Proceeds, before expenses, to the selling
stockholder.......................................... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 195,000 shares
from us at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an aggregate of an
additional 780,000 shares from us.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------------
MERRILL LYNCH INTERNATIONAL MEESPIERSON N.V.
---------------
The date of this prospectus is , 2000.
<PAGE>
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in an international purchase
agreement among us, the selling stockholder and each of the underwriters named
below and concurrently with the sale of 1,300,000 Class A Ordinary Shares to the
U.S. underwriters, we and the selling stockholder have agreed to sell to each of
the international managers, and each of the international managers for whom
Merrill Lynch International and MeesPierson N.V. are acting as representatives
has severally agreed to purchase from us and the selling stockholder, 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.................................
MeesPierson N.V.............................................
----------
Total................................................. 5,200,000
==========
</TABLE>
We and the selling stockholder have also entered into a U.S. purchase
agreement with certain underwriters in the United States and Canada for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative.
Subject to the terms and conditions set forth in the U.S. purchase agreement,
and concurrently with the sale of 5,200,000 Class A Ordinary Shares to the
international managers pursuant to the international purchase agreement, we and
the selling stockholder have agreed to sell to the U.S. underwriters, and the
U.S. underwriters severally and not jointly have agreed to purchase, an
aggregate of 1,300,000 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 each 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.
We have 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.
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.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
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
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<PAGE>
intersyndicate agreement, the U.S. 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 manager 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.
OVER-ALLOTMENT OPTION
We have granted an option to the international managers, exercisable for
30 days after the date of this prospectus, to purchase up to an aggregate of
780,000 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 solely to cover over-allotments,
if any, made on the sale of our 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.
We also have 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
195,000 additional Class A Ordinary Shares to cover over-allotments, if any, on
terms similar to those granted to the international managers.
COMMITMENTS
The international representatives have advised us 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. After the offerings, the public offering price and
concession may be changed.
NO SALES OF SIMILAR SECURITIES
We and our directors and executive officers have agreed, subject to certain
exceptions, not to directly or indirectly (1) 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 (2) 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.
MIH (BVI) Limited and SSIH have agreed not to, directly or indirectly, dispose
of any of our ordinary shares for a period of 180 days after the date of this
prospectus.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of 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.
116
<PAGE>
representative is 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.
representative may reduce that short position by purchasing Class A Ordinary
Shares in the open market. The U.S. representative may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. representative 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.
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 our company 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 our company 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.
SALE OF SECURITIES IN THE UNITED KINGDOM
Each international manager agrees that (1) it has not offered or sold and,
for a period of six months following consummation of the offering, 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, (2) it has compiled 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 (3) it has only issued or passed on and will only issues 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 II(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996 (as amended) or to a person whom the
document may otherwise lawfully be issued or passed on.
DISCRETIONARY ACCOUNTS
The underwriters do not intend to confirm sales of Class A Ordinary Shares
offered hereby to any accounts over which they exercise discretionary authority.
OTHER RELATIONSHIPS
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 us and our affiliates. In connection with rendering such
services in the past, such underwriters have received customary compensation,
including reimbursement of related expenses.
117
<PAGE>
LEGAL MATTERS
The validity of our 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 us by Cravath, Swaine & Moore, New
York, New York. Matters relating to Dutch tax law have been passed upon for us
by Nauta Dutilh, Rotterdam, The Netherlands. Certain United States legal matters
will be passed upon for the underwriters by Simpson Thacher & Bartlett, New
York, New York.
EXPERTS
Our consolidated balance sheets as of March 31, 1999 and 1998, 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,
1999, were audited by PricewaterhouseCoopers Inc., independent accountants. The
combined balance sheet of the Acquired MIH Businesses as of March 31, 1997 and
the related combined statement of operations and cash flow and changes in net
deficit for the year ended March 31, 1997 appearing in this prospectus were
audited by Coopers & Lybrand, independent accountants. The consolidated balance
sheet of United Broadcasting Corporation Public Company Limited and its
subsidiaries as at March 31, 1999 and the related statement of loss and deficit,
change in shareholders' equity and cash flow for the year then ended were
audited by PricewaterhouseCoopers, independent accountants. The audited
financial statements included in this prospectus have been included in reliance
on the reports of such firms, given on the authority of said firms as experts in
accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Spyglass, Inc. at September 30, 1999 and 1998, and for the years
ended September 30, 1999, 1998 and 1997, as set forth in their report. The
financial statements are included in this prospectus and the Registration
Statement of which this prospectus forms a part in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information as of
September 30, 1999, and for the six months ended September 30, 1999 and 1998,
contained in this prospectus, 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.
118
<PAGE>
ADDITIONAL INFORMATION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by us and the selling stockholder in connection
with the sale of our Class A 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........................................ $ 129,504
NASD filing fee............................................. 30,500
Nasdaq National Market listing fee.......................... 17,500
Amsterdam Stock Exchange listing fee........................ 5,000
Printing, mailing and engraving expenses.................... 300,000
Legal fees and expenses..................................... 1,000,000
Accounting fees and expenses................................ 300,000
Miscellaneous expenses...................................... 217,496
----------
Total....................................................... 2,000,000
==========
</TABLE>
A copy of this prospectus, including the financial statements, and our
Memorandum and Articles are available free of charge 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. For purposes of the Amsterdam Stock Exchange,
our Memorandum and Articles are incorporated herein by reference.
The issuance of the Class A Ordinary Shares being offered by us in these
offerings was authorized by resolutions of our board of directors on March 15,
2000. Application has been made for listing of these shares on the Amsterdam
Stock Exchange.
Other than as disclosed herein, there has been no material adverse change in
the financial condition or results of operations of our company since March 31,
1999.
We, having made all reasonable enquiries, confirm that, to the best of our
knowledge and belief as of the date hereof, the information contained in the
prospectus relating to us, is accurate and this prospectus does not omit to
state any material fact the omission of which would make any such information
misleading. We are responsible for the accuracy and the completeness of the
information contained in this prospectus.
119
<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
our Ordinary Shares. 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. In this respect, a major
tax reform is pending which should become effective as of January 1, 2001 (see
"Tax Reform 2001" below). 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 a resident or deemed to be a
resident in the Netherlands 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 us as well as on certain distributions deemed made by us
as described below unless such Netherlands Ordinary Shareholder has a
substantial interest in us (see "Substantial interest" below).
DISTRIBUTIONS TO NETHERLANDS ORDINARY SHAREHOLDERS. Distributions made by
us to Netherlands Ordinary Shareholders 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;
(ii) liquidation proceeds, proceeds of redemption of Ordinary Shares or, as
a rule, consideration for the repurchase (buy-back) of Ordinary Shares
by us in excess of the average paid-in capital recognized for
Netherlands income tax purposes;
(iii) the par value of Ordinary Shares issued to a Netherlands Ordinary
Shareholder or an increase of the par value of Ordinary Shares, as the
case may be, to the extent that it does not appear that a contribution
has or will be made in respect thereof; and
(iv) partial repayment of paid-in capital, if and to the extent that there
are anticipated net profits, unless the general meeting of shareholders
has resolved in advance to make such repayment and provided that the
par value of the Ordinary Shares concerned has been reduced by the same
amount pursuant to an amendment of the articles of association.
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 us. Generally, a holder of Ordinary Shares will not have a
substantial interest in us, 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
our total issued and
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outstanding capital (or the issued and outstanding capital of any class of
Ordinary Shares), 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 our total issued and outstanding capital (or the issued and outstanding
capital of any class of Ordinary Shares) or the ownership of certain profit
participating certificates that relate to five percent or more of our annual
profit and/or to five percent or more of our liquidation proceeds. 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 us as well as with respect to certain
distributions deemed made by us 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.
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 year 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.
TAX REFORM 2001
In the Netherlands, a major tax reform is pending which should become
effective as of January 1, 2001. It will, in particular, change the taxation in
relation to shares held by Netherlands Ordinary Shareholders. According to the
proposed legislation, Dutch individual resident shareholders will be taxed
annually at a rate of 30% on a deemed income of 4% of the annual average value
of the shares, regardless of whether any dividends are received, capital gains
are realized, or capital losses are
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suffered. The Netherlands Ordinary Shareholder will only be subject to the above
tax to the extent certain thresholds are exceeded. In addition, the net wealth
tax would be abolished in the new system. Because this legislation is still
pending, it is subject to change. Prospective investors who wish to assess the
consequences for their tax position as a result of this tax reform should
consult their own tax advisors.
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.
114
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,500,000 SHARES
[LOGO]
CLASS A ORDINARY SHARES
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH INTERNATIONAL MEESPIERSON N.V.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the ordinary shares being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee........................................ $ 129,504
NASD filing fee............................................. 30,500
Nasdaq National Market listing fee.......................... 17,500
Amsterdam Stock Exchange listing fee........................ 5,000
Printing, mailing and engraving expenses.................... 300,000
Legal fees and expenses..................................... 1,000,000
Accounting fees and expenses................................ 300,000
Miscellaneous expenses...................................... 217,496
----------
Total................................................. $2,000,000
==========
</TABLE>
-------------------------------
* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Memorandum and Articles provide that, to the fullest extent
permitted by British Virgin Islands law or any other applicable laws, directors
of the Registrant will not be personally liable to the Registrant 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 Registrant issued a convertible note in the amount 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 consummation of the Registrant's initial public offering
of its Class A Ordinary Shares (which occurred on April 13, 1999), this note was
converted into 2,581,775 Class A Ordinary Shares. The number of shares received
by Thomson Consumer Electronics upon such conversion was equal to the face
amount of the note plus accrued interest at a rate of 7% per annum divided by
the price of the Class A Ordinary Shares of the registrant sold in its initial
public offering. Exemption of the issuance of the note and the conversion of the
note into Class A Ordinary Shares was claimed under Section 4(2) of the
Securities Act of 1933.
II-1
<PAGE>
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.
2.1 Agreement and Plan of Merger and Reorganization dated
March 26, 2000 among OpenTV Corp., Sonnet Acquisition Corp.
and Spyglass, Inc.
3.1 # Memorandum of Association of the Registrant.
3.2 # Articles of Association 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.
10.12 # Shareholders' Agreement dated June 22, 1993 among
Johannesburg Consolidated Investment Company, Limited, JCI
(Isle of Man) Limited, Electronic Media Network Limited,
M-Net (BVI) Limited and M-Net International Holdings
Limited, as amended.
10.13 ## Facilities Agreement dated December 10, 1999 among MIH
Limited, Villiers Securities Limited and ABSA Bank Limited.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.14+ Voting Pool Agreement dated March 17, 2000 between Naspers
Limited and MIH Limited.
10.15 ## MIH Limited Directors' Stock Option Plan.
10.16 ## Form of Stock Option Agreement under the Directors' Stock
Option Plan.
15.1 ## Letter re: unaudited interim financial information.
21.1 # Subsidiaries of the Registrant.
23.1 ## Consent of Harney Westwood & Riegels (one is included in
Exhibit 5).
23.2 ## Consent of PricewaterhouseCoopers Inc.
23.3 ## Consent of PricewaterhouseCoopers Inc. (successor to Coopers
& Lybrand).
23.4 ## Consent of PricewaterhouseCoopers ABAS Limited.
23.5 ## Consent of Nauta Dutilh.
23.6 Consent of Ernst & Young LLP.
24.1 ## Power of Attorney.
</TABLE>
- ------------------------
+ To be filed by amendment.
# Previously filed as an exhibit, bearing the same number, to the Registrant's
registration statement on Form F-1 (No. 333-74227).
## Previously filed as an exhibit.
* 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.
(b) Financial Statement Schedules
All financial schedules, 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 contained in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to 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. 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.
II-3
<PAGE>
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 this
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
Rule 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-4
<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 30th day of
March, 2000.
<TABLE>
<S> <C> <C>
MIH LIMITED
BY /S/ ALLAN M. ROSENZWEIG
-----------------------------------------
Allan M. Rosenzweig
Group Director -- Corporate Finance and
Director
</TABLE>
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following person in the capacities
and on the dates indicated on this 30th day of March, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board
-------------------------------------------
Theunissen Vosloo
* Chief Executive Officer and Director
-------------------------------------------
Jacobus D.T. Stofberg
* Director
-------------------------------------------
Jacobus P. Bekker
* General Counsel And Director
-------------------------------------------
A. Andre Coetzee
* Chief Executive Officer--Internet Operations
------------------------------------------- and Director
Johannes H.W. Hawinkels
* Chief Executive Officer--Mindport and Director
-------------------------------------------
Stephen G.J. Oldfield
* Director
-------------------------------------------
Stephan J.Z. Pacak
* Director
-------------------------------------------
William J. Raduchel
/s/ ALLAN M. ROSENZWEIG Group Director--Corporate Finance and Director
-------------------------------------------
Allan M. Rosenzweig
* Chief Financial Officer and Director
-------------------------------------------
Stephen F. Ward
*By: /s/ ALLAN M. ROSENZWEIG
Allan M. Rosenzweig
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
1.1+ U.S. Purchase Agreement.
1.2+ International Purchase Agreement.
2.1 Agreement and Plan of Merger and Reorganization dated
March 26, 2000 among OpenTV Corp., Sonnet Acquisition Corp.
and Spyglass, Inc.
3.1 # Memorandum of Association of the Registrant.
3.2 # Articles of Association 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.
10.12# Shareholders' Agreement dated June 22, 1993 among
Johannesburg Consolidated Investment Company, Limited, JCI
(Isle of Man) Limited, Electronic Media Network Limited,
M-Net (BVI) Limited and M-Net International Holdings
Limited, as amended.
10.13## Facilities Agreement dated December 10, 1999 among MIH
Limited, Villiers Securities Limited and ABSA Bank Limited.
10.14+ Voting Pool Agreement dated March 17, 2000 between Naspers
Limited and MIH Limited.
10.15## MIH Limited Directors' Stock Option Plan.
10.16## Form of Stock Option Agreement under the Director's Stock
Option Plan.
15.1 ## Letter re: unaudited interim financial information.
21.1 # Subsidiaries of the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
23.1 ## Consent of Harney Westwood & Riegels (one is included in
Exhibit 5).
23.2 ## Consent of PricewaterhouseCoopers Inc.
23.3 ## Consent of PricewaterhouseCoopers Inc. (successor to Coopers
& Lybrand).
23.4 ## Consent of PricewaterhouseCoopers ABAS Limited.
23.5 ## Consent of Nauta Dutilh.
23.6 Consent of Ernst & Young LLP.
24.1 ## Power of Attorney.
</TABLE>
- ------------------------
+ To be filed by amendment.
# Previously filed as an exhibit, bearing the same number, to the Registrant's
registration statement on Form F-1 (No. 333-74227).
## Previously filed as an exhibit.
* 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.
<PAGE>
AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION
BY AND AMONG
OPENTV CORP.,
SONNET ACQUISITION CORP.
AND
SPYGLASS, INC.
DATED AS OF MARCH 26, 2000
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER..........................................................2
1.1 The Merger.....................................................2
1.2 Effective Time; Closing........................................2
1.3 Effect of the Merger...........................................2
1.4 Certificate of Incorporation; Bylaws...........................2
1.5 Directors and Officers.........................................3
1.6 Effect on Capital Stock........................................3
1.7 Surrender of Certificates......................................4
1.8 No Further Ownership Rights in Company Common Stock............6
1.9 Lost, Stolen or Destroyed Certificates.........................6
1.10 Tax Consequences...............................................6
1.11 Taking of Necessary Action; Further Action.....................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY..........................6
2.1 Organization and Qualification; Subsidiaries...................7
2.2 Certificate of Incorporation and Bylaws........................7
2.3 Capitalization.................................................7
2.4 Authority Relative to this Agreement...........................9
2.5 No Conflict; Required Filings and Consents.....................9
2.6 Compliance; Permits...........................................10
2.7 SEC Filings; Financial Statements.............................11
2.8 No Undisclosed Liabilities....................................11
2.9 Absence of Certain Changes or Events..........................11
2.10 Absence of Litigation.........................................12
2.11 Employee Benefit Plans........................................12
2.12 Labor Matters.................................................15
2.13 Registration Statement/Joint Proxy Statement/Prospectus.......15
2.14 Restrictions on Business Activities...........................16
2.15 Title to Property.............................................16
2.16 Taxes.........................................................16
2.17 Environmental Matters.........................................18
2.18 Brokers.......................................................18
2.19 Intellectual Property.........................................18
2.20 Agreements, Contracts and Commitments.........................22
2.21 Insurance.....................................................24
2.22 Opinion of Financial Advisor..................................24
2.23 Board Approval................................................24
2.24 Vote Required.................................................24
2.25 State Takeover Statutes.......................................24
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Page
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB..................................................................24
3.1 Organization and Qualification; Subsidiaries..................25
3.2 Certificate of Incorporation and Bylaws.......................25
3.3 Capitalization................................................25
3.4 Authority Relative to this Agreement..........................26
3.5 No Conflict; Required Filings and Consents....................26
3.6 SEC Filings; Financial Statements.............................27
3.7 No Undisclosed Liabilities....................................27
3.8 Absence of Certain Changes or Events..........................27
3.9 Absence of Litigation.........................................28
3.10 Tax Matters...................................................28
3.11 Registration Statement; Joint Proxy Statement/Prospectus......28
3.12 Brokers.......................................................29
3.13 Opinion of Financial Advisor..................................29
3.14 Board Approval................................................29
3.15 Vote Required.................................................29
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...............................29
4.1 Conduct of Business by Company................................29
4.2 Conduct of Business by Parent.................................32
ARTICLE V ADDITIONAL AGREEMENTS..............................................33
5.1 Joint Proxy Statement/Prospectus; Registration Statement......33
5.2 Stockholder Meetings..........................................34
5.3 Confidentiality; Access to Information........................34
5.4 No Solicitation...............................................35
5.5 Public Disclosure.............................................36
5.6 Reasonable Efforts; Notification..............................37
5.7 Third Party Consents..........................................38
5.8 Stock Options and Warrants; 401(k) Plan.......................38
5.9 Form S-8......................................................38
5.10 Indemnification...............................................38
5.11 Nasdaq Listing................................................39
5.12 Affiliates....................................................39
5.13 Regulatory Filings; Reasonable Efforts........................39
5.14 Employee Benefits.............................................40
ARTICLE VI CONDITIONS TO THE MERGER..........................................40
6.1 Conditions to Obligations of
Each Party to Effect the Merger .............................40
6.2 Additional Conditions to Obligations of Company...............41
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
6.3 Additional Conditions to the
Obligations of Parent and Merger Sub .........................41
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................................42
7.1 Termination...................................................42
7.2 Notice of Termination; Effect of Termination..................44
7.3 Fees and Expenses.............................................44
7.4 Amendment.....................................................45
7.5 Extension; Waiver.............................................45
ARTICLE VIII GENERAL PROVISIONS..............................................46
8.1 Survival of Representations and Warranties....................46
8.2 Notices.......................................................46
8.3 Interpretation; Definitions...................................47
8.4 Counterparts..................................................48
8.5 Entire Agreement; Third Party Beneficiaries...................48
8.6 Severability..................................................48
8.7 Other Remedies; Specific Performance..........................48
8.8 Governing Law.................................................48
8.9 Rules of Construction.........................................49
8.10 Assignment....................................................49
INDEX OF EXHIBITS
Exhibit A-1....Form of Company Stockholder Agreement
Exhibit A-2....Form of Parent Stockholder Agreement
Exhibit B......Form of Stockholder Lock-Up Agreement
Exhibit C......Form of Affiliate Agreement
Exhibit D......Form of Company Tax Representation Letter
Exhibit E......Form of Parent Tax Representation Letter
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of March 26, 2000, among OpenTV Corp., a British Virgin Islands
corporation ("PARENT"), Sonnet Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Spyglass, Inc., a Delaware
corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("DELAWARE LAW"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger
(as defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of Company and fair to, and in the best interests
of, Company and its stockholders, (ii) has approved and declared advisable this
Agreement, and has approved the Merger (as defined in Section 1.1) and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Company adopt and approve this Agreement and
approve the Merger.
C. The Board of Directors of Parent (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Parent and is fair to, and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Parent approve the issuance of shares of
Parent Common Stock (as defined below) pursuant to the Merger (the "SHARE
ISSUANCE").
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, Douglas P.
Colbeth, Daryl J. Dahlberg, Martin J. Leamy, Randall T. Littleson, John S.
Pigott, Gary L. Vilchick, Charles T. Brumback, Brian J. Jackman, Gerald J. Popek
and John Shackleton, constituting all directors and executive officers of the
Company (the "KEY STOCKHOLDERS"), are entering into stockholder agreements in
the form attached hereto as EXHIBIT A-1 (the "COMPANY STOCKHOLDER AGREEMENTS");
and as a condition and inducement to Company's willingness to enter into this
Agreement, Myriad International Holdings BV is entering into a stockholder
agreement in the form attached hereto as EXHIBIT A-2 (the "PARENT STOCKHOLDER
AGREEMENT").
E. Concurrently with the execution of this Agreement and as a condition
and inducement to Parent's willingness to enter into this Agreement, the Key
Stockholders have entered into stock lock-up agreements in the form attached
hereto as EXHIBIT B (the "LOCK-UP Agreements").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
employees are entering into employment agreements (the "EMPLOYMENT AGREEMENTS").
<PAGE>
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
H. NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and Company shall continue as the surviving corporation. Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger) being
the "EFFECTIVE TIME") as soon as practicable on the Closing Date (as herein
defined). Unless the context otherwise requires, the term "AGREEMENT" as used
herein refers collectively to this Agreement and Plan of Merger and
Reorganization and the Certificate of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, California, at a time and date to
be specified by the parties, which shall be no later than the second business
day after the satisfaction or waiver of the conditions set forth in Article VI,
or at such other time, date and location as the parties hereto agree in writing
(the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that at the Effective Time the
Certificate of Incorporation of the Surviving Corporation shall be amended so
that the name of the Surviving Corporation shall be "Spyglass, Inc."
- 2 -
<PAGE>
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common
Stock, $0.01 par value per share, of Company (the "COMPANY COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, other than any shares
of Company Common Stock to be canceled pursuant to Section 1.6(b), will be
canceled and extinguished and automatically converted (subject to Sections
1.6(e) and (f)) into the right to receive that number of Class A Ordinary
Shares, $0.01 par value per share, of Parent (the "PARENT COMMON STOCK") equal
to 0.7236 (the "EXCHANGE RATIO"). Certificates evidencing such shares of Parent
Common Stock shall be issued upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in Section 1.7 (or in the
case of a lost, stolen or destroyed certificate, upon delivery of an affidavit
(and bond, if required) in the manner provided in Section 1.9). If any shares of
Company Common Stock outstanding immediately prior to the Effective Time are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
agreement with the Company, then the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends. The Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
(b) CANCELLATION OF PARENT-OWNED STOCK. Each share of Company
Common Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of Company or of Parent immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) STOCK OPTIONS; EMPLOYEE STOCK PURCHASE PLAN. At the
Effective Time, all options to purchase Company Common Stock and stock
appreciation rights then outstanding under Company's 1995 Stock Incentive Plan,
as amended (the "INCENTIVE PLAN"), Company's 1991 Stock Option Plan (the "OPTION
PLAN"), Company's 1995 Director Stock Option Plan (the "DIRECTOR PLAN" and,
together with the Option Plan and the Incentive Plan, the "COMPANY OPTION
PLANS"), all outstanding warrants and each of the Company Option Plans shall be
assumed by Parent in accordance with Section 5.8 hereof. Rights outstanding
under the Company's 1995 Employee Stock
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Purchase Plan (the "ESPP") shall terminate in accordance with the terms of such
Plan prior to Closing.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock,
$0.01 par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, $0.01
par value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to Parent
Common Stock or Company Common Stock occurring on or after the date hereof and
prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificates(s) (as defined in Section 1.7(c))
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the average closing price of Parent Common Stock for the five trading days
immediately preceding the last full trading day prior to the Effective Time, as
reported on the Nasdaq National Market System ("NASDAQ").
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective
Time (and in any event within ten business days), Parent shall make available to
the Exchange Agent for exchange in accordance with this Article I, the shares of
Parent Common Stock issuable pursuant to Section 1.6 in exchange for outstanding
shares of Company Common Stock and cash in an amount sufficient for payment in
lieu of fractional shares pursuant to Section 1.6(f) and any dividends or
distributions to which holders of shares of Company Common Stock may be entitled
pursuant to Section 1.7(d).
(c) EXCHANGE PROCEDURES. As soon as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record (as of the Effective Time) of a certificate or certificates (the
"CERTIFICATES"), which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock whose shares were converted into the
right to receive shares of Parent Common Stock pursuant to Section 1.6, cash in
lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or
other distributions pursuant to Section 1.7(d),
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(i) a letter of transmittal in customary form (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall contain
such other provisions as Parent may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Parent Common Stock, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.7(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to the
payment of dividends, to evidence only the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and the right to receive an amount in cash in lieu
of the issuance of any fractional shares in accordance with Section 1.6(f) and
any dividends or distributions payable pursuant to Section 1.7(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in exchange
therefor along with payment in lieu of fractional shares pursuant to Section
1.6(f) hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates representing shares
of Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) REQUIRED WITHHOLDING. Each of the Exchange Agent, Parent and
the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes
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under this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
(g) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued in accordance with the terms hereof (together with
any cash paid in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d);
PROVIDED, HOWEVER, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the current officers and directors of
Company and Merger Sub will, to the extent reasonable, take all such lawful and
necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof, Company represents and warrants to Parent and
Merger Sub as follows, subject to such exceptions as are specifically disclosed
in writing in the disclosure schedule supplied
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by Company to Parent dated as of the date hereof (the "COMPANY Schedule"). The
Company Schedule shall be arranged in sections corresponding to the numbered and
lettered paragraphs contained in this Article II and the disclosure in any
section of the Company Schedule shall qualify other paragraphs in this Article
II only to the extent that it is reasonably apparent from a reading of such
disclosure that it also qualifies or applies to such other paragraph.
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each of Company and its subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("APPROVALS") necessary
to own, lease and operate the properties it purports to own, operate or lease
and to carry on its business as it is now being conducted, except where the
failure to have such Approvals would not, individually or in the aggregate, be
material to the Company. Each of Company and its subsidiaries is duly qualified
or licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, be material to the Company.
(b) Company has no subsidiaries except for the corporations
identified in Section 2.1(b) of the Company Schedule. Neither Company nor any of
its subsidiaries has agreed nor is obligated to make nor be bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of any
nature, as of the date hereof or as may hereafter be in effect (a "CONTRACT")
under which it may become obligated to make, any future investment in or capital
contribution to any other entity. Neither Company nor any of its subsidiaries
directly or indirectly owns any equity or similar interest in or any interest
convertible, exchangeable or exercisable for, any equity or similar interest in,
any corporation, partnership, joint venture or other business, association or
entity.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Company has previously
furnished to Parent a complete and correct copy of its certificate of
incorporation and bylaws as amended to date (together, the "COMPANY CHARTER
DOCUMENTS"). Such Company Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Company is
not in violation of any of the provisions of the Company Charter Documents, and
no subsidiary of Company is in violation of its equivalent organizational
documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of Company consists of
50,000,000 shares of Company Common Stock and 2,000,000 shares of Preferred
Stock ("COMPANY PREFERRED Stock"), each having par value $0.01 per share. At the
close of business on March 22, 2000 (i) 17,210,761 shares of Company Common
Stock were issued and outstanding, all of which are validly issued,
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fully paid and nonassessable; (ii) 9,714 shares of Company Common Stock were
held in treasury by Company or by subsidiaries of Company; (iii) 2,390,702
shares of Company Common Stock were reserved for issuance upon the exercise of
outstanding options to purchase Company Common Stock under the Incentive Plan;
(iv) 130,000 shares of Company Common Stock were reserved for issuance upon the
exercise of outstanding options to purchase Company Common Stock under the
Option Plan; (v) 120,000 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding options to purchase Company Common
Stock under the Director Plan; (vi) 27,929 shares of Company Common Stock were
reserved for issuance upon the exercise of other outstanding options to purchase
Company Common Stock; (vii) 1,110,929 shares of Company Common Stock were
available for future grant under the Incentive Plan; (viii) no shares of Company
Common Stock were available for future grant under the Option Plan (ix) 35,500
shares of Company Common Stock were available for future grant under the
Director Plan; and (x) 700,000 shares of Company Common Stock were reserved for
future issuance upon conversion of warrants of the Company. As of the date
hereof, no shares of Company Preferred Stock were issued or outstanding. Section
2.3(a) of the Company Schedule sets forth the following information with respect
to each Company Stock Option (as defined in Section 5.8) outstanding as of the
date of this Agreement: (i) the name of the optionee; (ii) the particular plan
pursuant to which such Company Stock Option was granted; (iii) the number of
shares of Company Common Stock subject to such Company Stock Option; (iv) the
exercise price of such Company Stock Option; (v) the date on which such Company
Stock Option was granted; (vi) the applicable vesting schedule; and (vii) the
date on which such Company Stock Option expires. Company has made available to
Parent accurate and complete copies of all stock option plans pursuant to which
the Company has granted such Company Stock Options that are currently
outstanding and the form of all stock option agreements evidencing such Company
Stock Options. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the instrument
pursuant to which they are issuable, would be duly authorized, validly issued,
fully paid and nonassessable. There are no commitments or agreements of any
character to which the Company is bound obligating the Company to accelerate the
vesting of any Company Stock Option as a result of the Merger. All outstanding
shares of Company Common Stock, all outstanding Company Stock Options, and all
outstanding shares of capital stock of each subsidiary of the Company have been
issued and granted in compliance with (i) all applicable securities laws and
other applicable Legal Requirements (as defined below) and (ii) all requirements
set forth in applicable Contracts. For the purposes of this Agreement, "LEGAL
REQUIREMENTS" means any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined below) and (ii) all requirements set
forth in applicable contracts, agreements, and instruments.
(b) Except for securities Company owns free and clear of all
liens, pledges, hypothecations, charges, mortgages, security interests,
encumbrances, claims, infringements, interferences, options, right of first
refusals, preemptive rights, community property interests or restriction of any
nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset) directly or indirectly through one or more subsidiaries, and except for
shares of capital stock or other similar ownership interests of subsidiaries of
the Company
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that are owned by certain nominee equity holders as required by the applicable
law of the jurisdiction of organization of such subsidiaries (which shares or
other interests do not materially affect the Company's control of such
subsidiaries), as of the date of this Agreement, there are no equity securities,
partnership interests or similar ownership interests of any class of equity
security of any subsidiary of the Company, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.3(a), there are no subscriptions,
options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Company or any of its subsidiaries is a
party or by which it is bound obligating Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of the Company or any of its subsidiaries or obligating the Company or
any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. As of the date of this Agreement, except as
contemplated by this Agreement, there are no registration rights and there is,
except for the Company Stockholder Agreements, no voting trust, proxy or rights
plan to which the Company or any of its subsidiaries is a party or by which they
are bound with respect to any equity security of any class of the Company or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries. Stockholders of the Company
will not be entitled to dissenters' rights under applicable state law in
connection with the Merger.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of the
stockholders of Company of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement, or to consummate the transactions so contemplated
(other than, with respect to the Merger, the approval and adoption of this
Agreement by holders of a majority of the outstanding shares of Company Common
Stock in accordance with Delaware Law and the Company Charter Documents). This
Agreement has been duly and validly executed and delivered by Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitutes legal and binding obligations of Company, enforceable against
Company in accordance with its terms.
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Company do
not, and the performance of this Agreement by Company shall not, (i) conflict
with or violate the Company Charter Documents or the equivalent organizational
documents of any of Company's subsidiaries, (ii) subject to obtaining the
approval of Company's stockholders of the Merger and compliance with the
requirements set forth in Section 2.5(b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default
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(or an event that with notice or lapse of time or both would become a default)
under, or impair Company's or any of its subsidiaries' rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Company
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or any of its subsidiaries is a party
or by which Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect could not in the case of clauses
(ii) or (iii), individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on Company.
(b) The execution and delivery of this Agreement by Company do
not, and the performance of this Agreement by Company shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "GOVERNMENTAL ENTITY"), except (A) for
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), state securities laws ("BLUE SKY LAWS"), the pre-merger
notification requirements (the "HSR APPROVAL") of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), the rules and
regulations of Nasdaq, and the filing and recordation of the Certificate of
Merger as required by Delaware Law and (B) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have a material adverse effect on the parties' ability
to consummate the Merger or perform their obligations under this Agreement.
2.6 COMPLIANCE; PERMITS.
(a) Neither Company nor any of its subsidiaries is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree (each, a "LAW") applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Company or any of its subsidiaries is a party or by which Company or
any of its subsidiaries or its or any of their respective properties is bound or
affected, except for any conflicts, defaults or violations that (individually or
in the aggregate) would not cause the Company to lose any material benefit or
incur any material liability. No investigation or review by any governmental or
regulatory body or authority is pending or, to the knowledge of Company,
threatened against Company or its subsidiaries, nor has any governmental or
regulatory body or authority indicated an intention to conduct the same, other
than, in each such case, those the outcome of which could not, individually or
in the aggregate, reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of material property by the Company or any of its
subsidiaries or the conduct of business by the Company or any of its
subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to operation of the business of Company and its subsidiaries taken
as a whole (collectively, the "COMPANY PERMITS").
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Company and its subsidiaries are in compliance in all material respects with the
terms of the Company Permits.
2.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Company has made available to Parent a correct and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Company with the Securities and Exchange Commission ("SEC")
after January 1, 1997 (the "COMPANY SEC REPORTS"), which are all the forms,
reports and documents required to be filed by Company with the SEC after January
1, 1997. The Company SEC Reports (A) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
filed on a timely basis and (B) did not at the time they were filed (and if
amended or superseded by a filing prior to the date of this Agreement then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of Company's subsidiaries is required to file any
reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the Company SEC Reports
was prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, for the absence of footnotes as permitted by Form 10-Q of the
Exchange Act) and each fairly presents the consolidated financial position of
Company and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal adjustments which were not or are not expected to be
material in amount.
(c) Company has previously furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Company
with the SEC pursuant to the Securities Act or the Exchange Act.
2.8 NO UNDISCLOSED LIABILITIES. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Company and its subsidiaries taken as a
whole, except (i) liabilities provided for in Company's balance sheet as of
December 31, 1999, (ii) liabilities incurred since December 31, 1999 in the
ordinary course of business, and in amounts consistent with past practice, and
(iii) contractual and other liabilities incurred in the ordinary course of
business which are not required by GAAP to be reflected on a balance sheet.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1999,
there has not been: (i) any Material Adverse Effect on Company, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Company's or any of
its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by Company of any of Company's capital stock or any other securities
of Company or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for
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repurchases from employees following their termination pursuant to the terms of
their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of Company's or any of its subsidiaries'
capital stock, (iv) any granting by Company or any of its subsidiaries of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation to non-officer employees in the ordinary course of business
consistent with past practice, or any payment by Company or any of its
subsidiaries of any bonus, except for bonuses made to non-officer employees in
the ordinary course of business consistent with past practice, or any granting
by Company or any of its subsidiaries of any increase in severance or
termination pay or any entry by Company or any of its subsidiaries into any
currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction involving
Company of the nature contemplated hereby, (v) entry by Company or any of its
subsidiaries into any licensing or other agreement with regard to the
acquisition or disposition of any Intellectual Property (as defined in Section
2.19) other than licenses in the ordinary course of business consistent with
past practice or any amendment or consent with respect to any licensing
agreement filed or required to be filed by Company with the SEC, (vi) any
material change by Company in its accounting methods, principles or practices,
except as required by concurrent changes in GAAP, or (vii) any revaluation by
Company of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable or
any sale of assets of the Company other than in the ordinary course of business.
2.10 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Company, threatened (or, to the
knowledge of Company, any governmental or regulatory investigation pending or
threatened) against Company or any of its subsidiaries or any properties or
rights of Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, except for any claims, actions, suits or proceedings which seek damages
of less than $250,000, do not seek injunctive relief, and do not challenge or
seek to prevent or delay the transactions contemplated by this Agreement.
2.11 EMPLOYEE BENEFIT PLANS.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments or other arrangements (whether or not set
forth in a written document and including, without limitation, all "employee
benefit plans" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) covering any active, former
employee, director or consultant of Company, any subsidiary of Company or any
trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (an "AFFILIATE"), or with respect to which
Company has or may in the future have liability, and a list of all visas and
work permits for Company employees, including the expiration dates thereof, are
listed in Section 2.11(a) of the Company Schedule (the "PLANS"). Company has
provided or made available to Parent: (i) correct and complete copies of all
documents embodying each Plan, International Plan (as defined below) and
management, employment, severance, consulting, relocation, repatriation,
expatriation or other agreement, contract or material understanding between
Company and any Employee ("EMPLOYMENT AGREEMENT"), including (without
limitation) all amendments thereto, all
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related trust documents, and all material written agreements and contracts
relating to each such Plan; (ii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto), if
any, required under ERISA or the Code in connection with each Plan; (iii) the
most recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Plan;
(iv) all IRS or DOL determination, opinion, notification and advisory letters;
(v) all material correspondence to or from any governmental agency relating to
any Plan; (vi) all COBRA forms and related notices; (vii) all discrimination
tests for each Plan for the most recent three (3) plan years; (viii) the most
recent annual actuarial valuations, if any, prepared for each Plan; (ix) if the
Plan is funded, the most recent annual and periodic accounting of Plan assets;
(x) all material written agreements and contracts relating to each Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (xi) all material communications to
employees or former employees regarding in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any material liability under any Plan or proposed Plan; (xii) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Plan; and (xiii) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with any Plan.
(b) Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any material default or violation by any other party
to, each Plan, and each Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are applicable
to such Plans. No suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of Plan activities) has been brought,
or to the knowledge of Company is threatened, against or with respect to any
such Plan. There are no audits, inquiries or proceedings pending or, to the
knowledge of Company, threatened by the Internal Revenue Service (the "IRS") or
Department of Labor (the "DOL") with respect to any Plans. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Plans have been timely made or accrued. Any Plan intended to be
qualified under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code (i) has either obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination, and (ii) incorporates or has been amended to incorporate all
provisions required to comply with the Tax Reform Act of 1986 and subsequent
legislation. Company does not have any plan or commitment to establish any new
Plan, to modify any Plan (except to the extent required by law or to conform any
such Plan to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any new Plan. Each Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Company or any of its Affiliates (other than ordinary
administration expenses and liabilities for benefits accrued but not yet paid).
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(c) Neither Company, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Company or any of its subsidiaries contributed to or
been requested to contribute to any "multiemployer plan," as such term is
defined in ERISA or to any plan described in Section 413(c) of the Code. Neither
Company, any of its subsidiaries, nor any officer or director of Company or any
of its subsidiaries is subject to any liability or penalty under Section 4975
through 4980B of the Code or Title I of ERISA. There are no audits, inquiries or
proceedings pending or, to the knowledge of Company, threatened by the IRS or
DOL with respect to any Plan. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Plan.
(d) Neither Company, any of its subsidiaries, nor any of their
Affiliates has, prior to the Effective Time and in any material respect,
violated any of the health continuation requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), the requirements of the
Family Medical Leave Act of 1993, as amended, the requirements of the Women's
Health and Cancer Rights Act, as amended, the requirements of the Newborns' and
Mothers' Health Protection Act of 1996, as amended, or any similar provisions of
state law applicable to employees of the Company or any of its subsidiaries.
None of the Plans promises or provides retiree medical or other retiree welfare
benefits to any person except as required by applicable law, and neither Company
nor any of its subsidiaries has represented, promised or contracted (whether in
oral or written form) to provide such retiree benefits to any employee, former
employee, director, consultant or other person, except to the extent required by
statute.
(e) Neither Company nor any of its Affiliates is bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union. No employee of Company or any
of its Affiliates is represented by any labor union or covered by any collective
bargaining agreement, and to the knowledge of Company, no campaign to establish
such representation is in progress. There is no pending or, to the knowledge of
Company, threatened labor dispute involving Company or any of its Affiliates and
any group of its employees nor has Company or any of its Affiliates experienced
any labor interruptions over the past three (3) years, and Company and its
Affiliates consider their relationships with their employees to be good. The
Company and its Affiliates are in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(f) Except as disclosed in Schedule 2.11(f) of the Company
Schedule, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will (either alone or upon
the occurrence of any additional or subsequent events) (i) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee; or (ii) result in any
payment or benefit which will or may be made by the Company or its Affiliates
with respect to any employee will be characterized as a "parachute payment",
within the meaning of Section 280G(b)(2) of the Code.
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(g) Each International Employee Plan (as defined below) has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities that, as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason without liability to the Company, Parent or any of their respective
Affiliates. For purposes of this Section "INTERNATIONAL EMPLOYEE PLAN" shall
mean each Plan that has been adopted or maintained by the Company or any of its
Affiliates, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of employees
outside the United States.
2.12 LABOR MATTERS. (i) There are no material controversies pending or,
to the knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees; (ii) as of the date of this Agreement, neither Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Company or its subsidiaries nor
does Company or its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and (iii) as of the date of this
Agreement, neither Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with
respect to any employees of Company or any of its subsidiaries. The Company and
its subsidiaries are in compliance in all material respects with all applicable
material foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours.
2.13 REGISTRATION STATEMENT/JOINT PROXY STATEMENT/PROSPECTUS. None of
the information supplied or to be supplied by Company for inclusion or
incorporation by reference in (i) the registration statement on Form F-4 to be
filed with the SEC by Parent in connection with the issuance of the Parent
Common Stock in or as a result of the Merger (the "F-4") will, at the time the
F-4 becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the joint
proxy statement/prospectus to be filed with the SEC by Company pursuant to
Section 5.1 hereof (the "JOINT PROXY STATEMENT/PROSPECTUS") will, at the dates
mailed to the stockholders of Company, at the times of the stockholders meeting
of Company (the "COMPANY STOCKHOLDERS' MEETING") in connection with the
transactions contemplated hereby, at the dates mailed to the stockholders of
Parent, at the times of the stockholders' meeting of Parent (the "PARENT
STOCKHOLDERS' MEETING") in connection with the Share Issuance and as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Parent or Merger Sub which is contained in any of the foregoing
documents.
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2.14 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which the Company or any of its subsidiaries is a party which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Company or any of its
subsidiaries, any acquisition of property by Company or any of its subsidiaries
or the conduct of business by Company or any of its subsidiaries as currently
conducted.
2.15 TITLE TO PROPERTY. Neither Company nor any of its subsidiaries
owns any material real property. Company and each of its subsidiaries have good
and defensible title to all of their material properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby; and all leases pursuant to which Company or any of
its subsidiaries lease from others material real or personal property are in
good standing, valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing material default or
event of default (or any event which with notice or lapse of time, or both,
would constitute a material default and in respect of which Company or
subsidiary has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
2.16 TAXES.
(a) For the purposes of this Agreement, "TAX" or "TAXES" refers
to any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) (i) The Company and each of its subsidiaries have
timely filed all federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to Taxes required to be
filed by the Company and each of its subsidiaries with any Tax authority, except
such Returns which are not material to the Company. The Company and each of its
subsidiaries have paid all Taxes shown to be due on such Returns.
(i) The Company and each of its subsidiaries as of the
Effective Time will have withheld with respect to its employees all federal and
state income taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required to
be withheld, except such Taxes which are not material to the Company.
(i) Neither the Company nor any of its subsidiaries
has been delinquent in the payment of any material Tax nor is there any material
Tax deficiency outstanding, proposed or assessed against the Company or any of
its subsidiaries, nor has the Company or any of its
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subsidiaries executed any unexpired waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(ii) To the knowledge of Company, no audit or other
examination of any Return of the Company or any of its subsidiaries by any Tax
authority is presently in progress. Neither the Company nor any of its
subsidiaries has been notified of any request for such an audit or other
examination.
(iii) No adjustment relating to any Returns filed by the
Company or any of its subsidiaries has been proposed in writing formally or
informally by any Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(iv) Neither the Company nor any of its subsidiaries
has any liability for any material unpaid Taxes which has not been accrued for
or reserved on the Company balance sheet dated September 30, 1999 in accordance
with GAAP, whether asserted or unasserted, contingent or otherwise, which is
material to the Company, other than any liability for unpaid Taxes that may have
accrued since September 30, 1999 in connection with the operation of the
business of the Company and its subsidiaries in the ordinary course.
(v) There is no contract, agreement, plan or
arrangement to which the Company or any of its subsidiaries is a party as of the
date of this Agreement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code. There is no contract, agreement, plan
or arrangement to which the Company or any of its subsidiaries is a party or by
which it is bound to compensate any individual for excise taxes paid pursuant to
Section 4999 of the Code.
(vi) Neither the Company nor any of its subsidiaries
has filed any consent agreement under Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company or any
of its subsidiaries.
(vii) Neither Company nor any of its subsidiaries is
party to or has any obligation under any tax-sharing, tax indemnity or tax
allocation agreement or arrangement.
(viii) None of Company's or its subsidiaries' assets are
tax exempt use property within the meaning of Section 168(h) of the Code.
(ix) Company has not distributed the stock of any
corporation in a transaction satisfying the requirements of Section 355 of
the Code. No Company stock has been distributed in a transaction satisfying
the requirements of Section 355 of the Code.
(c) To Company's knowledge, Parent satisfies the substantiality
test contained in Treasury Regulation Section 1.367(a)-3(c)(3).
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2.17 ENVIRONMENTAL MATTERS. Company (i) has obtained all applicable
permits, licenses and other authorizations that are required under Environmental
Laws the absence of which would have a Material Adverse Effect on Company; (ii)
is in compliance in all material respects with all material terms and conditions
of such required permits, licenses and authorizations, and also is in compliance
in all material respects with all other material limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in such laws or contained in any regulation, code, plan,
order, decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; and (iii) as of the date hereof, has no knowledge of and
has not received notice of any event, condition, circumstance, activity,
practice, incident, action or plan that is reasonably likely to interfere with
or prevent continued compliance or that would give rise to any common law or
statutory liability, or otherwise form the basis of any Environmental Claim with
respect to Company or any person or entity whose liability for any Environmental
Claim Company has retained or assumed either contractually or by operation of
law, except to the extent such non-compliance, liability or Environmental Claim
could not reasonably be expected to have a Material Adverse Effect on Company.
No Hazardous Materials are present in, on or under any properties owned, leased
or used at any time (including both land and improvements thereon) by Company,
so as to give rise to any liability or corrective or remedial obligation under
any Environmental Laws. For the purposes of this Section 2.17, "ENVIRONMENTAL
Claim" means any notice, claim, act, cause of action or investigation by any
person alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (i) the presence, or release into the
environment, of any Hazardous Materials or (ii) any violation, or alleged
violation, of any Environmental Laws. "ENVIRONMENTAL LAWS" means all Federal,
state, local and foreign laws and regulations relating to pollution of the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) or the protection of human health and worker safety,
including, without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. "HAZARDOUS MATERIALS"
means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive
and biological materials, asbestos-containing materials, hazardous substances,
petroleum and petroleum products or any fraction thereof, excluding, however,
Hazardous Materials contained in products typically used for office and
janitorial purposes properly and safely maintained in accordance with
Environmental Laws.
2.18 BROKERS. Except for fees payable to FleetBoston Robertson Stephens
pursuant to an engagement letter dated March 6, 2000, a copy of which has been
provided to Parent (the "ENGAGEMENT LETTER"), Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby
2.19 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United
States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof
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("PATENTS"); (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) all copyrights,
copyright registrations and applications therefor and all other rights
corresponding thereto throughout the world; (iv) all semiconductor and
semiconductor circuit designs; (v) all rights to all mask works and
reticles, mask work registrations and applications therefor; (vi) all
industrial designs and any registrations and applications therefor
throughout the world; (vii) all trade names, logos, common law
trademarks and service marks; trademark and service mark registrations
and applications therefor and all goodwill associated therewith
throughout the world; (viii) all databases and data collections and all
rights therein throughout the world; (ix) all computer software
including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is
recorded, all Web addresses, sites and domain names; (x) any similar,
corresponding or equivalent rights to any of the foregoing; and (xi) all
documentation related to any of the foregoing
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by or exclusively licensed to the Company or any of its
subsidiaries. Without in any way limiting the generality of the
foregoing, Company Intellectual Property includes all Intellectual
Property owned or exclusively licensed to the Company related to the
Company's products, including without limitation all rights in any
design code, documentation, and tooling for packaging of semiconductors
in connection with all current products and products in design and
development.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations
or applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work
registrations and applications to register mask works; and (v) any other
Company Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed
with, or recorded by, any state, government or other public legal
authority
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or
any of its subsidiaries.
(a) Section 2.19(a) of the Company Schedule is a complete and
accurate list of all Company Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered and lists any
proceedings or actions before any court, tribunal (including the United States
Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property.
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(b) Section 2.19(b) of the Company Schedule is a complete and
accurate list (by name and version number) of all software products offerings of
the Company or any of its current subsidiaries ("COMPANY PRODUCTS") that have
been distributed or provided in the three (3)-year period preceding the date
hereof or which the Company or any of its subsidiaries intends to distribute or
provide in the future, including any products or service offerings under
development.
(c) No Company Intellectual Property or Company Product is
subject to any proceeding or outstanding decree, order, judgment, contract,
license, agreement, or stipulation restricting in any manner the use (in
accordance with Company's current practices), transfer, or licensing thereof by
Company or any of its subsidiaries, or which may adversely affect the validity,
use (in accordance with Company's current practices) or enforceability of such
Company Intellectual Property or Company Product.
(d) Each material item of Company Registered Intellectual
Property is valid and subsisting, all necessary registration, maintenance and
renewal fees currently due in connection with such Company Registered
Intellectual Property have been made and all necessary documents, recordations
and certificates in connection with such Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purposes of maintaining such Company Registered Intellectual Property.
(e) Company owns and has good and exclusive title to, or
exclusively licenses, each material item of Company Intellectual Property free
and clear of any lien or encumbrance (excluding non-exclusive licenses and
related restrictions granted in the ordinary course). Without limiting the
foregoing: (i) Company is the exclusive owner of all trademarks and trade names
used in connection with the operation or conduct of the business of Company and
its subsidiaries, including the sale, distribution or provision of any Company
Products by Company or its subsidiaries; (ii) Company owns exclusively, and has
good title to, all copyrighted works that are Company Products or which Company
or any of its subsidiaries otherwise purports to own; and (iii) to the extent
that any Patents would be infringed by any Company Products, Company is the
exclusive owner of such Patents.
(f) To the extent that any material technology, software or
Intellectual Property has been developed or created independently or jointly by
a third party for Company or any of its subsidiaries or is incorporated into any
of the Company Products, Company has a written agreement with such third party
with respect thereto and Company thereby either (i) has obtained ownership of,
and is the exclusive owner of, or (ii) has obtained a perpetual, non-terminable
(except for breach) license (sufficient for the conduct of its business as
currently conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment.
(g) Neither Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material Company Intellectual Property, to any third
party, or permitted Company's rights in such material Company Intellectual
Property to lapse or enter the public domain.
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(h) Section 2.19(h) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its subsidiaries
is a party: (i) with respect to Company Intellectual Property licensed or
transferred to any third party (other than end-user licenses in the ordinary
course); or (ii) pursuant to which a third party has licensed or transferred any
material Intellectual Property to Company.
(i) All contracts, licenses and agreements relating to either
(i) Company Intellectual Property (other than end-user licenses in the ordinary
course) or (ii) Intellectual Property of a third party licensed to Company or
any of its subsidiaries, are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements. Each of Company and its subsidiaries is in
material compliance with, and has not materially breached any term of any such
contracts, licenses and agreements and, to the knowledge of Company, all other
parties to such contracts, licenses and agreements are in compliance with, and
have not materially breached any term of, such contracts, licenses and
agreements. Following the Closing Date, the Surviving Corporation will be
permitted to exercise all of Company's rights under such contracts, licenses and
agreements to the same extent Company and its subsidiaries would have been able
to had the transactions contemplated by this Agreement not occurred and without
the payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which Company would otherwise be required to pay. Neither
this Agreement nor the transactions contemplated by this Agreement will (as a
result of agreements or commitments to which Company or a subsidiary is a party)
result in (i) either Parent's or the Merger Sub's granting to any third party
any right to or with respect to any material Intellectual Property right owned
by, or licensed to, either of them, (ii) either the Parent's or the Merger Sub's
being bound by, or subject to, any non-compete or other material restriction on
the operation or scope of their respective businesses, or (iii) either the
Parent's or the Merger Sub's being obligated to pay any royalties or other
material amounts to any third party in excess of those payable by Parent or
Merger Sub, respectively, prior to the Closing.
(j) The operation of the business of the Company and its
subsidiaries as such business currently is conducted, including (i) Company's
and its subsidiaries' design, development, manufacture, distribution,
reproduction, marketing or sale of the products or services of Company and its
subsidiaries (including Company Products) and (ii) the Company's use of any
product, device or process, has not, does not infringe or misappropriate the
Intellectual Property of any third party or constitute unfair competition or
trade practices under the laws of any jurisdiction.
(k) Neither Company nor any of its subsidiaries has received
notice from any third party that the operation of the business of Company or any
of its subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(l) To the knowledge of Company, no person has or is infringing
or misappropriating any Company Intellectual Property.
(m) Company and each of its subsidiaries has taken reasonable
steps to protect Company's and its subsidiaries' rights in Company's
confidential information and trade secrets that
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it wishes to protect or any trade secrets or confidential information of third
parties provided to Company or any of its subsidiaries, and, without limiting
the foregoing, each of Company and its subsidiaries has and enforces a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Parent and all current and former employees and contractors of Company and any
of its subsidiaries have executed such an agreement, except where the failure to
do so is not reasonably expected to be material to Company.
(n) All of the Company Products (i) will record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"YEAR 2000 COMPLIANT") and (ii) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
All of the Company's or its subsidiaries' Information Technology (as defined
below) is Year 2000 Compliant in all material respects, and will not cause an
interruption in the ongoing operations of the Company's or any of its
subsidiaries' business on or after January 1, 2000. For purposes of the
foregoing, the term "INFORMATION TECHNOLOGY" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by the Company or any of its subsidiaries in the conduct of their
business, or purchased by the Company or any of its subsidiaries from
third-party suppliers.
2.20 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Company nor any of
its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
Company's Board of Directors, other than those that are terminable by Company or
any of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to the Company;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any agreement of indemnification or any guaranty other than
any agreement of indemnification entered into in connection with the sale or
license of software products or services in the ordinary course of business;
(d) any agreement, contract or commitment containing any
covenant limiting in any respect the right of Company or any of its subsidiaries
to engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
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(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company or any of its
subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than Company's
subsidiaries;
(f) any dealer, distributor, joint marketing or development
agreement currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which Company or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Company or
any of its subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Company product, service
or technology or any agreement, contract or commitment currently in force to
sell or distribute any Company products, service or technology except agreements
with distributors or sales representative in the normal course of business
cancelable without penalty upon notice of ninety (90) days or less and
substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(j) any material settlement agreement entered into within five
(5) years prior to the date of this Agreement; or
(k) any other agreement, contract or commitment under which
Company or a subsidiary is contractually obligated to make or entitled to
receive payments of $250,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge
any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither Company nor any of its subsidiaries has
received written notice that it has breached, violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which Company or any of its subsidiaries is a party or by which
it is bound that are required to be disclosed in the Company Schedule (any such
agreement, contract or commitment, a "COMPANY CONTRACT") in such a manner as
would permit any other party to cancel or terminate any such Company Contract,
or would permit any other party to seek material damages or other remedies (for
any or all of such breaches, violations or defaults, in the aggregate).
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2.21 INSURANCE. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"INSURANCE POLICIES") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.22 OPINION OF FINANCIAL ADVISOR. Company has been advised in writing
by its financial advisor, FleetBoston Robertson Stephens, that in its opinion,
as of the date of this Agreement, the Exchange Ratio is fair to the stockholders
of Company from a financial point of view.
2.23 BOARD APPROVAL. The Board of Directors of Company has, as of the
date of this Agreement, unanimously (i) approved and declared advisable this
Agreement and has approved the Merger and the other transactions contemplated
hereby, (ii) determined that the Merger is consistent with and in furtherance of
the long-term business strategy of Company and fair to, and in the best
interests of, Company and its stockholders and (iii) determined to recommended
that the stockholders of Company adopt and approve this Agreement and approve
the Merger.
2.24 VOTE REQUIRED. The affirmative vote of the holders of a majority
of the outstanding shares of Company Common Stock entitled to vote with respect
to the Merger is the only vote of the holders of any class or series of
Company's capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.25 STATE TAKEOVER STATUTES. The Board of Directors of the Company has
approved the Merger, the Merger Agreement, the Company Stockholder Agreement,
and the transactions contemplated hereby and thereby, and such approval is
sufficient to render inapplicable to the Merger, the Merger Agreement, the
Company Stockholder Agreements and the transactions contemplated hereby and
thereby the provisions of Section 203 of the Delaware Law to the extent, if any,
such section is applicable to the Merger, the Merger Agreement, the Company
Stockholder Agreements and the transactions contemplated hereby and thereby. No
other state takeover statute or similar statute or regulation applies to or
purports to apply to the Merger, the Merger Agreement, the Company Stockholder
Agreements or the transactions contemplated hereby and thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure schedule supplied by Parent to Company dated as of the date
hereof (the "PARENT SCHEDULE") as follows. The Parent Schedule shall be arranged
in sections corresponding to the numbered and lettered paragraphs contained in
this Article III and the disclosure in any section of the Parent Schedule shall
qualify other paragraphs in this Article III only to the extent that it is
reasonably apparent from a reading of such disclosure that it also qualifies or
applies to such other paragraph.
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3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
Parent and its subsidiaries is in possession of all Approvals necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
have such Approvals would not, individually or in the aggregate, be material to
Parent. Each of Parent and its subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect on Parent.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Parent has previously
made available to Company complete and correct copies of its Memorandum and
Articles of Association as amended to date (together, the "PARENT CHARTER
DOCUMENTS"). Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.
3.3 CAPITALIZATION. The authorized capital stock of Parent consists of
(i) 500,000,000 shares of Parent Common Stock, (ii) 200,000,000 Parent Class B
Ordinary Shares, $0.01 par value per share ("PARENT SERIES B COMMON STOCK"), and
(iii) 500,000,000 Class C Preference Shares, $0.01 par value per share ("PARENT
PREFERRED STOCK"). At the close of business on March 20, 2000, (i) 16,913,866
shares of Parent Common Stock were issued and outstanding, (ii) 30,631,746
shares of Parent Series B Common Stock were issued and outstanding, (iii) no
shares of Parent Common Stock or Parent Series B Common Stock were held in
treasury by Parent or by subsidiaries of Parent, (iv) 620,000 shares of Parent
Common Stock were reserved for future issuance pursuant to Parent's 1999
Employee Share Purchase Plan, (v) 6,794,014 shares of Parent Common Stock were
reserved for issuance upon the exercise of outstanding options ("PARENT
OPTIONS") to purchase Parent Common Stock and (vi) 5,429,728 shares of Parent
Common Stock were reserved for future issue upon the exercise of outstanding
warrants to purchase Parent Common Stock. As of the date hereof, no shares of
Parent Preferred Stock were issued or outstanding. The authorized capital stock
of Merger Sub consists of 1,000 shares of common stock, par value $0.01 per
share, all of which, as of the date hereof, are issued and outstanding. All of
the outstanding shares of Parent's and Merger Sub's respective capital stock
have been duly authorized and validly issued and are fully paid and
nonassessable. All shares of Parent Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall, and the shares of Parent
Common Stock to be issued pursuant to the Merger will be, duly authorized,
validly issued, fully paid and nonassessable. All of the outstanding shares of
capital stock (other than directors' qualifying shares) of each of Parent's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and all such shares (other than directors' qualifying shares) are owned by
Parent or another subsidiary free and clear of all security interests, liens,
claims, pledges, agreements, limitations in Parent's voting rights, charges or
other encumbrances of any nature whatsoever. Except as set forth in this Section
3.3, as of the date hereof, there are no options, warrants or other rights
(including preemptive rights) obligating Parent or any of its subsidiaries to
issue or sell any
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shares of capital stock or equity interests of Parent or any of its
subsidiaries. As of the date hereof, Myriad International Holdings BV is the
owner of shares representing approximately 95% of the votes represented by the
outstanding voting stock of Parent.
3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement, or to consummate the transactions so contemplated,
subject only to the approval of the Share Issuance by Parent's stockholders.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitutes legal and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms.
3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub shall not, (i) conflict with or violate the Certificate of Incorporation,
Bylaws or equivalent organizational documents of Parent or any of its
subsidiaries, (ii) subject to compliance with the requirements set forth in
Section 3.5(b) below, conflict with or violate any Law applicable to Parent or
any of its subsidiaries or by which it or their respective properties are bound
or affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair Parent's or any such subsidiary's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect could not in the case of clauses
(ii) or (iii), individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, the pre-merger notification requirements of the HSR Act, the rules and
regulations of Nasdaq, and the filing and recordation of the Certificate of
Merger as required by Delaware Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have a material adverse effect on the parties' ability
to consummate the Merger or perform their obligations under this Agreement.
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3.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has made available to Company a correct and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC after November 23, 1999 (the "PARENT SEC
REPORTS"), which are all the forms, reports and documents required to be filed
by Parent with the SEC on or after November 23, 1999. The Parent SEC Reports (A)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and filed on a timely basis and (B) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, for the absence of footnotes as permitted by Form
10-Q of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to be material in amount.
(c) Parent has previously furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.7 NO UNDISCLOSED LIABILITIES. Neither Parent nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Parent and its subsidiaries taken as a
whole, except (i) liabilities provided for in Parent's balance sheet as of
September 30, 1999, (ii) liabilities incurred since September 30, 1999 in the
ordinary course of business and in amounts consistent with past practice, and
(iii) contractual and other liabilities incurred in the ordinary course of
business which are not required by GAAP to be reflected on a balance sheet.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1999,
there has not been: (i) any Material Adverse Effect on Parent, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Parent's or any of
its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by Parent of any of Parent's capital stock or any other securities
of Parent or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Parent's or any of its subsidiaries' capital
stock, (iv) any material change by Parent in its accounting methods, principles
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or practices, except as required by concurrent changes in GAAP, or (v) any
revaluation by Parent of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or accounts
receivable or any sale of assets of the Parent other than in the ordinary course
of business. Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this
Agreement.
3.9 ABSENCE OF LITIGATION. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Parent, threatened (or, to the
knowledge of Parent, any governmental or regulatory investigation pending or
threatened) against Parent or any of its subsidiaries or any properties or
rights of Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, except for any claims, actions, suits or proceedings which seek damages
of less than $250,000, do not seek injunctive relief, and do not challenge or
seek to prevent or delay the transactions contemplated by this Agreement.
3.10 TAX MATTERS.
(a) Parent will have been engaged in an active trade or business
outside of the United States, within the meaning of Treasury Regulation Section
1.367(a)-2T(b)(2) and (3), for the entire 36-month period immediately before the
Effective Time. Parent does not have any intention, and will not have an
intention at the Effective Time, to substantially dispose of or discontinue such
trade or business. Parent satisfies the substantiality test contained in
Treasury Regulation Section 1.367(a)-3(c)(3).
(b) Parent is not a passive investment company within the
meaning of Section 1296(a) of the Code.
(c) Parent is not a controlled foreign corporation within the
meaning of Section 957 of the Code.
3.11 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. None of
the information supplied or to be supplied by Parent for inclusion or
incorporation by reference in (i) the F-4 will, at the time the F-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading; and (ii) the Joint Proxy
Statement/Prospectus will, at the dates mailed to the stockholders of Company
and of Parent, at the time of the Company Stockholders' Meeting, the time of the
Parent Stockholders' Meeting and as of the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The F-4 will comply
as to form in all material respects with the provisions of the Securities Act
and the rules and regulations promulgated by the SEC thereunder. Notwithstanding
the foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents.
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3.12 BROKERS. Except for fees payable to Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Parent has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.13 OPINION OF FINANCIAL ADVISOR. Parent's Board of Directors has
received an opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated,
dated as of the date hereof, to the effect that as of the date hereof, the
Exchange Ratio is fair to Parent from a financial point of view.
3.14 BOARD APPROVAL. The Board of Directors of Parent has, as of the
date of this Agreement, unanimously (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and is fair to, and in the best interests of, Parent and its stockholders, (ii)
has approved this Agreement, the Merger and the other transactions contemplated
by this Agreement and (iii) has determined to recommend that the stockholders of
Parent approve the Share Issuance.
3.15 VOTE REQUIRED. The affirmative vote of a majority of the shares of
Parent Common Stock and Parent Class B Common Stock, voting together as a single
class, that cast votes regarding the Share Issuance in person or by proxy at the
Parent Stockholders' Meeting is the only vote of the holders of any class or
series of Parent's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations, pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts consistent
with past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.
In addition, except as expressly permitted by the terms of this
Agreement, without the prior written consent of Parent, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement pursuant to its terms or the Effective Time, Company shall not
do any of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
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(b) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing or made
available to Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property, or
enter into grants to transfer or license to any person future patent rights
other than in the ordinary course of business consistent with past practices,
provided that in no event shall Company license on an exclusive basis or sell
any Company Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise
encumber or propose any of the foregoing with respect to, any shares of capital
stock or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter into
other agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance delivery and/or
sale of (i) shares of Company Common Stock pursuant to the exercise of stock
options or warrants outstanding as of the date of this Agreement or granted
pursuant to clause (y) hereof, and (ii) shares of Company Common Stock issuable
to participants in the ESPP consistent with the terms thereof and (y) the
granting of stock options to new hires in the ordinary course of business and
consistent with past practice, after consulting with Parent, in an amount not to
exceed options to purchase 200,000 shares in the aggregate (none of which
options (other than those granted to new hires employed by the Company on the
data hereof) shall provide for acceleration based upon the transactions
contemplated hereby);
(g) Cause, permit or propose any amendments to the Company
Charter Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets (other than non-material acquisitions in the
ordinary course of business) or enter into any joint ventures, strategic
partnerships or alliances, except as disclosed in Section 4.1 of the Company
Schedule;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory and the grant of end-user
licenses in the ordinary course of business
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consistent with past practice, except for the sale, lease or disposition (other
than through licensing) of property or assets which are not material,
individually or in the aggregate, to the business of Company and its
subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than in connection with the financing of ordinary
course trade payables consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or
arrangement, any employee stock purchase or employee stock option plan, or enter
into any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates (except for increases in the
ordinary course of business for non-officer employees) or fringe benefits
(including rights to severance or indemnification) of its directors, officers,
employees or consultants; provided that the Company shall terminate the ESPP in
accordance with its terms;
(l) (i) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to the
date of this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, or liabilities recognized or disclosed in the
most recent consolidated financial statements (or the notes thereto) of Company
included in the Company SEC Reports or incurred since the date of such financial
statements, or (ii) waive the benefits of, agree to modify in any manner,
terminate, release any person from or fail to enforce any confidentiality or
similar agreement to which Company or any of its subsidiaries is a party or of
which Company or any of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside of
the ordinary course of business (including payments to financial, legal,
accounting or other professional service advisors) in excess of $250,000, except
as disclosed in Section 4.1 of the Company Schedule;
(n) Except in the ordinary course of business consistent with
past practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the exercise
of, release or assign any material rights or claims thereunder;
(o) Enter into or materially modify any contracts, agreements,
or obligations relating to the distribution, sale, license or marketing by third
parties of Company's products or products licensed by Company;
(p) Revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
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(q) Incur or enter into any agreement, contract or commitment
outside of the ordinary course of business requiring payments to or by Company
or a subsidiary in excess of $250,000 individually;
(r) Engage in any action that could cause the Merger to fail to
qualify as a "reorganization" under Section 368(a) of the Code whether or not
otherwise permitted by the provisions of this Article IV;
(s) Engage in any action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement;
(t) Make any tax election that, individually or in the
aggregate, is reasonably likely to adversely affect in any material respect the
tax liability or tax attributes of Company or any of its subsidiaries or settle
or compromise any material income tax liability; or
(u) Agree in writing or otherwise to take any of the actions
described in Section 4.1 (a) through (t) above.
4.2 CONDUCT OF BUSINESS BY PARENT. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Parent and each of its
subsidiaries shall, except to the extent that Company shall otherwise consent in
writing, use its commercially reasonable efforts consistent with past practices
and policies to (i) preserve intact its present business organization and (ii)
keep available the services of its present officers and employees.
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Parent shall not do any of the following and shall not permit
its subsidiaries to do any of the following:
(a) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock, other than dividends or distributions by
any of Parent's subsidiaries to Parent or any of Parent's subsidiaries;
(b) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Parent or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(c) Cause, permit or propose any amendments to the Parent
Charter Documents (or similar governing instruments of any of its subsidiaries);
(d) Revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
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(e) Engage in any action that could cause the Merger to fail to
qualify as a "reorganization" under Section 368(a) of the Code, whether or not
otherwise permitted by the provisions of this Article IV;
(f) Engage in any action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement; or
(g) Agree in writing or otherwise to take any of the actions
described in Section 4.2 (a) through (f) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 JOINT PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this
Agreement, Parent and Company shall jointly prepare and Parent shall file with
the SEC the F-4, which shall include a document or documents that will
constitute (i) the prospectus forming part of the registration statement on the
F-4 and (ii) the Joint Proxy Statement/Prospectus. Each of the parties hereto
shall use all reasonable efforts to cause the F-4 to become effective as
promptly as practicable after the date hereof, and, prior to the effective date
of the F-4, the parties hereto shall take all action required under any
applicable Laws in connection with the issuance of shares of Parent Common Stock
pursuant to the Merger. Parent or Company, as the case may be, shall furnish all
information concerning Parent or Company as the other party may reasonably
request in connection with such actions and the preparation of the F-4 and the
Joint Proxy Statement/Prospectus. As promptly as practicable after the effective
date of the F-4, the Joint Proxy Statement/Prospectus shall be mailed to the
stockholders of Company and of Parent. Each of the parties hereto shall cause
the Joint Proxy Statement/Prospectus to comply as to form and substance with
respect to such party in all material respects with the applicable requirements
of (i) the Exchange Act, (ii) the Securities Act, (iii) the rules and
regulations of the Nasdaq.
(b) The Joint Proxy Statement/Prospectus shall (i) solicit the
approval of this Agreement and the Merger and include the recommendation of the
Board of Directors of Company to Company's stockholders that they vote in favor
of approval of this Agreement and the Merger, subject to the right of the Board
of Directors of the Company to withdraw its recommendation and recommend a
Superior Proposal determined to be such in compliance with Section 5.4 of this
Agreement, and (ii) include the opinion of FleetBoston Robertson Stephens
referred to in Section 2.23; PROVIDED, HOWEVER, that the Board of Directors of
Company shall submit this Agreement to Company's stockholders whether or not at
any time subsequent to the date hereof such board determines that it can no
longer make such recommendation. The Joint Proxy Statement/Prospectus shall (A)
solicit the approval of the Share Issuance and include the recommendation of the
Board of Directors of Parent to Parent's stockholders that they vote in favor of
approval of the Share Issuance, and (B) include the opinion of Merrill Lynch,
Pierce, Fenner & Smith Incorporated referred to in Section 3.12. If Company has
not breached Section 5.4, then nothing contained in this Agreement shall prevent
the Board of Directors of Company from complying with Rule 14d-9 and Rule 14e-2
under the Exchange Act.
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(c) Each of Parent and Company shall promptly amend or
supplement the Joint Proxy Statement/Prospectus to the extent required by law to
do so. No amendment or supplement to the Joint Proxy Statement/Prospectus or the
F-4 shall be made without the approval of Parent and Company, which approval
shall not be unreasonably withheld or delayed. Each of the parties hereto shall
advise the other parties hereto, promptly after it receives notice thereof, of
the time when the F-4 has become effective or any supplement or amendment has
been filed, of the issuance of any stop order, of the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or of any request by the SEC for
amendment of the Joint Proxy Statement/Prospectus or the F-4 or comments thereon
and responses thereto or requests by the SEC for additional information.
5.2 STOCKHOLDER MEETINGS. Company shall call and hold the Company
Stockholders' Meeting and Parent shall call and hold the Parent Stockholders'
Meeting as promptly as practicable after the date hereof for the purpose of
voting upon the approval of this Agreement and the Merger or the Share Issuance,
as the case may be, pursuant to the Joint Proxy Statement/Prospectus, and
Company and Parent shall use all reasonable efforts to hold the Parent
Stockholders' Meeting and the Company Stockholders' Meeting on the same day and
as soon as practicable after the date on which the F-4 becomes effective.
Nothing herein shall prevent Company or Parent from adjourning or postponing the
Company Stockholders' Meeting or the Parent Stockholders' Meeting, as the case
may be, if there are insufficient shares of Company Common Stock or Parent
Common Stock, as the case may be, necessary to conduct business at their
respective meetings of the stockholders. Unless Company's Board of Directors has
withdrawn its recommendation of this Agreement and the Merger in compliance with
Section 5.4, Company shall use all reasonable efforts to solicit from its
stockholders proxies in favor of the approval of this Agreement and the Merger
pursuant to the Joint Proxy Statement/Prospectus and shall take all other action
necessary or advisable to secure the vote or consent of stockholders required by
Delaware Law or applicable stock exchange requirements to obtain such approval.
Parent shall use all reasonable efforts to solicit from its stockholders proxies
in favor of the Share Issuance pursuant to the Joint Proxy Statement/Prospectus
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders required by the International Business Companies Act of
the British Virgin Islands or applicable stock exchange requirements to obtain
such approval. Each of the parties hereto shall take all other action reasonably
necessary or advisable to promptly and expeditiously secure any vote or consent
of stockholders required by applicable Law and such party's certificate of
incorporation and bylaws to effect the Merger. Company shall call and hold the
Company Stockholders' Meeting for the purpose of voting upon the approval of
this Agreement and the Merger whether or not Company's Board of Directors at any
time subsequent to the date hereof determines that this Agreement is no longer
advisable or recommends that Company's stockholders reject it.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have
previously executed a Confidentiality Agreement, dated as of March 6, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
(b) Each of the Company and Parent will afford the other and the
other's accountants, counsel and other representatives reasonable access to its
properties, books, records and
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personnel during the period prior to the Effective Time to obtain all
information concerning its business as such other party may reasonably request.
No information or knowledge obtained in any investigation pursuant to this
Section 5.3 will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective
Time or termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as defined below), (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes or may reasonably be
expected to lead to, any Acquisition Proposal, (iii) engage in discussions with
any person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction (as defined below); PROVIDED,
HOWEVER, that nothing contained in this Section 5.4 shall prohibit the Board of
Directors of Company in response to an unsolicited, bona fide written
Acquisition Proposal that Company's Board of Directors reasonably concludes
constitutes a Superior Offer (as defined below), engaging in discussions with
and furnishing information to the party making such Acquisition Proposal to the
extent (A) the Board of Directors of the Company determines in good faith, after
considering the advice of its outside legal counsel that its fiduciary
obligations under applicable law require it to do so, (B) (x) at least two
business days prior to furnishing any such nonpublic information to, or entering
into discussions or negotiations with, such party, Company gives Parent written
notice of Company's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such party and (y) Company receives from such
party an executed confidentiality agreement containing customary limitations on
the use and disclosure of all nonpublic written and oral information furnished
to such party by or on behalf of Company, (C) contemporaneously with furnishing
any such nonpublic information to such party, Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent) and (D) Company has otherwise
acted in full compliance with Section 5.4. Company and its subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in this Section 5.4 by any officer, director or employee
of Company or any of its subsidiaries or any investment banker, attorney or
other advisor or representative of Company or any of its subsidiaries shall be
deemed to be a breach of this Section 5.4 by Company.
For purposes of this Agreement, (A) "ACQUISITION PROPOSAL" shall mean
any offer or proposal (other than an offer or proposal by Parent) relating to
any Acquisition Transaction. For the purposes of this Agreement; (B)
"ACQUISITION TRANSACTION" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any
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acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 5% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the Company
pursuant to which the stockholders of the Company immediately preceding such
transaction hold less than 95% of the equity interests in the surviving or
resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 5% of the
assets of the Company; or (C) any liquidation, dissolution, recapitalization or
other significant corporate reorganization of the Company; and (C) "SUPERIOR
OFFER" shall mean an Acquisition Proposal proposing the acquisition of all of
the outstanding voting securities of the Company (x) that if any cash
consideration is involved, is not subject to any financing contingency, (y) with
respect to which Company's Board of Directors shall have determined (after
considering the advice of Company's independent financial advisors) that the
acquiring party is capable of consummating the proposed Acquisition Transaction
on the terms proposed, and (z) that Company's Board of Directors shall have
determined provides greater value to the stockholders of Company than the Merger
(after considering the advice of Company's independent financial advisors that
such Acquisition Transaction is superior to the Merger from a financial point of
view).
(b) In addition to the obligations of Company set forth in
paragraph (a) of this Section 5.4, Company as promptly as practicable, and in
any event within 24 hours, shall advise Parent orally and in writing of any
request for information which Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with respect
to or which Company reasonably should believe would lead to any Acquisition
Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person or group making any such
request, Acquisition Proposal or inquiry. Company will keep Parent informed in
all material respects of the status and details (including material amendments
or proposed amendments) of any such request, Acquisition Proposal or inquiry. In
addition to the foregoing, Company shall (i) provide Parent with at least 48
hours prior notice (or such lesser prior notice as provided to the members of
Company's Board of Directors but in no event less than eight hours) of any
meeting of Company's Board of Directors at which Company's Board of Directors is
reasonably expected to consider a Superior Offer and (ii) provide Parent with at
least two business days prior notice (or such lesser prior notice as provided to
the members of Company's Board of Directors, but in no event less than eight
hours) of a meeting of Company's Board of Directors at which Company's Board of
Directors is reasonably expected to recommend a Superior Offer to its
stockholders and together with such notice a copy of the definitive
documentation relating to such Superior Offer.
5.5 PUBLIC DISCLOSURE. Parent and Company will consult with each other
and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement or an Acquisition Proposal
and will not issue any such press release or make any such public statement
prior to such agreement, except as may be required by law or any listing
agreement with a national securities exchange, in which case reasonable efforts
to consult with the other party
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will be made prior to any such release or public statement. The parties have
agreed to the text of the joint press release announcing the signing of this
Agreement.
5.6 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (v) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Parent or Company or any subsidiary or affiliate thereof to
agree to any divestiture by itself or any of its affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their business or to own or
exercise control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Company to comply with or satisfy in any
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, in each case, such that the conditions set forth in
Section 6.3(a) or 6.3(b) could reasonably be expected to not be satisfied;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company of any
representation or warranty made by it or Merger Sub contained in this Agreement
becoming untrue or inaccurate, or any failure of Parent or Merger Sub to comply
with or satisfy in any respect any covenant, condition or
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agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.2(a) or 6.2(b) could
reasonably be expected to not be satisfied; PROVIDED, HOWEVER, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 STOCK OPTIONS AND WARRANTS; 401(K) PLAN. (a) At the Effective
Time, each outstanding option to purchase shares of Company Common Stock (each,
a "COMPANY STOCK OPTION"), whether or not vested, and each outstanding warrant
to purchase shares of Company Common Stock (each, a "WARRANT") shall by virtue
of the Merger be assumed by Parent. Each Company Stock Option and Warrant so
assumed by Parent under this Agreement will continue to have, and be subject to,
the same terms and conditions of such options and warrants immediately prior to
the Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each Company Stock Option and Warrant will
be exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of Parent Common Stock equal to the product (rounded
down to the nearest whole number of shares of Parent Common Stock) of the number
of shares of Company Common Stock that were issuable upon exercise of such
Company Stock Option or Warrant immediately prior to the Effective Time
multiplied by the Exchange Ratio and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Stock Option or Warrant will be equal to the quotient (rounded up to the nearest
whole cent) determined by dividing the exercise price per share of Company
Common Stock at which such Company Stock Option or Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio. Parent shall
reserve a sufficient number of shares of Parent Common Stock for issuance upon
exercise of the assumed Company Stock Options and Warrants.
(b) Company agrees to terminate its 401(k) plan immediately
prior to Closing, unless the Parent, in its sole and absolute discretion, agrees
to sponsor and maintain such plan by providing Company with written notice of
such election at least three (3) days before the Effective Time. Unless the
Parent provides such notice to the Company, the Parent shall receive from
Company evidence that Company's 401(k) plan has been terminated pursuant to
resolutions of Company's Board of Directors, effective as of the day immediately
preceding the Closing Date.
5.9 FORM S-8. Parent agrees to file, if available for use by Parent, a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is reasonably
practicable after the Effective Time and agrees to use commercially reasonable
efforts to keep such registration statement effective for so long as any such
options remain outstanding
5.10 INDEMNIFICATION.
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(a) From and after the Effective Time, Parent will cause the
Surviving Corporation to fulfill and honor in all respects the obligations of
Company pursuant to any indemnification agreements between Company and its
directors and officers in effect immediately prior to the Effective Time and any
indemnification provisions under the Company Charter Documents as in effect on
the date hereof. The Certificate of Incorporation and Bylaws of the Surviving
Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the indemnified parties
thereunder (the "INDEMNIFIED PARTIES") as those contained in the Company Charter
Documents as in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of the
Indemnified Parties, unless such modification is required by law.
(b) For a period of six years after the Effective Time, Parent
will cause the Surviving Corporation to use its commercially reasonable efforts
to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy on terms comparable to those
applicable to the current directors and officers of the Company; PROVIDED,
HOWEVER, that in no event will Parent or the Surviving Corporation be required
to expend an annual premium for such coverage in excess of 150% of the annual
premium currently paid by the Company.
5.11 NASDAQ LISTING. Parent agrees to use reasonable efforts to cause
and maintain the authorization for listing on Nasdaq the shares of Parent Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, upon official notice of issuance.
5.12 AFFILIATES. Set forth in Section 5.12 of the Company Schedule is a
list of those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a "COMPANY AFFILIATE"). Company will provide Parent with
such information and documents as Parent reasonably requests for purposes of
reviewing such list. Company will use its commercially reasonable efforts to
deliver or cause to be delivered to Parent, as promptly as practicable on or
following the date hereof, from each Company Affiliate an executed affiliate
agreement in substantially the form attached hereto as EXHIBIT C (the "AFFILIATE
AGREEMENT"), each of which will be in full force and effect as of the Effective
Time. Parent will be entitled to place appropriate legends on the certificates
evidencing any Parent Common Stock to be received by a Company Affiliate
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with
the terms of the Affiliate Agreement.
5.13 REGULATORY FILINGS; REASONABLE EFFORTS. As soon as may be
reasonably practicable, Company and Parent each shall file with the United
States Federal Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice ("DOJ") Notification and Report Forms
relating to the transactions contemplated herein as required by the HSR Act, as
well as comparable pre-merger notification forms required by the merger
notification or control laws and regulations of any applicable jurisdiction, as
agreed to by the parties. Company and Parent each shall promptly (a) supply the
other with any information which may be required in order to effectuate such
filings and (b) supply any additional information which reasonably may be
required by the FTC, the DOJ or the competition or merger control authorities of
any other jurisdiction and which the parties
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may reasonably deem appropriate; PROVIDED, HOWEVER, that Parent shall not be
required to agree to any divestiture by Parent or the Company or any of Parent's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or property of Parent or its subsidiaries or affiliates or of the Company, its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.14 EMPLOYEE BENEFITS. Each employee of Company or its subsidiaries
who continues to be employed by Company or its subsidiaries immediately
following the Effective Time and who becomes a participant in or subject to
employee benefit plans or policies of Parent or its affiliates following the
Effective Time shall, to the extent permitted by Law, the terms of such plans or
policies and applicable tax qualification requirements, and subject to any
applicable break in service or similar rules, receive credit for purposes of
eligibility to participate and vesting under such plans and policies for the
length of time such employees were employed by Company or its subsidiaries.
5.15 TAX FILINGS. From and after the Effective Time, Parent will cause
Company to comply with all applicable reporting requirements set forth in
Treasury Regulations under Section 367 of the Code, including, without
limitation, Regulation Section 1.367(a)-3(c)(6).
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVALS. This Agreement shall have been
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of Company. The Share
Issuance shall have been approved by the requisite vote under applicable Nasdaq
rules by the stockholders of Parent.
(b) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have
declared the F-4 effective. No stop order suspending the effectiveness of the
F-4 or any part thereof shall have been issued and no proceeding for that
purpose, and no similar proceeding in respect of the Joint Proxy
Statement/Prospectus, shall have been initiated or threatened in writing by the
SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby shall have expired or terminated early and all foreign
antitrust approvals required to be obtained prior to the Merger in connection
with the transactions contemplated hereby shall have been obtained.
(d) TAX OPINIONS. Parent and Company shall each have received
written opinions from their respective tax counsel (Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Hale and Dorr LLP, respectively), in form
and substance reasonably satisfactory to them, to the effect
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that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and such opinions shall not have been withdrawn; PROVIDED,
HOWEVER, that if the counsel to either Parent or Company does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to such party if counsel to the other party renders such opinion to such party.
Each of Company and Parent agrees to make the representations substantially in
the form set forth in the forms attached hereto as EXHIBIT D and EXHIBIT E,
respectively, for the purpose of such counsel rendering such opinions.
(e) NASDAQ LISTING. The shares of Parent Common Stock issuable
to the stockholders of Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on Nasdaq upon official notice of issuance.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement (i) shall have
been true and correct in all material respects as of the date of this Agreement
and (ii) shall be true and correct on and as of the Closing Date with the same
force and effect as if made on the Closing Date except for those representations
and warranties which address matters only as of a particular date (which
representations shall have been true and correct in all material respects as of
such particular date) and except, in all such cases, where the failure to be so
true and correct (without regard to any materiality standards contained
therein), individually or in the aggregate, have not had, and are not reasonably
likely to have, a Material Adverse Effect on Parent (it being understood that
for purposes of determining the accuracy of such representations and warranties,
any update of or modification to the Parent Schedule made or purported to have
been made after the date of this Agreement shall be disregarded). Company shall
have received a certificate with respect to the foregoing signed on behalf of
Parent by the Chief Executive Officer and Chief Financial Officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date, and Company shall have received a certificate to such
effect signed on behalf of Parent by the Chief Executive Officer and Chief
Financial Officer of Parent.
(c) LEGAL OPINION. Company shall have received a legal opinion
from British Virgin Islands counsel to Parent, in form and substance reasonably
satisfactory to Company, as to the due incorporation and good standing of Parent
and the due authorization of the transactions contemplated by this Agreement by
all necessary corporate action on the part of Parent.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at
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or prior to the Closing Date of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Company contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement and (ii) shall
be true and correct on and as of the Closing Date with the same force and effect
as if made on and as of the Closing Date except for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct in all material respects as of
such particular date) and except, in all such cases, where the failure to be so
true and correct (without regard to any materiality standards contained
therein), individually or in the aggregate, have not had, and are not reasonably
likely to have, a Material Adverse Effect on Company (it being understood that,
for purposes of determining the accuracy of such representations and warranties,
any update of or modification to the Company Schedule made or purported to have
been made after the date of this Agreement shall be disregarded). Parent shall
have received a certificate with respect to the foregoing signed on behalf of
Company by the Chief Executive Officer and the Chief Financial Officer of the
Company.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial Officer
of Company.
(c) EMPLOYMENT AGREEMENTS. The Employment Agreements shall
remain in full force and effect.
(d) CONSENTS. Company shall have obtained all consents, waivers
and approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Schedule 6.3(d).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the requisite approval of the
stockholders of Company or Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have
been consummated by December 31, 2000 (the "OUTSIDE DATE") for any reason;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose action or failure to act has
been a principal cause of or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement;
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(c) by either Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree, ruling or other action is final and
nonappealable;
(d) by either Company or Parent if (i) the required approval of
the stockholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Company stockholders duly convened therefor or at any adjournment therefor or
(ii) the required approval by the stockholders of Parent of the Share Issuance
required under applicable Nasdaq rules shall not have been obtained by reason of
the failure to obtain the required vote at a meeting of Parent stockholders duly
convened therefor or at any adjournment thereof; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 7.1(d) shall not be
available to any party whose action or failure to act has been a principal cause
or resulted in the failure to obtain such stockholder approval and such action
or failure to act constitutes a breach of this Agreement;
(e) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent, then Company may not terminate this Agreement under this
Section 7.1(e) for thirty (30) days after delivery of written notice from
Company to Parent of such breach, provided Parent continues to exercise best
efforts to cure such breach (it being understood that Company may not terminate
this Agreement pursuant to this paragraph (e) if such breach by Parent is cured
during such thirty (30)-day period);
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in Company's representations and warranties or breach by Company is
curable by Company, then Parent may not terminate this Agreement under this
Section 7.1(f) for thirty (30) days after delivery of written notice from Parent
to Company of such breach, provided Company continues to exercise best efforts
to cure such breach (it being understood that Parent may not terminate this
Agreement pursuant to this paragraph (f) such breach by Company is cured during
such thirty (30)-day period); or
(g) by Parent, if (i) the Board of Directors of Company
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to Parent or its stockholders, (ii) the Board of
Directors of Company shall have recommended to the stockholders of Company an
Acquisition Proposal, (iii) the Company fails to comply with Section 5.4, (iv)
an Acquisition Proposal shall have been announced or otherwise become publicly
known and the Board of Directors of Company shall have (A) failed to recommend
against acceptance of such by Company's stockholders (including by taking no
position, or indicating its inability to take a position, with respect to the
acceptance by its stockholders of an Acquisition Proposal involving a
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tender offer or exchange offer) or (B) failed to reconfirm its approval and
recommendation of this Agreement and the transactions contemplated hereby within
five business days after a written request by Parent to do so, (v) for any
reason Company fails to call and hold the Company Stockholders' Meeting by the
date which is one business day prior to the Outside Date or (vi) the Board of
Directors of Company resolves to take any of the actions described above.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto
(or such later time as may be required by Section 7.1). In the event of the
termination of this Agreement as provided in Section 7.1, this Agreement shall
be of no further force or effect, and the parties hereto shall have no further
liability hereunder, except (i) as set forth in this Section 7.2, Section
5.3(a), Section 7.3 and Article VIII, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for fraud in connection with, or any willful breach of, this
Agreement.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; PROVIDED, HOWEVER, that Parent and Company
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred (i) in relation to the printing and filing of the
Joint Proxy Statement/Prospectus (including any preliminary materials related
thereto) and the F-4 (including financial statements and exhibits) and any
amendments or supplements thereto or (ii) for the premerger notification and
report forms under the HSR Act.
(b) TERMINATION FEE.
(i) In the event that (A) Parent shall terminate this
Agreement pursuant to Section 7.1(g), or (B) this Agreement shall be terminated
(x) pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(i) and, in the
case of clause (x), (1) at or prior to such termination, there shall exist or
have been proposed an Acquisition Proposal, (2) Parent shall have terminated, or
been entitled to terminate, this Agreement pursuant to Section 7.1(b), (3)
Company shall not have delivered an unconditional notice of breach pursuant to
Section 7.1(e) and been entitled to terminate this Agreement pursuant to Section
7.1(e) but for the failure of the 30-day cure period set forth therein to expire
prior to the Outside Date and (4) within 12 months after such termination,
Company shall enter into a definitive agreement with respect to any Company
Acquisition or any Company Acquisition shall be consummated, or, in the case of
clause (y), Company shall not have delivered an unconditional notice of breach
pursuant to Section 7.1(e) and been entitled to terminate this Agreement
pursuant to Section 7.1(e) but for the failure of the 30-day cure period set
forth therein to expire prior to the stockholder vote on this Agreement by the
stockholders of Company, then, in the case of (A) and (B)(y), promptly after
such termination, or in the case of (B)(x), immediately prior to the execution
of a definitive agreement with respect to, or the consummation of, as
applicable, such Company Acquisition, Company shall pay to Parent an amount in
cash equal to $74 million (the "TERMINATION FEE").
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(ii) In the event that Parent shall terminate this Agreement
pursuant to Section 7.1(f), then Company shall promptly reimburse Parent for
Parent's costs and expenses in connection with this Agreement and the
transactions contemplated hereby ("PARENT'S EXPENSES"), and if, within twelve
months of such termination of this Agreement, Company shall enter into a
definitive agreement with respect to any Company Acquisition or any Company
Acquisition involving Company shall be consummated, then immediately prior to
the execution of a definitive agreement with respect to, or the consummation of,
as applicable, such Company Acquisition, then Company shall pay to Parent an
amount in cash equal to the amount by which the Termination Fee exceeds the
amount of Parent's Expenses previously reimbursed by Company pursuant hereto.
(iii) The Company acknowledges that the agreements
contained in this Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement; accordingly, if the Company fails to pay in a
timely manner the amounts due pursuant to this Section 7.3(b) and, in order to
obtain such payment, Parent makes a claim that results in a judgment against the
Company for the amounts set forth in this Section 7.3(b), the Company shall pay
to Parent its costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set forth in
this Section 7.3(b) at the prime rate of Citibank, N.A. in effect on the date
such payment was required to be made. Payment of the fees described in this
Section 7.3(b) shall not be in lieu of damages incurred in the event of fraud or
willful breach of this Agreement. For the purposes of this Agreement, "COMPANY
ACQUISITION" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement): (i) a merger, consolidation,
business combination, recapitalization or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately preceding
such transaction hold less than 70% of the aggregate equity interests in the
surviving, resulting or acquiring entity of such transaction, (ii) a sale or
other disposition by the Company of assets representing in excess of 50% of the
aggregate fair market value of the Company's business immediately prior to such
sale or (iii) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of the Company.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Parent, Merger Sub and Company.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
OpenTV Corp.
401 East Middlefield Road
Mountain View, California 94043-4005
Attention: General Counsel
Telecopy No.: (650) 230-1206
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Telecopy No.: (650) 493-6811
and to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Telecopy No.: (415) 947-2099
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(b) if to Company, to:
Spyglass, Inc.
1240 E. Diehl Road
Naperville, Illinois 60563
Attention: General Counsel
Telecopy No.: (630) 245-6651
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Patrick J. Rondeau, Esq.
Telecopy No.: (617) 526-5000
8.3 INTERPRETATION; DEFINITIONS.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means with respect to a party hereto,
with respect to any matter in question, knowledge of the executive officers of
such party after reasonable inquiry;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in connection
with an entity means any change, event, violation, inaccuracy, circumstance or
effect that is materially adverse to the business, assets, liabilities,
financial condition, prospects or results of operations of such entity and its
subsidiaries taken as a whole; PROVIDED, HOWEVER, that in no event shall (A) a
decrease in such entity's stock price in and of itself constitute a Material
Adverse Effect or (B) any change, event, violation, inaccuracy, circumstance or
effect that results from (x) the public announcement or pendency of the
transactions contemplated hereby, (y) changes affecting the interactive
television or internet industry generally (which changes do not
disproportionately affect such entity) or (z) changes affecting the United
States economy generally, constitute a Material Adverse Effect;
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(iii) the term "PERSON" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company), firm
or other enterprise, association, organization, entity or Governmental Entity.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and
the documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except that the provisions of Section 5.10 are intended for the benefit of the
persons referred to therein and may be enforced by such persons.
8.6 SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
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8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
OPENTV CORP.
By: /s/ Jan Steenkamp
_________________________________
Name: Jan Steenkamp
_________________________________
Title: Chief Executive Officer
_________________________________
SONNET ACQUISITION CORP.
By: /s/ Jan Steenkamp
_________________________________
Name: Jan Steenkamp
_________________________________
Title: President
_________________________________
SPYGLASS, INC.
By: /s/ Doug Colbeth
_________________________________
Name: Doug Colbeth
_________________________________
Title: Chief Executive Officer
_________________________________
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 19, 1999, except for Note 14, as to which
the date is November 4, 1999 with respect to the financial statements of
Spyglass, Inc. included in the Registration Statement (Form F-1) and related
Prospectus of MIH Ltd.
/s/ Ernst & Young LLP
Chicago, Illinois
March 31, 2000
