<PAGE>
As filed with the Securities and Exchange Commission on October 25, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
OPENTV CORP.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
British Virgin Islands 7372 Inapplicable
(State or other
jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or
organization) Classification Code Number) Identification Number)
</TABLE>
Abbot Building
Mount Street
Tortola
Road Town
British Virgin Islands
(284) 494-5491
(Address, including zip code, and telephone number, including
area code, of registrant's registered offices)
---------------
James F. Brown, Esq.
General Counsel
OpenTV, Inc.
401 East Middlefield Road
Mountain View, CA 94043
(650) 429-5500
(Name, address, including zip code, and telephone number, including
area code, of agent for service of process)
Copies to:
<TABLE>
<S> <C>
Kris F. Heinzelman, Esq. Gary L. Sellers, Esq.
Cravath, Swaine & Moore Simpson Thacher & Bartlett
Worldwide Plaza 425 Lexington Ave.
825 Eighth Avenue New York, NY 10017
New York, NY 10019 (212) 455-2000
(212) 474-1000
</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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Securities to be Aggregate Amount of
Registered Offering Price(/1/) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Class A Ordinary Shares, no par value... $50,000,000 $13,900
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the United States Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus to be used
in concurrent underwritten public offerings of Class A Ordinary Shares: a U.S.
prospectus to be used in the United States and Canada and an international
prospectus to be used outside the United States and Canada. The two
prospectuses are identical except for the front and back cover pages, the
sections entitled "Underwriting" and "Legal Matters" and certain supplemental
disclosure in the international prospectus. Those sections or pages that will
appear only in the U.S. prospectus are labeled "[U.S.]", and those that will
appear only in the international prospectus are labeled "[I]". Final forms of
each prospectus will be filed with the Securities and Exchange Commission under
Rule 424(b) under the Securities Act of 1933.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[U.S.]
Subject to Completion
Preliminary Prospectus dated , 1999
PROSPECTUS
Shares
[LOGO OF OPENTV]
Class A Ordinary Shares
-----------
This is OpenTV's initial public offering. The U.S. underwriters will offer
shares in the United States and Canada and the international managers will
offer shares outside the United States and Canada.
We expect that the public offering price will be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will trade on the Nasdaq National Market
and the Amsterdam Stock Exchange under the symbol "OPTV".
Investing in the shares involves risks that are described in the "Risk
Factors" section beginning on page 8 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................... $ $
Underwriting discount........................... $ $
Proceeds, before expenses, to OpenTV............ $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional shares 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 shares.
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 , 1999.
-----------
Merrill Lynch & Co. Thomas Weisel Partners LLC
-----------
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 8
Cautionary Notice Regarding Forward-Looking Statements................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Unaudited Pro Forma Combined Financial Information....................... 21
Historical Predecessor Selected Consolidated Financial Data.............. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 36
Management............................................................... 49
Transactions with Related Parties........................................ 58
Principal Shareholders................................................... 63
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 69
United States Federal Income Tax Consequences............................ 71
British Virgin Islands Taxation.......................................... 74
Underwriting............................................................. 75
Legal Matters............................................................ 79
Experts.................................................................. 79
Available Information.................................................... 79
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
<TABLE>
<S> <C>
</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.
"OpenTV", "OpenAuthor", "OpenTV Runtime", "OpenStreamer" and the OpenTV
logo are trademarks of OpenTV, Inc. All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
<PAGE>
SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. OpenTV Corp. is a holding
company whose only asset is its 78.5% ownership interest ( % after giving
effect to the exercise of outstanding employee stock options and the issuance
of additional shares of common stock of OpenTV, Inc. to OpenTV Corp. at the
closing of these offerings) as of October 21, 1999 in OpenTV, Inc. The terms
"OpenTV", "our company", "we", "us" and "our" as used in this prospectus refer
to OpenTV Corp. and its subsidiaries and predecessors as a combined entity,
except where the context requires otherwise.
OpenTV
We are the leading worldwide provider of software that enables digital
interactive television. Our software is running on over 4.3 million set-top
boxes worldwide, with 22 network operators in 17 countries having selected our
OpenTV Runtime software as their interactive platform. Our 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
. transfer funds, view account balances, borrow money and engage in
other banking transactions
Our 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 our software platform to
transmit a continual stream of interactive programming to viewers.
Specifically, our software platform includes software that resides both at the
network operator's central broadcasting facility and within the viewer's set-
top box. Our central broadcasting facility software enables the streaming of
data from such facility to subscribers' set-top boxes where our 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. Our 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, our software is designed to exploit the capabilities of emerging
infrastructure developments such as broadband transmission networks and digital
television sets. Digital television set manufacturers can incorporate our
software, which is platform-neutral, at the time of production, or our software
can be subsequently downloaded via broadcast from a network operator (a "flash"
download) into digital television sets for the reception of digital interactive
television without a set-top box.
The majority of our revenues today are generated from royalties and fees
related to our core software platform. In addition, we are developing
interactive applications that we intend to license to network operators in
exchange for a share of advertising and e-commerce revenues.
1
<PAGE>
Market Opportunity
Found in nearly one billion households worldwide, television is the most
widely adopted form of home entertainment. According to Nielsen Media Research,
the average U.S. household has a television turned on for over seven hours a
day. As a result, advertisers use television as a cost-effective medium for
reaching a large number of consumers. Zenithmedia estimates that $117 billion
was spent on television advertising worldwide in 1998, representing 28% of
total advertising expenditures. Increasing competition to acquire and retain
subscribers is driving network operators to differentiate themselves by
providing enhanced television viewing and other interactive services. These
network operators are rapidly shifting to digital technology, which allows them
to cost-effectively deliver interactive services and more channels than with
traditional analog technology. The digital set-top box, which enables reception
of digital interactive television, will provide the bridge to mass adoption of
digital technology prior to the eventual proliferation of more costly digital
television sets. We believe that digital set-top boxes will become one of the
world's fastest growing consumer electronic appliances. According to estimates
by Intex Management Services, total worldwide annual shipments of digital set-
top boxes will increase from 16 million in 1998 to over 34 million at the end
of 2001. We expect that the rapid migration of television households to digital
technology will create a vast market for our products and services.
With the success of home shopping channels on television and e-commerce
over the Internet, consumers have shown a desire to purchase goods and services
through an electronic medium. Two dedicated shopping channels, Home Shopping
Network and QVC, have used the emotion of television to generate approximately
$3.5 billion of revenue selling goods and services in 1998. In addition,
International Data Corporation estimates that consumers purchased approximately
$15 billion of goods and services over the Internet in 1998, with a projected
increase to approximately $114 billion by 2002. Digital interactive television
allows advertisers and retailers to create an interactive shopping experience
with the emotion that only television-quality audio and video can deliver,
combined with the immediate gratification of electronic purchasing. As
advertisers recognize the power of interactive television, we believe a
substantial amount of television advertising expenditures will migrate to
digital interactive advertising providing significant revenue streams for
network operators, content providers and application developers through revenue
sharing agreements. Forrester estimates that the interactive television
industry will generate $11 billion annually in advertising revenue in the
United States alone by 2004.
The OpenTV Solution
We believe our software products are accelerating the acceptance and use
of digital interactive television worldwide. Our solution facilitates the
widespread adoption of digital interactive television without significant
investment in hardware or digital infrastructure by network operators. We offer
a comprehensive and highly portable solution that makes interactive television
viable today for network operators, television programming companies,
advertisers, e-commerce merchants and viewers, providing them with the
following benefits:
. cable, satellite and terrestrial broadcast network operators are
able to attract subscribers and create additional sources of
revenue from e-commerce and advertising by providing compelling
interactive services
. television programming companies and advertisers are able to
attract additional viewers and generate more revenue by creating
interesting and compelling television content
. e-commerce merchants, including banks, retailers and travel and
event ticket brokers, can access a direct, mass market avenue into
consumers' homes
. viewers are able to enjoy interactive programming and convenient e-
commerce opportunities in a relaxed and entertaining manner
2
<PAGE>
As the availability of bandwidth increases, our software will enable even
more robust services, including video-on-demand, and will serve as a bridge to
the future by providing digital interactive television over both existing and
broadband networks.
Strategy
The following are principal components of our business and growth
strategy:
. Expand our global presence. Our OpenTV system is the first digital
interactive television software being deployed worldwide by
multiple network operators and set-top box manufacturers on a
significant scale.
. Capitalize on worldwide transition to digital television. We
believe the existing installed base of one billion television
households worldwide will rapidly migrate to digital technology,
thereby creating a vast market for our products and services.
. Enhance and extend our technology. We are continually enhancing and
upgrading our software to anticipate and exploit new technology.
. Encourage independent application development. As the volume and
quality of interactive content and services provided using the
OpenTV system expands, we expect that more viewers and customers
will be attracted to our solution.
. Develop our applications business and share revenues from
advertising and e-commerce. We are creating, with our content and
e-commerce partners, a core set of turn-key applications, and we
expect to participate in the recurring advertising and transaction-
based revenue generated by these applications through revenue
sharing agreements.
Recent Developments
In October 1999, we completed a private placement of our Series C-1
Convertible Preference Shares and Series C-2 Convertible Preference Shares and
warrants to purchase our Class A Ordinary Shares to America Online, Inc.,
General Instrument Corp., Liberty Digital, Inc., News Corporation, Time Warner,
Inc. and Sun Microsystems, Inc. for net proceeds of $31.0 million. Upon
consummation of these offerings, our convertible preference shares will convert
into our ordinary shares. In connection with the investments, we entered into
strategic agreements with America Online, Inc., News Corporation and Time
Warner, Inc. These investments and strategic agreements will allow us to
increase our market penetration in the United States and expand the range of
interactive applications available to our global client base.
These investments and the strategic agreements between us and the new
investors are described under the "Business--Strategic Partners" section of
this prospectus.
Company History
Our operating subsidiary, OpenTV, Inc., was formed in July 1996 as
THOMSON SUN Interactive, LLC by subsidiaries of THOMSON multimedia S.A. and Sun
Microsystems. OpenTV, Inc. was incorporated in 1997. MIH Limited became a
shareholder of OpenTV, Inc. in July 1997 and purchased Thomson's ownership
interest in March 1999.
OpenTV Corp., a British Virgin Islands international business company,
was formed on September 30, 1999 as a holding company to own shares of OpenTV,
Inc. Pursuant to a reorganization that occurred in October 1999, MIH Limited
exchanged its shares of common stock in OpenTV, Inc. for ordinary shares in
3
<PAGE>
OpenTV Corp. As a result, and after giving effect to transactions subsequent to
the reorganization, as of October 21, 1999 we own 78.5% of the common stock of
OpenTV, Inc., while Sun Microsystems owns 19.5% and various individuals own a
total of 2.0% after having exercised options obtained through our employee
stock option plan. After giving effect to the exercise of outstanding employee
stock options and the issuance of additional shares of common stock of OpenTV,
Inc. to OpenTV Corp. at the closing of these offerings, we, Sun Microsystems
and various individuals would own %, % and %, respectively, of the common
stock of OpenTV, Inc. After giving effect to these offerings, MIH Limited will
own % of our ordinary shares. MIH Limited is listed on the Nasdaq National
Market and is a subsidiary of MIH Holdings Limited, which is publicly listed on
the Johannesburg Stock Exchange. For a discussion of our agreements with Sun
Microsystems regarding governance of OpenTV, Inc., see "Transactions with
Related Parties".
Our corporate headquarters are located at 401 East Middlefield Road,
Mountain View, California 94043, and our telephone number is (650) 429-5500.
The address of our web site is www.opentv.com. Information contained on our web
site is not a part of this prospectus.
4
<PAGE>
The Offerings
<TABLE>
<C> <C> <S>
Class A Ordinary Shares offered:
U.S. Offering................................ shares
International Offering....................... shares
--------------
Total.................................... shares
Ordinary Shares outstanding after the offerings:
Class A Ordinary Shares...................... shares(/1/)
Class B Ordinary Shares...................... shares(/2/)
--------------
Total.................................... shares
Use of Proceeds................................. We estimate that
the net proceeds
from these
offerings (without
exercise of the
over-allotment
options) will be
approximately $
million. We will
lend or contribute
the net proceeds
from these
offerings to
OpenTV, Inc.,
which intends to
use these net
proceeds to fund
the following:
. the development
of our
applications
business
. our working
capital needs
. possible
strategic
acquisitions or
investments
Risk Factors.................................... See "Risk Factors"
and the other
information
included in this
prospectus for a
discussion of
factors you should
carefully consider
before deciding to
invest in our
Class A Ordinary
Shares.
Trading......................................... Application has
been made to list
our Class A
Ordinary Shares on
the Nasdaq
National Market
and on the
Amsterdam Stock
Exchange under the
symbol "OPTV".
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
ten 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 BVI law or our
Memorandum and
Articles. A
purchaser of Class
A Ordinary Shares
in these offerings
will be able to
exercise rights
attaching to those
shares on the date
such purchaser's
name is entered as
owner of record
for such shares on
the books of the
transfer agent. 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".
</TABLE>
- --------
(1) The number of Class A Ordinary Shares to be outstanding after these
offerings is based upon the number of shares outstanding on October 21,
1999. This number assumes that the over-allotment options are not
5
<PAGE>
exercised. If the over-allotment options are exercised in full, we will
issue and sell additional Class A Ordinary Shares. This number also
excludes: (1) 25,705,570 Class A Ordinary Shares with an average exercise
price of $0.45 per share issuable upon exercise of employee options to
purchase shares outstanding as of October 21, 1999 (of which 6,051,132
shares are vested and exercisable or will vest and become exercisable within
60 days) and 49,128 shares issuable upon exercise of options available for
future grant under our employee share option plan, (2) 23,648,646 Class A
Ordinary Shares with an exercise price of $1.11 per share issuable upon
exercise of warrants and (3) up to 7,265,615 Class A Ordinary Shares that
may be issued in exchange for shares of Class A Common Stock of OpenTV, Inc.
See "Management--Employee Share Option Plan", "Description of Capital Stock"
and "Transactions with Related Parties".
(2) The number of Class B Ordinary Shares to be outstanding after these
offerings is based upon the number of shares outstanding as of October 21,
1999 and excludes 38,646,850 Class B Ordinary Shares that may be issued in
exchange for shares of Class B Common Stock of OpenTV, Inc.
6
<PAGE>
Summary Historical and Pro Forma Financial Information
The following is the summary historical financial information of OpenTV,
Inc. (the predecessor to OpenTV Corp.) and certain pro forma financial
information of OpenTV Corp. OpenTV Corp. holds 78.5% as of October 21, 1999
( % after giving effect to the exercise of outstanding employee stock options
and the issuance of additional shares of common stock of OpenTV, Inc. to OpenTV
Corp. at the closing of these offerings) of the common stock of OpenTV, Inc.
and will consolidate OpenTV, Inc.'s results and record a minority interest for
the portion not owned.
<TABLE>
<CAPTION>
July 1, 1996 Year Ended Nine Months Ended
(Date of Inception) December 31, September 30,
to December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
------------------- ----------- ----------- ----------- -----------
(unaudited)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Royalties............................... $ -- $ 2,382 $ 2,788 $ 1,890 $ 10,061
License fees............................ 287 1,255 1,578 1,043 1,904
Services and other...................... 731 3,322 5,102 3,183 5,592
---------- ----------- ----------- ----------- -----------
Total revenues......................... 1,018 6,959 9,468 6,116 17,557
Total operating expenses.................. 5,148 17,761 23,663 16,737 24,844
---------- ----------- ----------- ----------- -----------
Loss from operations...................... (4,130) (10,802) (14,195) (10,621) (7,287)
Other income (expense), net............... 172 113 (7) 1 40
---------- ----------- ----------- ----------- -----------
Net loss.................................. $ (3,958) $ (10,689) $ (14,202) $ (10,620) $ (7,247)
========== =========== =========== =========== ===========
Net loss per share, basic and diluted..... $ (0.09) $ (0.09) $ (0.09) $ (0.06) $ (0.04)
========== =========== =========== =========== ===========
Shares used in computing net loss per
share, basic and diluted................. 46,054,387 124,868,070 166,064,015 165,986,307 180,924,293
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------
OpenTV, OpenTV
Inc. Corp. Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................ $ 2,580 $33,580 $
Working capital (deficit)........................ (1,325) 29,675
Total assets..................................... 18,312 49,312
Minority interest................................ -- 2,153
Redeemable common stock.......................... 3,744 --
Total stockholders' equity....................... 6,316 38,907
</TABLE>
The OpenTV Corp. Pro Forma column above gives effect to the following
transactions that occurred subsequent to September 30, 1999:
. the exchange of MIH Limited's OpenTV, Inc. Class B Common Stock for
Class B Ordinary Shares of OpenTV Corp., which results in the
recognition of a minority interest
. the sale of 23,648,646 Series C-1 Convertible Preference Shares and
warrants to purchase 23,648,646 Class A Ordinary Shares to a new
investor group and 4,504,504 Series C-2 Convertible Preference
Shares to Sun Microsystems for net proceeds of $31.0 million
The Pro Forma As Adjusted column above gives effect to (1) the conversion
of our Series C-1 Convertible Preference Shares and Series C-2 Convertible
Preference Shares into 28,153,150 Class A Ordinary Shares and (2) the sale of
Class A Ordinary Shares in these offerings at an assumed initial public
offering price of $ (which is the midpoint of the estimated price range on
the cover of this prospectus) after deducting underwriting discounts and
commissions and estimated offering expenses.
7
<PAGE>
RISK FACTORS
Investing in our Class A Ordinary Shares will provide you with an equity
ownership interest in OpenTV. As an OpenTV 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 to invest in our Class
A Ordinary Shares.
We have a history of losses that will continue for the foreseeable future
We have incurred significant net losses since inception and, at September
30, 1999, had an accumulated deficit of $36.1 million. In addition, we
currently intend to incur substantial operating expenses over the next several
years to fund additional software development, marketing and general working
capital activities. 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.
Our limited operating history and the risks we encounter as a new company make
the prediction of our future results difficult
We began operations as an independent company in July 1996, and the
OpenTV system was first deployed in mid-1997. Accordingly, we have a limited
operating history, which makes the prediction of future results difficult. Our
prospects must be considered in light of the risks frequently encountered by
companies in an early stage of development, particularly companies in new
markets such as interactive television. Our ability to achieve and sustain
profitability will require, among other things:
. widespread adoption of the OpenTV system by multiple industry
participants and the television viewing public
. continued improvements to our technology and operations
. timely and successful responses to competitive developments
. the attraction, retention and motivation of qualified employees
. the firm establishment of the OpenTV brand
If we fail to successfully meet any of these challenges, our financial
performance may be materially adversely affected.
Interactive television is new and may not gain broad market acceptance
Interactive television is a new and emerging business, and we cannot
guarantee that it will attract widespread demand or market acceptance. Our
success in this area depends upon, among other things, broad acceptance of the
concept of interactive television by industry participants, including broadcast
and pay-television networks and system operators and manufacturers of
televisions and set-top boxes, including their ability to successfully market
interactive television to television viewers and advertisers. There have been
several well-financed, high-profile attempts in the U.S. to develop and deploy
systems in the broad category of interactive television. None of these attempts
has resulted in large scale deployment, and many key industry participants have
avoided participating in interactive television for a variety of reasons,
including:
. inconsistent quality of service
. need for new and expensive hardware in homes
. inadequate transmission facilities and broadcast centers
8
<PAGE>
. complicated and expensive processes for creating interactive
content
. inability to align the conflicting interests of various
participants
Accordingly, such participants may perceive interactive television negatively
and be reluctant to participate.
In addition, other participants in the television industry must accept
and support interactive television for it to be successful. For instance,
broadcasters will need to add interactive features to their programming and
commercial vendors will need to embrace e-commerce over interactive television.
We cannot assure you that these parties will provide such support.
We are dependent upon network operators selecting OpenTV as their interactive
software platform
Our growth and future success depends substantially upon our ability to
penetrate new markets and convince network operators to adopt and maintain
their use of the OpenTV system. We have entered into a limited number of non-
exclusive agreements with network operators providing for the launch of OpenTV-
based interactive services. If network operators determine that our service is
not viable as a business proposition or if they determine that the service does
not meet their business or operational strategies, they will not choose, or may
stop using, the OpenTV system as their interactive software platform.
Furthermore, EchoStar is currently the only network operator in the United
States with which we have an agreement to deploy OpenTV Runtime. If the launch
of our system on EchoStar is not successful, we may have a difficult time
penetrating the U.S. market.
An increase in the costs of set-top box components could adversely affect our
licensing revenues
Random access memory is a principal component of our set-top boxes. The
random access memory market is subject to price fluctuation and market demand
may exceed availability. Any shortage in the supply or increase in the price of
random access memory or any other components of our set-top boxes could result
in an increase in the price of set-top boxes. Any increase in the costs of set-
top boxes could adversely affect the roll-out of set-top boxes enabled with
OpenTV software and, in turn, result in a decline of our licensing revenues.
We operate in a highly competitive industry
We face competition from a number of companies, including many that have
significantly greater financial, technical and marketing resources and a better
recognized brand name than we do. Current and potential competitors in one or
more aspects of our business include interactive television technology
companies, Internet-related companies and broadband interactive service
providers. Among these companies, our major competitors are Wink Communications
Inc., Liberate Technologies and Microsoft Corporation.
Interactive television technology companies. Several companies have
developed technologies relevant to interactive television. Wink and Liberate
are software developers that are working to create interactive television
solutions and have established significant industry relationships that could
hinder the adoption of the OpenTV system. In addition, Microsoft Corporation
has been active in many areas of interactive television. Microsoft's wholly-
owned subsidiary, WebTV, offers set-top boxes with Internet access, interactive
program listings and simultaneous television and Internet usage. EchoStar
offers WebTV to its subscribers as an alternative to OpenTV-driven set-top
boxes. Microsoft has also acquired equity interests in several network
operators. These investments give Microsoft influence in the network operator's
choice of interactive software. Microsoft has also begun offering TVPak, its
interactive television software solution. With its vastly greater financial,
technical and marketing resources, Microsoft will be a strong competitor in the
market for interactive television operating systems.
Canal+ and Scientific-Atlanta are companies that have vertically
integrated into software for interactive television. Canal+ is one of the
largest network operators in Europe. It developed its Mediahighway
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<PAGE>
interactive system for distribution on its pay-television platforms and has now
begun to market Mediahighway to third parties. Scientific-Atlanta is one of the
largest set-top box manufacturers in the world. It is developing interactive
software to distribute with its set-top boxes and has begun to distribute this
software to third parties.
Internet-related companies. We face competition from other Internet
companies such as America Online, Yahoo! and Real Networks. These competitors
are seeking to meld Internet browsing and traditional broadcast, cable or
satellite television programming into a single medium, and to offer many
services over the Internet which are similar to those enabled by us. For
example, Real Networks offers technology enabling streaming video over the
Internet. Additionally, interactive programming guides are available over the
Internet from several sources. Although none of these companies provides the
full range of products and features that we do, we believe that the Internet
will continue to offer functionality that competes with our products.
Broadband interactive service providers. In the future, we may encounter
competition from broadband interactive service providers such as Excite@Home,
AOL/DirecTV, RoadRunner and others. Consumer electronics companies may, in the
future, decide to compete with us by, for example, bundling their own software
with their hardware products. There are also numerous companies that operate in
fields related to interactive television that could begin to compete with us.
This rapidly evolving competitive landscape places significant pressure
on us to properly direct the evolution of our products, our industry
relationships and our business plan in order to compete effectively. If we fail
to compete effectively, our business will suffer.
Rapid technological advances or the adoption of incompatible standards could
render our products obsolete or non-competitive
The rate of technological change currently affecting the television
industry is particularly rapid compared to other industries. The migration of
television from analog to digital transmission, the convergence of television,
the Internet, communications and other media and other emerging trends are
creating a dynamic and unpredictable environment in which to operate. Our
ability to anticipate these trends and adapt to new technologies is critical to
our success.
Recent attempts to establish industry-wide standards for interactive
television software include an initiative by cable network operators in the
United States to create a uniform platform for interactive television called
OpenCable. The OpenCable standard is not yet defined, and we do not know
whether our product will be compatible with OpenCable. The establishment of
this standard or other similar standards could hurt our business, particularly
if our products require significant redevelopment in order to conform to the
newly established standards.
Any delay or failure on our part to respond quickly, cost-effectively and
sufficiently to these developments could render our existing products and
services obsolete and have a material adverse effect on our business, financial
condition and results of operations. We may have to incur substantial
expenditures to modify or adapt our products or services to respond to these
developments. We must stay abreast of cutting-edge technological developments
and evolving service offerings to remain competitive, increase the utility of
our services and attract and retain qualified employees. We must be able to
incorporate new technologies into the products we design and develop in order
to address the increasingly complex and varied needs of our customer base.
As a holding company, we rely on distributions from our operating subsidiary to
meet our cash requirements
We are a holding company whose only asset as of October 21, 1999 is our
ownership of approximately 78.5% ( % after giving effect to the exercise of
outstanding employee stock options and the issuance of additional shares of
common stock of OpenTV, Inc. to OpenTV Corp. at the closing of these
10
<PAGE>
offerings) of the common stock of OpenTV, Inc., from which we derive
substantially all of our cash flow. We will lend or contribute all of the net
proceeds of these offerings to OpenTV, Inc. We will not be able to pay out
dividends on our ordinary shares without receiving distributions from OpenTV,
Inc. The ability of OpenTV, Inc. to make such distributions could, in the
future, be subject to restrictions, such as covenants in loan agreements or
other debt instruments.
We may be unable to properly manage our growth
Our development activities and operations have expanded rapidly since
1996, and significant further expansion will be necessary to meet our growth
objectives and to take advantage of market opportunities. Our expansion to date
has placed substantial strain on our managerial, operational and financial
resources and systems. To manage our growth, we must successfully implement,
constantly improve and effectively utilize our operational and financial
systems while aggressively expanding our workforce. We must also maintain and
strengthen the breadth and depth of our current strategic relationships while
rapidly developing new relationships. Our existing or planned operational and
financial systems may not be sufficient to support our growth, and our
management may not be able to effectively identify, manage and exploit existing
and emerging market opportunities. If our potential growth is not adequately
managed, our business will suffer.
We depend upon key personnel to manage and grow our business
Our future success and performance is dependent on the continued services
and performance of our senior management and other key personnel. There is a
shortage of qualified marketing, technical and financial personnel in our
industry, and the competition for such personnel is intense. Accordingly, the
loss of the services of any of our executive officers or other key employees
could materially adversely affect our business.
We may have difficulty retaining or recruiting professionals for our business
Our business requires experienced software programmers, creative
designers, and application developers, and our success depends on identifying,
hiring, training and retaining such experienced, knowledgeable professionals.
If a significant number of our current employees or any of our senior technical
personnel resign, or for other reasons are no longer employed by us, we may be
unable to complete or retain existing projects or bid for new projects of
similar scope and revenues. In addition, former employees may compete with us
in the future.
Even if we retain our current employees, our management must continually
recruit talented professionals in order for our business to grow. There is
currently a shortage of qualified senior technical personnel in the software
development field, and this shortage is likely to continue. Furthermore, there
is significant competition for employees with the skills required to perform
the services we offer. We cannot assure you that we will be able to attract a
sufficient number of qualified employees in the future to sustain and grow our
business, or that we will be successful in motivating and retaining the
employees we are able to attract. If we cannot attract, motivate and retain
qualified professionals, our business, financial condition and results of
operations will suffer.
We may have difficulty integrating acquisitions
Although we have not recently announced any acquisitions, in the future
we may acquire other businesses or new technologies. As a result of these
acquisitions, we may need to integrate product lines, technologies, widely
dispersed operations and distinct corporate cultures. The product lines or
technologies of the acquired companies may need to be altered or redesigned in
order to be made compatible with our software products or the software
architecture of our customers. These integration efforts may not succeed or may
distract our management from operating our existing business. Our failure to
successfully manage future acquisitions could seriously harm our operating
results.
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<PAGE>
We may incur quarterly fluctuations in our revenues that could affect the
market price of our ordinary shares
Our revenues may vary from quarter to quarter as a result of a number of
factors, including:
. the number, size and scope of network operators deploying OpenTV-
enabled interactive services and the associated rollout to
subscribers
. the timing of upgrades by existing network operators
. the rate of subscriber growth of network operators offering
OpenTV-enabled interactive services
. the timing of revenue recognition associated with major
development contracts
A high percentage of our expenses, particularly compensation, is fixed in
advance of any particular quarter. This means that any of the factors listed
above could cause significant variations in our revenues and earnings in a
particular given quarter. Any decline in revenues or a greater than expected
loss for any quarter could cause the market price of our Class A Ordinary
Shares to decline.
Our multinational operations expose us to certain financial and operational
risks
Our revenues are dependent upon our marketing efforts in a number of
countries throughout the world, particularly the United Kingdom, France, Spain,
South Africa and Italy. In addition, we receive a material amount of revenue
denominated in euro and incur expenses in euro, Korean won, and Chinese
renminbi. Operations in several different countries exposes us to a number of
risks, such as:
. changes in legal and regulatory requirements
. export and import restrictions, tariffs and other trade barriers
. currency fluctuations and the conversion to the euro in most
member states of the European Union
. difficulties in staffing and managing offices as a result of,
among other things, distance, language and cultural differences
. longer payment cycles and problems in collecting accounts
receivable
. political and economic instability
. potentially adverse tax consequences
Any of these factors could have a material adverse effect on our business,
financial condition and results of operations.
We are exposed to intellectual property related risks
Our ability to effectively compete is dependent in part upon the
maintenance and protection of our proprietary intellectual property. We rely on
patent, trademark, trade secret and copyright law, as well as confidentiality
procedures and licensing arrangements, to establish and protect our rights in
our technology. We typically enter into confidentiality or license agreements
with our employees, consultants, customers, strategic partners and vendors, in
an effort to control access to and distribution of our software, documentation
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use our proprietary
technology without authorization. Policing unauthorized use of our software and
products is difficult. The steps we take may not prevent misappropriation of
our intellectual property and the agreements we enter into may not be
enforceable. In addition, effective patent, copyright and trade secret
protection may be unavailable or limited in certain foreign countries.
Litigation may be necessary in the future to enforce or protect our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Such litigation could cause us to incur
substantial costs and diversion of resources, which in turn could materially
adversely affect our business.
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<PAGE>
In the future, we may receive notices of claims of infringement of other
parties' proprietary rights or claims for indemnification resulting from
infringement claims. The emerging enhanced-television industry is highly
litigious, particularly in the area of on-screen program guides. The defense of
any such claims could cause us to incur significant costs and could result in
the diversion of resources with respect to the defense of any claims brought,
which could materially adversely affect our operating results and financial
condition. As a result of such infringement claims, a court could issue an
injunction preventing us from distributing certain products, which could
materially adversely affect our business. If any claims or actions are asserted
against us, we may seek to obtain a license under a third party's intellectual
property rights in order to avoid any litigation. However, a license under such
circumstances may not be available on commercially reasonable terms, if at all.
The interests of our majority owner may differ from yours
Immediately following the offerings, MIH Limited will indirectly own all
of our outstanding Class B Ordinary Shares, representing % of the voting
rights with respect to our ordinary shares. MIH Limited, which is publicly
traded on the Nasdaq National Market and the Amsterdam Stock Exchange, is
controlled by MIH Holdings Limited, which is in turn controlled by Naspers
Limited. Both MIH Holdings and Naspers are publicly traded on the Johannesburg
Stock Exchange. As a result of its ownership of our Class B Ordinary Shares,
MIH Limited 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 and Articles for any purpose (which could include increasing or
reducing our authorized capital or authorizing the issuance of additional
shares). MIH Limited has agreed not to cause us to take specified actions
without the consent of certain of our shareholders. Subject to those
limitations, MIH Limited controls how we vote our shares of OpenTV, Inc. We
engage in transactions with subsidiaries of MIH Limited and its parent
companies in the ordinary course of business. The interests of MIH Limited 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. See "Management",
"Transactions with Related Parties" and "Principal Shareholders".
Our strategic investors may acquire voting control of our company
If MIH Limited, Sun Microsystems or a strategic investor that
subsequently acquires Class B Ordinary Shares elects to exchange its Class B
Ordinary Shares for Class A Ordinary Shares, certain of our strategic
investors, including America Online, Inc., General Instrument Corp., Liberty
Digital, Inc., News Corporation and Time Warner, Inc., have the right to
exchange their Class A Ordinary Shares for such Class B Ordinary Shares. The
Class B Ordinary Shares entitle holders to ten votes per share while Class A
Ordinary Shares entitle holders to one vote per share. As a result, these new
investors could acquire the power to determine the outcome of any action
requiring shareholder approval.
The net proceeds from these offerings may be allocated in ways with which you
may not agree
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 management's 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.
Government regulations may adversely affect our business
The telecommunications, media, broadcast and cable television industries
are subject to extensive regulation by governmental agencies. These
governmental agencies continue to oversee and adopt legislation and regulation
over these industries, which may affect our business, market participants with
which we have relationships or the acceptance of interactive television in
general. In addition, future legislation or regulatory requirements regarding
privacy issues could be enacted to require notification to users that captured
data may
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<PAGE>
be used by marketing entities to target product promotion and advertising to
that user. Any of these developments may materially adversely affect our
business.
The Year 2000 problem may adversely affect our business
The risks posed by the Year 2000 problem could adversely affect our
business in a number of significant ways. Many of our customers and potential
customers maintain their operations on systems that could be impacted by Year
2000 problems. If these entities fail to ensure that their systems are Year
2000 compliant and Year 2000 problems materially adversely affect them, our
business could be materially adversely affected, particularly if demand for our
products and services declines while customers redirect their resources to
upgrade their computer systems. Disruptions in the Internet infrastructure
arising from Year 2000 problems could also adversely affect our business,
financial condition and results of operations.
In addition, our business could be materially adversely affected if we
cannot obtain from our hardware and software suppliers products, services or
systems that are Year 2000 compliant when we need them. Our internal
information systems may experience operations difficulties because of
undetected errors or defects in the products, services or systems provided to
us by our suppliers. We are in the process of obtaining assurances from our
suppliers that they are Year 2000 compliant. The expense to correct such
defects could have a material adverse effect on our business, results of
operations and financial condition.
Because the products and services we deliver are sometimes dependent upon
third-party products and components, it may be difficult to determine which
component of our products and services may cause a Year 2000 problem. As a
result, we may become involved in litigation concerning our services or
products and components supplied by a third party. The risk that we will be
involved in a lawsuit relating to Year 2000 issues is likely to be greater than
that of companies in other industries. We sometimes provide an express warranty
to our customers that our work is Year 2000 compliant. However, even absent an
express Year 2000 warranty, there is a risk that our customers will try to hold
us liable for damages caused by the Year 2000 problem.
We cannot guarantee that we will be Year 2000 compliant in a timely
manner. Moreover, the costs related to Year 2000 compliance could be
significant. See "Managements Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Compliance" for a further discussion of
the potential effects of the Year 2000 problem on our business.
United States judgments may not be fully enforceable against us
We are incorporated in the British Virgin Islands. Several of our
directors and executive officers reside outside the U.S., and a portion of our
assets are located outside the United States. As a result, it may be difficult
or impossible for investors to effect service of process upon such persons
within the United States or to enforce against such persons judgments obtained
in the 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 our counsel, Harney, Westwood & Riegels, that
judgments of U.S. courts, including judgments 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 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.
Shareholder rights under the laws of the British Virgin Islands differ from
those in other jurisdictions
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
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<PAGE>
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.
We may be unable to raise additional capital in the future to support our
growth
We expect that our existing capital resources, combined with the net
proceeds of these offerings, will be sufficient to meet our cash requirements
through at least the next 12 months. However, as we continue to grow our
business, we may need to raise additional capital, which may not be available
on acceptable terms, if at all. If we cannot raise necessary additional capital
on acceptable terms, we may not be able to develop or enhance our products and
services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, any of which could have a material
adverse effect on our business.
If additional capital is raised through the issuance of equity securities
or by incurring convertible debt, the percentage ownership of our existing
shareholders will be reduced and shareholders may experience dilution in net
book value per share. Any debt financing, if available, may involve covenants
limiting or restricting our operations or future opportunities.
External factors could adversely affect the market price of our Class A
Ordinary Shares
There is currently no public market for our Class A Ordinary Shares, and
we cannot assure you that an active trading market will develop or be sustained
after these offerings. The initial public offering price will be determined
through negotiation between us and representatives of the underwriters and may
not be indicative of the market price for our Class A Ordinary Shares after
these offerings.
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
. earnings and other announcements by, and changes in market
evaluations of, companies in the interactive television industry
. 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
The securities of many companies have experienced extreme price and
volume fluctuations in recent years, often unrelated to the operating
performance of these companies. For example, market prices for securities of
Internet-related and technology companies have reached elevated levels, often
following initial public offerings, that may not be sustainable. If the market
price of our Class A Ordinary Shares reaches an elevated level following these
offerings, it may materially decline. In the past, following periods of
volatility in the market price of a company's securities, that company's
shareholders have often instituted securities class action litigation against
the company. If we were involved in such a class action suit, it could have a
material adverse effect on our business, financial condition and results of
operations.
Investors in these offerings will experience immediate and substantial dilution
If you purchase Class A Ordinary Shares in these offerings, you will pay
more for your shares than the amounts existing shareholders paid for their
shares. In addition, you will experience immediate and substantial
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<PAGE>
dilution of approximately $ per share, representing the difference between
our pro forma net tangible book value per share as of September 30, 1999, after
giving effect to these offerings and the assumed public offering price of $
per share. In addition, you may experience further dilution to the extent that
our ordinary shares are issued upon the exercise of options or warrants to
purchase shares. These shares will be issued at a purchase price that is less
than the public offering price per share in these offerings. See "Dilution" for
a more complete description of how the value of your investment in our Class A
Ordinary Shares will be diluted upon the completion of these offerings.
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 these offerings, we, our executive officers, our
directors and our shareholders, including MIH Limited, have agreed not to offer
or transfer any of our ordinary shares for 180 days after completion of these
offerings without the underwriters' consent; however, the underwriters may
release these shares from these restrictions at any time. In addition, our
parent company, MIH Limited, has agreed to certain restrictions on its ability
to sell our ordinary shares for three years after these offerings pursuant to
requirements for listing on the Amsterdam Stock Exchange. We cannot predict
what effect, if any, market sales of shares held by MIH Limited 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
Certain 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, 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:
. the authorization of our board of directors to issue shares of
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 the chief executive officer or upon request
by a majority of our board of directors and may deny shareholders the ability
to call such meetings or to act by shareholder consent. The low voting rights
of the Class A Ordinary Shares and such provisions, 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".
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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.
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<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ from these
offerings ($ if the over-allotment options granted to the underwriters and
international managers are fully exercised). This estimate is based upon an
initial public offering price of $ (which is the mid-point of the estimated
price range on the cover of this prospectus) and is computed after deducting
underwriting discounts and offering expenses. We will lend or contribute the
net proceeds from these offerings to OpenTV, Inc., which intends to use these
net proceeds to fund the following:
. the development of our applications business
. our working capital needs
. possible strategic acquisitions and investments
It should be noted that with regard to the acquisitions and investments
described above, we have not entered into definitive agreements with regard to
any acquisition or investment.
Pending the use of the net proceeds as described above, we or OpenTV,
Inc., as applicable, intend to invest the net proceeds from these offerings in
short-term, interest-bearing, investment-grade securities. See "Risk Factors--
The net proceeds from these offerings may be allocated in ways with which you
may not agree".
DIVIDEND POLICY
We anticipate that any earnings 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 payment of
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.
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CAPITALIZATION
The OpenTV, Inc. Actual column in the following table sets forth OpenTV,
Inc.'s capitalization as of September 30, 1999. The OpenTV Corp. Pro Forma
column gives effect to the following transactions which occurred subsequent to
September 30, 1999: (1) the exchange of MIH Limited's OpenTV, Inc. Class B
Common Stock for Class B Ordinary Shares of OpenTV Corp., which results in the
recognition of a minority interest, and (2) the issuance of 23,648,646 Series
C-1 Convertible Preference Shares, 4,504,504 Series C-2 Convertible Preference
Shares and 23,648,646 warrants to purchase our Class A Ordinary Shares for
aggregate net proceeds of $31.0 million. The Pro Forma As Adjusted column gives
effect to: (1) the conversion of our Series C-1 Convertible Preference Shares
and Series C-2 Convertible Preference Shares into Class A Ordinary Shares and
(2) the sale of Class A Ordinary Shares in these offerings at an
assumed initial public offering price of $ per share (which is the midpoint
of the estimated price range on the cover of this prospectus) after deducting
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and the notes to our financial statements. The Open TV Corp.
Pro Forma and Pro Forma As Adjusted information set forth below is unaudited
and should be read in conjunction with our unaudited pro forma combined
financial information and consolidated financial statements and notes.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
OpenTV, OpenTV
Inc. Corp. Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Minority interest.............................. $ -- $ 2,153 $
======== ======== =====
Long-term debt................................. $ -- $ -- $
Redeemable common stock, par value $0.001;
3,588,847 issued and outstanding, actual; no
shares issued and outstanding, pro forma and
as adjusted .................................. 3,744 --
-------- -------- -----
Shareholders' equity:
Preference shares, no par value; 500,000,000
shares authorized; none issued and
outstanding, actual......................... -- --
Series C-1 Convertible Preference Shares, no
par value; 23,648,646 shares authorized, no
shares issued and outstanding actual;
23,648,646 shares issued and outstanding pro
forma; no shares issued and outstanding pro
forma as adjusted........................... -- 18,196
Series C-2 Convertible Preference Shares, no
par value; 4,504,504 shares authorized, no
shares issued and outstanding actual;
4,504,504 shares issued and outstanding pro
forma; no shares issued and outstanding pro
forma as adjusted........................... -- 5,000
Class A Ordinary Shares, no par value;
500,000,000 shares authorized; no shares
issued and outstanding, actual; no shares
issued and outstanding, pro forma;
shares issued and outstanding, pro forma as
adjusted.................................... -- --
Class B Ordinary Shares, no par value;
200,000,000 shares authorized; no shares
issued and outstanding, actual; 153,158,733
shares issued and outstanding, pro forma and
pro forma as adjusted....................... -- 46,995
Warrants..................................... -- 7,804
Class A Common Stock, par value $0.001;
275,000,000 shares authorized; no shares
issued and outstanding, actual; no shares
issued and outstanding, pro forma and pro
forma as adjusted .......................... -- --
Class B Common Stock, par value $0.001;
225,000,000 shares authorized; 191,169,126
shares issued and outstanding, actual; no
shares issued and outstanding, pro forma and
pro forma as adjusted....................... 191 --
Additional paid-in capital................... 45,213 --
Receivable from stockholders................. (11) (11)
Deferred compensation........................ (2,952) (2,952)
Accumulated other comprehensive income....... (29) (29)
Accumulated deficit.......................... (36,096) (36,096)
-------- -------- -----
Total shareholders' equity................... 6,316 38,907
-------- -------- -----
Total capitalization......................... $ 10,060 $ 38,907 $
======== ======== =====
</TABLE>
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DILUTION
At September 30, 1999 and after giving effect to the following
transactions which occurred subsequent to September 30, 1999: (1) the exchange
of MIH Limited's OpenTV, Inc. Class B Common Stock for Class B Ordinary Shares
of OpenTV Corp., which results in the recognition of a minority interest,
(2) the issuance of 23,648,646 of our Series C-1 Convertible Preference Shares,
4,504,504 of our Series C-2 Convertible Preference Shares and 23,648,646
warrants to purchase our Class A Ordinary Shares for aggregate net proceeds of
$31.0 million and the conversion of all our Series C-1 Convertible Preference
Shares and Series C-2 Convertible Preference Shares into Class A Ordinary
Shares and (3) the assumed exchange of all other shares of common stock of
OpenTV, Inc. for ordinary shares of OpenTV Corp. at an exchange rate of one for
one, we had a net tangible book value of approximately $ million, or $ per
ordinary share. Net tangible book value per share represents the amount of
total tangible assets less total liabilities divided by the number of ordinary
shares outstanding. After giving effect to the sale of Class A Ordinary Shares
in these offerings at an assumed initial public offering price of $ per share
(which is the mid-point of the estimated price range on the cover of this
prospectus) and after deducting the estimated underwriting discount and
offering expenses payable by us, our pro forma net tangible book value as of
September 30, 1999 would have been approximately $ million, or $ per share.
This represents an immediate increase in net tangible book value of $ per
share to the existing shareholders and an immediate dilution of $ per share
to new investors. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $
Net tangible book value as of September 30, 1999................... $
Increase attributable to net proceeds of these offerings to
OpenTV............................................................
----
Pro forma net tangible book value after these offerings..............
----
Dilution to new investors............................................ $
====
</TABLE>
The following table summarizes on a pro forma basis, at September 30,
1999 after giving effect to the following transactions which occurred
subsequent to September 30, 1999: (1) the exchange of MIH Limited's OpenTV,
Inc. Class B Common Stock for Class B Ordinary Shares of OpenTV Corp., which
results in the recognition of a minority interest, (2) the issuance of
23,648,646 of our Series C-1 Convertible Preference Shares, 4,504,504 of our
Series C-2 Convertible Preference Shares and 23,648,646 warrants to purchase
our Class A Ordinary Shares for aggregate net proceeds of $31.0 million and the
conversion of all our Series C-1 Convertible Preference Shares and Series C-2
Convertible Preference Shares into Class A Ordinary Shares and (3) the assumed
exchange of all other shares of common stock of OpenTV, Inc. for ordinary
shares of OpenTV Corp. at an exchange rate of one for one, the difference
between existing shareholders and new investors in these offerings (at an
assumed initial public offering price of $ per share) with respect to the
number of ordinary shares purchased from OpenTV, the total consideration paid
and the average price paid per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- ------------------- Average Price
Number Percent Amount Percent per Share
-------- -------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... % $ % $
New investors...........
-------- -------- --------- ---------
Total ................ % $ %
======== ======== ========= =========
</TABLE>
The foregoing tables assume:
. no exercise of the underwriters' over-allotment options
. no exercise of the 29,955,883 outstanding options to purchase our
ordinary shares as of October 15, 1999
. no exercise of the 23,648,646 outstanding warrants to purchase
our ordinary shares
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information for OpenTV Corp.
gives effect to: (1) the exchange of MIH Limited's OpenTV, Inc. Class B Common
Stock for Class B Ordinary Shares of OpenTV Corp., a newly formed holding
company, in October 1999 (the "Transaction"), which results in the recognition
of a minority interest, and (2) the issuance of 23,648,646 Series C-1
Convertible Preference Shares, 4,504,504 Series C-2 Convertible Preference
Shares and 23,648,646 warrants to purchase our Class A Ordinary Shares for net
proceeds of $31.0 million. The historical information set forth below has been
derived from, and is qualified by reference to, the consolidated financial
statements of OpenTV, Inc. (the predecessor to OpenTV Corp.) and should be read
in conjunction with those financial statements, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
The unaudited pro forma combined balance sheet data as of September 30,
1999 give effect to items (1) and (2) above as if they had occurred on
September 30, 1999. The unaudited pro forma combined statement of operations
data for the nine months ended September 30, 1999 give effect to the
Transaction as if it occurred on January 1, 1998.
21
<PAGE>
OPENTV CORP.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Combined
OpenTV, Pro Forma OpenTV
Inc. Adjustments Corp.
---------- ----------- ---------
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 2,580 $ 31,000 (b) $ 33,580
Accounts receivable, net................. 3,345 -- 3,345
Prepaid expenses and other current
assets.................................. 1,002 -- 1,002
-------- -------- --------
Total current assets..................... 6,927 31,000 37,927
Property and equipment, net............... 4,146 -- 4,146
Intangible assets, net.................... 6,813 -- 6,813
Other assets.............................. 426 -- 426
-------- -------- --------
Total assets............................. $ 18,312 $ 31,000 $ 49,312
======== ======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable......................... $ 1,387 $ -- $ 1,387
Accrued liabilities...................... 3,399 -- 3,399
Related parties payable.................. 532 -- 532
Deferred revenue......................... 2,934 -- 2,934
-------- -------- --------
Total liabilities........................ 8,252 -- 8,252
-------- -------- --------
Minority interest......................... -- 2,153 (a) 2,153
Redeemable common stock, par value $0.001;
3,588,847 issued and outstanding,
historical; no shares issued and
outstanding, pro forma................... 3,744 (3,744)(a) --
-------- -------- --------
3,744 (1,591) 2,153
-------- -------- --------
Shareholders' equity:
Preference shares, no par value;
500,000,000 shares authorized; no shares
issued and outstanding, historical and
pro forma............................... -- -- --
Series C-1 Convertible Preference Shares,
no par value; 23,648,646 shares
authorized, no shares issued and
outstanding actual; 23,648,646 shares
issued and outstanding pro forma ....... -- 18,196 (b) 18,196
Series C-2 Convertible Preference Shares,
no par value; 4,504,504 shares
authorized, no shares issued and
outstanding actual; 4,504,504 shares
issued and outstanding pro forma ....... -- 5,000 (b) 5,000
Class A Ordinary Shares, no par value:
500,000,000 shares authorized; no shares
issued and outstanding, historical and
pro forma............................... -- -- --
Class B Ordinary Shares, no par value:
200,000,000 shares authorized; no shares
issued and outstanding, historical;
153,158,733 shares issued and
outstanding, pro forma.................. -- 46,995 (a) 46,995
Warrants................................. -- 7,804 (b) 7,804
Class A Common Stock, par value $0.001;
275,000,000 shares authorized; no shares
issued and outstanding, historical; no
shares issued and outstanding pro
forma................................... -- -- --
Class B Common Stock, par value $0.001;
225,000,000 shares authorized;
191,169,126 shares issued and
outstanding, actual; no shares issued
and outstanding, pro forma.............. 191 (191)(a) --
Additional paid-in capital............... 45,213 (45,213)(a) --
Receivable from stockholders............. (11) -- (11)
Deferred compensation.................... (2,952) -- (2,952)
Accumulated other comprehensive income... (29) -- (29)
Accumulated deficit...................... (36,096) -- (36,096)
-------- -------- --------
Total shareholders' equity............... 6,316 32,591 38,907
-------- -------- --------
Total liabilities and shareholders'
equity.................................. $ 18,312 $ 31,000 $ 49,312
======== ======== ========
</TABLE>
22
<PAGE>
OPENTV CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Combined
OpenTV, Pro Forma OpenTV
Inc. Adjustments Corp.
----------- ----------- ----------- --- ---
<S> <C> <C> <C> <C> <C>
Revenues:
Royalties.................. $ 10,061 $ -- $ 10,061
License fees............... 1,904 -- 1,904
Services and other......... 5,592 -- 5,592
----------- ----------- -----------
Total revenues........... 17,557 -- 17,557
----------- ----------- -----------
Operating expenses: --
Cost of services and other
revenues.................. 3,450 -- 3,450
Research and development... 7,949 -- 7,949
Sales and marketing........ 7,601 -- 7,601
General and
administrative............ 3,934 -- 3,934
Amortization of
intangibles............... 827 -- 827
Share-based compensation... 1,083 -- 1,083
----------- ----------- -----------
Total operating
expenses................ 24,844 -- 24,844
----------- ----------- -----------
Loss from operations...... (7,287) -- (7,287)
Other income (expense), net.. 40 -- 40
Minority interest............ -- 1,551 (c) 1,551
----------- ----------- -----------
Net loss................. $ (7,247) $ 1,551 $ (5,696)
=========== =========== ===========
Net loss per share, basic and
diluted..................... $ (0.04) $ (0.04)
=========== ===========
Shares used in computing net
loss per share, basic
and diluted................. 180,924,293 (51,715,689)(d) 129,208,604
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Pro forma adjustments for the unaudited pro forma combined statement of
operations for the nine months ended September 30, 1999 and the unaudited pro
forma combined balance sheet as of September 30, 1999 are as follows:
(a) To reflect the incorporation of OpenTV Corp. and the subsequent
exchange of MIH Limited's OpenTV, Inc. Class B Common Stock for Class B
Ordinary Shares of OpenTV Corp. and record the minority stockholder's 21.4%
interest in OpenTV, Inc. as of September 30, 1999.
(b) To reflect the sale of 23,648,646 Series C-1 Convertible Preference
Shares and warrants to purchase 23,648,646 Class A Ordinary Shares to a new
investor group and 4,504,504 Series C-2 Convertible Preference Shares to Sun
for net proceeds of $31.0 million which at the closing of these offerings will
convert into 28,153,150 Class A Ordinary Shares.
(c) To record the minority stockholder's 21.4% interest in the results of
operation for the nine months ended September 30, 1999.
(d) Basic and diluted net loss per share (pro forma) is computed using
the weighted-average number of ordinary shares outstanding giving effect to the
Transaction as if it occurred on January 1, 1998.
Due to OpenTV, Inc.'s accumulated deficit and net loss for the year ended
December 31, 1998, no pro forma adjustment for minority interest is required.
Therefore, the unaudited pro forma combined statement of operations data for
the year ended December 31, 1998 was not presented.
24
<PAGE>
HISTORICAL PREDECESSOR SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of OpenTV, Inc. (the
predecessor to OpenTV Corp.) should be read in conjunction with, and are
qualified by reference to, our consolidated financial statements, including the
notes thereto, and the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations", which are included elsewhere
in this prospectus. The consolidated statement of operations data for the
period from July 1, 1996 (date of inception) to December 31, 1996 and the years
ended December 31, 1997 and 1998, and the consolidated balance sheet data as of
December 31, 1996, 1997 and 1998, are derived from, and qualified by reference
to, our audited financial statements, which are included elsewhere in this
prospectus. The consolidated balance sheet data as of September 30, 1999 and
the consolidated statement of operations data for the nine months ended
September 30, 1998 and 1999 are derived from, and are qualified by reference
to, our unaudited consolidated financial statements, which are included
elsewhere in this prospectus. OpenTV Corp. holds 78.5% of the common stock
( % after giving effect to the exercise of outstanding employee stock options
and the issuance of additional shares of common stock of OpenTV, Inc. to OpenTV
Corp. at the closing of these offerings) of OpenTV, Inc. as of October 21, 1999
and will consolidate OpenTV, Inc.'s results and record a minority interest for
the portion not owned.
<TABLE>
<CAPTION>
July 1, 1996 Year Ended Nine Months Ended
(Date of Inception) December 31, September 30,
to December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
------------------- ----------- ----------- ----------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Royalties............. $ -- $ 2,382 $ 2,788 $ 1,890 $ 10,061
License fees.......... 287 1,255 1,578 1,043 1,904
Services and other.... 731 3,322 5,102 3,183 5,592
---------- ----------- ----------- ----------- -----------
Total revenues....... 1,018 6,959 9,468 6,116 17,557
---------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of services and
other revenues....... 587 3,290 4,736 3,131 3,450
Research and
development.......... 2,590 6,219 7,514 5,328 7,949
Sales and marketing... 845 4,323 7,418 5,433 7,601
General and
administrative....... 1,126 3,929 3,982 2,845 3,934
Amortization of
intangibles.......... -- -- -- -- 827
Stock-based
compensation......... -- -- 13 -- 1,083
---------- ----------- ----------- ----------- -----------
Total operating
expenses............ 5,148 17,761 23,663 16,737 24,844
---------- ----------- ----------- ----------- -----------
Loss from operations.... (4,130) (10,802) (14,195) (10,621) (7,287)
Other income (expense),
net.................... 172 113 (7) 1 (40)
---------- ----------- ----------- ----------- -----------
Net loss................ $ (3,958) $ (10,689) $ (14,202) $ (10,620) $ (7,247)
========== =========== =========== =========== ===========
Net loss per share,
basic and diluted...... $ (0.09) $ (0.09) $ (0.09) $ (0.06) $ (0.04)
========== =========== =========== =========== ===========
Shares used in computing
net loss per share,
basic and diluted...... 46,054,387 124,868,070 166,064,015 165,986,307 180,924,293
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
----------------------- September 30,
1996 1997 1998 1999
------ ------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.............. $5,357 $ 293 $ 3,324 $ 2,580
Working capital........................ 3,627 (2,272) (1,459) (1,325)
Total assets........................... 7,482 4,878 10,038 18,312
Convertible notes payable to
stockholders.......................... -- -- 7,000 --
Redeemable common stock................ -- -- 117 3,744
Total stockholders' equity (deficit)... 4,677 (158) (4,783) 6,316
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements of OpenTV, Inc. (the predecessor to OpenTV Corp.)
included elsewhere in this prospectus. OpenTV Corp. holds 78.5% ( % after
giving effect to the exercise of outstanding employee stock options and the
issuance of additional shares of common stock of OpenTV, Inc. to OpenTV Corp.
at the closing of these offerings) of OpenTV, Inc. as of October 21, 1999 and
will consolidate OpenTV, Inc.'s results and record a minority interest for the
portion not owned.
Background
We are the leading worldwide provider of software that enables digital
interactive television. Our software is running on over 4.3 million set-top
boxes worldwide, with 22 network operators in 17 countries having selected our
OpenTV Runtime software as their interactive platform. Our 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.
Revenues
We currently generate revenues from the following sources:
. royalties associated with our OpenTV Runtime software
. fees from licenses of our software products
. fees for training, maintenance and software development services
Royalty revenue is generated as manufacturers and network operators
deploy digital set-top boxes enabled with OpenTV Runtime. Royalties associated
with OpenTV Runtime become due from set-top box manufacturers upon the
manufacturers' shipment of new set-top boxes enabled with OpenTV Runtime. We
also receive royalties from network operators when they install or upgrade
OpenTV Runtime to set-top boxes that have already been deployed. We recognize
royalties from licensees when notified of revenues earned. Notifications are
generally received 30 to 45 days following the quarter or month during which
the royalty obligation is incurred.
We license our application development tools and our head-end software to
customers for an initial license fee. Our customers generally include network
operators, set-top box manufacturers and independent application and content
developers. We recognize software license fees upon shipment if each of the
following are true:
. a signed contract exists
. the fee is fixed and determinable
. the collection of the resulting receivable is probable
. product returns are reasonably estimable
We license our OpenTV Hardware Porting Kit ("HPK") to set-top box
manufacturers, chip set manufacturers and conditional access vendors. The
license fee is recognized upon completion of integration of OpenTV Runtime with
the licensee's hardware or software.
For contracts with multiple obligations (e.g., maintenance and other
services), we allocate revenue to each component of the contract based on
objective evidence of its fair value, which is specific to us, or for products
not being sold separately, the price established by management.
We receive services and other revenues from the following sources:
. annual maintenance and support fees
26
<PAGE>
. training
. fees for integration and program management services
. long-term software development contracts
We recognize revenue from maintenance and support fees for ongoing
customer support and product updates ratably over the period of the relevant
contract. Payments for maintenance and support fees are generally made in
advance and are non-refundable. For revenue allocated to consulting services
and for consulting services sold separately, we recognize revenue as the
related services are performed. For product licenses sold with integration
services we recognize revenue based on the completed contract method. We
recognize revenue from software development contracts of less than six months
in duration based on the completed contract method. For longer-term contracts,
we generally recognize revenue on the percentage of completion method. Under
the percentage of completion method the extent of progress towards completion
is measured based on actual costs incurred to total estimated costs. Provisions
for estimated losses on uncompleted contracts are made in the period in which
estimated losses are determined. Revenue from the sale of hardware components
and manuals are recognized upon shipment.
In future periods, we expect to generate significant revenues from our
applications business, including fees for custom developed applications and
revenue sharing arrangements related to advertising and e-commerce
applications.
Operating Expenses
Cost of revenues for royalties and license fees have not been material to
date. Cost of revenues for services consists primarily of personnel expenses,
costs related to outside consultants, travel and overhead associated with
software development, program management, customer and technical support and
training. Future versions of our products may require third-party royalties
that, if they became material, we would record as a cost of revenues.
Research and development expenses consist primarily of salary and other
related costs for personnel and independent consultants for our development
efforts. We believe that continued investment in research and development is
critical to attaining our strategic objectives. We plan to increase the level
of research and development expenses, both to develop new versions of OpenTV
Runtime and to create interactive applications and services.
Sales and marketing expenses consist primarily of personnel and related
costs for our direct sales force and marketing staff and costs associated with
marketing programs, including tradeshows, public relations and marketing
materials. We plan to increase the level of our sales and marketing expenses
substantially over the next year, as we increase spending on advertising and
marketing programs to build the OpenTV brand and establish additional
international sales and support offices to expand our presence in new
geographic markets.
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting
and human resources. We expect these expenses to increase as we hire additional
general and administrative employees worldwide.
Losses
From inception through September 30, 1999, we have an accumulated deficit
of $36.1 million and have not achieved profitability on a quarterly or annual
basis. We expect to continue to incur losses for the foreseeable future.
27
<PAGE>
Nine months ended September 30, 1998 and 1999
The following table sets forth the results of our operations. These
historical results are not necessarily indicative of results to be expected for
any future period.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
----------------- ----------------- ----------------- -----------------
(in thousands) (percentage of total revenues)
<S> <C> <C> <C> <C>
Revenues:
Royalties............. $ 1,890 $10,061 31 % 57 %
License fees.......... 1,043 1,904 17 11
Services and other.... 3,183 5,592 52 32
-------- ------- ---- ---
Total revenues...... 6,116 17,557 100 100
-------- ------- ---- ---
Operating expenses:
Cost of services and
other revenues....... 3,131 3,450 51 20
Research and
development.......... 5,328 7,949 87 45
Sales and marketing... 5,433 7,601 89 43
General and
administrative....... 2,845 3,934 47 22
Amortization of
intangibles.......... -- 827 0 5
Stock-based
compensation......... -- 1,083 0 6
-------- ------- ---- ---
Total operating
expenses........... 16,737 24,844 274 141
-------- ------- ---- ---
Loss from operations.... (10,621) (7,287) (174) (41)
Other income (expense),
net.................... 1 40 -- 0
-------- ------- ---- ---
Net loss................ $(10,620) $(7,247) (174)% (41)%
======== ======= ==== ===
</TABLE>
Revenues
Our total revenues increased 187% from $6.1 million for the nine month
period ended September 30, 1998 to $17.6 million for the nine month period
ended September 30, 1999. For the nine month period ended September 30, 1998,
our largest customer accounted for 19% of our total revenues. For the nine
month period ended September 30, 1999, our two largest customers accounted for
13% and 10%, respectively, of our total revenues.
Royalties. Royalties increased 432% from $1.9 million for the nine months
ended September 30, 1998 to $10.1 million for the nine month period ended
September 30, 1999. The increase was largely attributable to the launches of
OpenTV enabled interactive services by two network operators, BSkyB and Via
Digital.
License fees. License fees increased 83% from $1.0 million for the nine
month period ended September 30, 1998 to $1.9 million for the nine month period
ended September 30, 1999. This increase was primarily attributable to an
increase in the number of our customers, which translated into greater product
demand. In addition, the launches of OpenAuthor and OpenStreamer during first
quarter 1999 generated revenue of $380,000 and $406,000, respectively during
the nine month period ended September 30, 1999.
Services and other. Services and other revenues increased 76% from $3.2
million for the nine month period ended September 30, 1998 to $5.6 million for
the nine month period ended September 30, 1999. The increase was primarily
attributable to an increase in demand for services due to a larger customer
base and to increased Hardware Porting Kit integration and amortization of
related deferred maintenance revenues of $1.5 million.
28
<PAGE>
Operating Expenses
Our total operating expenses increased 48% from $16.7 million for the
nine month period ended September 30, 1998 to $24.8 million for the nine month
period ended September 30, 1999.
Cost of services and other revenues. Our total cost of services and other
revenues increased 10% from $3.1 million for the nine month period ended
September 30, 1998 to $3.5 million for the nine month period ended
September 30, 1999.
Research and development. Research and development expenses increased 49%
from $5.3 million for the nine month period ended September 30, 1998 to $7.9
million for the nine month period ended September 30, 1999. This increase was
primarily due to an increase in the number of personnel developing enhanced
functionality for OpenTV Runtime and related software applications.
Sales and marketing. Sales and marketing expenses increased 40% from $5.4
million for the nine month period ended September 30, 1998 to $7.6 million for
the nine month period ended September 30, 1999. This increase was primarily
attributable to the initiation of new marketing programs and higher trade show
expenses.
General and administrative. General and administrative expenses increased
38% from $2.8 million for the nine month period ended September 30, 1998 to
$3.9 million for the nine month period ended September 30, 1999. The increase
was primarily attributable to an increase in the number of personnel.
Amortization of intangibles. In March 1999, we acquired the intellectual
property from Thomson Consumer Electronics for $7.6 million. We are amortizing
this asset over a five year estimated life and recorded $827,000 in
amortization expense for the nine month period ended September 30, 1999.
Stock-based compensation. We recorded non-cash deferred stock
compensation of $4.0 million for the nine month period ended September 30,
1999, representing the difference between the exercise price and deemed fair
market value for options to purchase shares granted to our employees and the
fair value attributable to options granted to non-employees. Accordingly, we
amortized $1.1 million of deferred compensation during the nine month period
ended September 30, 1999. Accretion of $3.6 million was recorded on the
redeemable Class A Common Stock during the nine month period ended
September 30, 1999. We recorded no deferred compensation expense during the
nine month period ended September 30, 1998.
Other income (expense), net. Interest expense increased from $15,000 for
the nine month period ended September 30, 1998 to $73,000 for the nine month
period ended September 30, 1999. The increase was primarily due to interest
expense on convertible notes payable to stockholders. Interest income was
$16,000 for the nine month period ended September 30, 1998 and $15,000 for the
nine month period ended September 30, 1999. Other income increased from zero
for the nine month period ended September 30, 1998 to $98,000 for the nine
month period ended September 30, 1999. This increase was primarily due to
foreign exchange transaction gains recorded in the nine month period ended
September 30, 1999.
29
<PAGE>
Years Ended December 31, 1997 and 1998
The following table sets forth the results of our operations. These
historical results are not necessarily indicative of results we expect for any
future period.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- ----------------- -----------------
(in thousands) (percentage of total revenues)
<S> <C> <C> <C> <C>
Revenues:
Royalties............. $ 2,382 $ 2,788 34 % 29 %
License fees.......... 1,255 1,578 18 17
Services and other.... 3,322 5,102 48 54
-------- -------- ---- ----
Total revenues...... 6,959 9,468 100 100
-------- -------- ---- ----
Operating expenses:
Cost of services and
other revenues....... 3,290 4,736 48 51
Research and
development.......... 6,219 7,514 89 79
Sales and marketing... 4,323 7,418 62 78
General and
administrative....... 3,929 3,982 56 42
Stock-based
compensation......... -- 13 -- --
-------- -------- ---- ----
Total operating
expenses........... 17,761 23,663 255 250
-------- -------- ---- ----
Loss from operations.... (10,802) (14,195) (155) (150)
Other income (expense),
net.................... 113 (7) 1 0
-------- -------- ---- ----
Net loss................ $(10,689) $(14,202) (154)% (150)%
======== ======== ==== ====
</TABLE>
Revenues
Total revenues increased 36% from $7.0 million for fiscal 1997 to $9.5
million for fiscal 1998. For fiscal 1997, our largest customer accounted for
35% of our total revenues, while for fiscal 1998, our two largest customers
accounted for 16% and 14%, respectively, of our total revenues.
Royalties. Royalties increased 17% from $2.4 million in fiscal 1997 to
$2.8 million in fiscal 1998. The increase was largely attributable to the
addition of new network operators and an increase in the number of subscribers
for our existing network operators.
License fees. License fees increased 26% from $1.3 million in fiscal 1997
to $1.6 million in fiscal 1998. This increase was primarily attributable to
higher numbers of network operators and set-top box manufacturers licensing our
software products.
Services and other. Services and other revenues increased 54% from $3.3
million for fiscal 1997 to $5.1 million for fiscal 1998. The increase was
primarily attributable to $1.3 million of revenues recognized in 1998 under a
new long-term software development contract accounted for on the percentage of
completion method. Backlog from software development contracts accounted for on
the completed contract method was $800,000 and $700,000 at December 31, 1998
and 1997, respectively.
Operating Expenses
Total operating expenses increased 33% from $17.8 million for fiscal 1997
to $23.7 million for fiscal 1998.
Cost of services and other revenues. Cost of services and other revenues
increased 44% from $3.3 million for fiscal 1997 to $4.7 million for fiscal
1998. The increase was primarily attributable to approximately $2.6 million in
costs recognized under a long-term software development contract during fiscal
1998 versus $982,000 during fiscal 1997.
30
<PAGE>
Research and development. Research and development expenses increased 21%
from $6.2 million for fiscal 1997 to $7.5 million for fiscal 1998. This
increase was primarily attributable to an increase in the number of personnel
developing enhanced functionality for OpenTV Runtime and related software
applications.
Sales and marketing. Our sales and marketing expenses increased 72% from
$4.3 million for fiscal 1997 to $7.4 million for fiscal 1998. The increase was
primarily attributable to increased expenses incurred in connection with trade
shows and additional marketing programs.
General and administrative. Our general and administrative expenses
increased 2% from $3.9 million for fiscal 1997 to $4.0 million for fiscal 1998.
Stock-based compensation. We recorded deferred stock compensation expense
of $49,000 in 1998, representing the difference between the exercise price and
deemed fair market value for options to purchase shares granted to our
employees. Accordingly, we amortized deferred compensation expense of
approximately $13,000 during fiscal 1998. We recorded no deferred compensation
expense during fiscal 1997.
Other income (expense), net. We recognized other income of $113,000 for
fiscal 1997 and other expense of $7,000 for fiscal 1998. The change was
primarily attributable to a lower average cash balance during fiscal 1998 and
interest expense incurred on $7.0 million of convertible promissory notes
during 1998. These notes were converted to our ordinary shares in March 1999.
Income taxes. As of December 31, 1998, we had federal, state and foreign
net operating loss carryforwards of $10.6 million, $4.7 million and $0.5
million, respectively, which will expire at various dates, through 2003 for
state and foreign, and 2018 for federal income tax purposes, if not utilized.
We have taken a full valuation allowance against the deferred tax asset because
of the uncertainty regarding its realization. We recognized no income tax
expense in 1997 and 1998.
The Period From July 1, 1996 (Date of Inception) to December 31, 1996 and Year
Ended December 31, 1997
The following table sets forth the results of our operations. These
historical results are not necessarily indicative of results we expect for any
future period.
<TABLE>
<CAPTION>
Period from Period from
July 1, 1996 to Year Ended July 1, 1996 to Year Ended
December 31, 1996 December 31, 1997 December 31, 1996 December 31, 1997
----------------- ----------------- ----------------- -----------------
(in thousands) (percentage of total revenues)
<S> <C> <C> <C> <C>
Revenues:
Royalties............. $ -- $ 2,382 -- % 34 %
License fees.......... 287 1,255 28 18
Services and other.... 731 3,322 72 48
------- -------- ---- ----
Total revenues...... 1,018 6,959 100 100
------- -------- ---- ----
Operating expenses:
Cost of services and
other revenues....... 587 3,290 58 47
Research and
development.......... 2,590 6,219 254 89
Sales and marketing... 845 4,323 83 62
General and
administrative....... 1,126 3,929 111 57
------- -------- ---- ----
Total operating
expenses........... 5,148 17,761 506 255
------- -------- ---- ----
Loss from operations.... (4,130) (10,802) (406) (155)
Other income ........... 172 113 17 1
------- -------- ---- ----
Net loss................ $(3,958) $(10,689) (389)% (154)%
======= ======== ==== ====
</TABLE>
31
<PAGE>
Revenues
Total revenues increased 584% from $1.0 million for the period from July
1, 1996 to December 31, 1996 to $7.0 million in the full year ended December
31, 1997. For the period from July 1, 1996 to December 31, 1996, our top four
customers accounted for 30%, 20%, 15% and 10%, respectively, of our total
revenues, while for fiscal 1997, our top customer accounted for 35% of our
total revenues.
Royalties. We did not recognize royalty revenues for the period from July
1, 1996 to December 31, 1996. We recognized $2.4 million in 1997 as our
customers initiated shipments of OpenTV Runtime in the first quarter of 1997.
License fees. License fees increased 337% from $287,000 for the period
from July 1, 1996 to December 31, 1996 to $1.3 million for fiscal 1997. The
increase in license revenues was primarily attributable to higher numbers of
network operators and set-top box manufacturers using OpenTV software.
Services and other. Services and other revenues increased 354% from
$731,000 for the period from July 1, 1996 to December 31, 1996 to $3.3 million
for fiscal 1997. The increase was primarily attributable to a full year of
amortization of maintenance fees on licensed products and Hardware Porting Kit
integration services for fiscal 1997.
Operating Expenses
Total operating expenses increased 245% from $5.1 million for the period
from July 1, 1996 to December 31, 1996 to $17.8 million for fiscal 1997.
Cost of services and other revenues. Cost of services and other revenues
increased 460% from $587,000 for the period from July 1, 1996 to December 31,
1996 to $3.3 million for fiscal 1997. The increase was primarily attributable
to a full year of sales and related expenses and $982,000 of costs associated
with a long-term software development contract recorded during fiscal 1997.
Research and development. Research and development expenses increased
140% from $2.6 million for the period from July 1, 1996 to December 31, 1996 to
$6.2 million for fiscal 1997. The increase was primarily attributable to an
increase in the number of research and development personnel and a full year of
expense during fiscal 1997.
Sales and marketing. Sales and marketing expenses increased 412% from
$845,000 for the period from July 1, 1996 to December 31, 1996 to $4.3 million
for fiscal 1997. The increase was primarily attributable to an increase in the
number of sales and marketing personnel, and expenses incurred from trade shows
and new marketing programs, and a full year of expense during fiscal 1997.
General and administrative. General and administrative expenses increased
249% from $1.1 million for the period from July 1, 1996 to December 31, 1996 to
$3.9 million for fiscal 1997. The increase was primarily attributable to an
increase in the number of general and administrative personnel and a full year
of expense during fiscal 1997.
Other income. Other income (expense), net decreased 34% from $172,000 for
the period from July 1, 1996 to December 31, 1996 to $113,000 for fiscal 1997.
The decrease was primarily attributable to a lower average cash balance during
fiscal 1997.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through sales
of equity capital and short-term loans from our shareholders. At September 30,
1999, we had an accumulated deficit of $36.1 million, and we had cash and cash
equivalents of $2.6 million. At December 31, 1998 and 1997, we had an
accumulated deficit of $28.8 million and $14.6 million, respectively, and cash
and cash equivalents of $3.3 million and $293,000, respectively.
32
<PAGE>
Our operating activities utilized cash in the amount of $5.4 million for
the nine months ended September 30, 1999, $11.0 million for fiscal 1998 and
$9.4 million for fiscal 1997. The net cash utilized during these periods was
used primarily to fund our research and development and marketing efforts.
Net cash utilized for investing activities was $1.4 million for the nine
month period ended September 30, 1999, $2.6 million for fiscal 1998 and $1.5
million for fiscal 1997. The net cash utilized was primarily for the purchase
of computer systems and equipment.
Net cash provided by financing activities was $6.1 million for the nine
month period ended September 30, 1999, $16.8 million for fiscal 1998 and $5.8
million for fiscal 1997. The net cash provided in 1997 was from the sale of
common stock. Net cash provided in 1998 was from the proceeds from the notes
payable to shareholders of $7.0 million and payment on a receivable from a
shareholder of $9.7 million. The net cash provided for the nine months ended
September 30, 1999 was from the proceeds from notes payable to a shareholder of
$2.5 million and the sale of common stock of $3.5 million.
Our October 23, 1999 sale of Series C-1 Convertible Preference Shares,
Series C-2 Convertible Preference Shares and warrants to purchase Class A
Ordinary Shares resulted in net proceeds of $31.0 million.
We plan to increase our investment in research and development to further
enhance OpenTV Runtime and to develop new software applications, and in sales
and marketing to further brand the OpenTV name. We believe the net proceeds
from our recent securities issuances and these offerings, along with the
anticipated funds from operations, will satisfy our working capital, projected
product development, marketing and capital expenditure requirements for at
least the next 12 months. In the long-term, we may require additional equity
investment or borrowings to fund our business plan.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. We adopted this standard on January 1,
1999 and do not expect it to have a material impact on our results of
operations, financial position or cash flows.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-up Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal
years beginning after December 15, 1998. It requires costs of start-up
activities and organization costs to be expensed as incurred. As we have
historically expensed these costs, the adoption of SOP 98-5 on January 1, 1999
did not have any impact on our results of operations, financial position or
cash flows.
In December 1998, AcSEC released SOP 98-9, "Modification of SOP 97-2,
"Software Revenue Recognition,' with Respect to Certain Transactions" ("SOP 98-
9"). SOP 98-9 amends SOP 97-2 to define how an entity recognizes revenue for
multiple element arrangements for each element delivered. The provisions of SOP
98-9 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP
98-9 will be effective for transactions that are entered into in fiscal years
beginning after March 15, 1999. Retroactive application is prohibited. We do
not expect the adoption of SOP 98-9 to have a material effect on our current
revenue recognition policies.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which 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. SFAS No. 133 is
effective for fiscal quarters beginning after June 15, 2000. We do not expect
the adoption of SFAS No. 133 to have a material effect on our financial
results.
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<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two-digit year entries in the date code field. Consequently, on
or before January 1, 2000, many of these systems could fail or malfunction
because they may not be able to properly distinguish dates. As a result,
computer systems and software used by many companies, including us, our
customers and our potential customers, may need to be upgraded to comply with
such "Year 2000" requirements.
Risks. Our products operate in complex network environments and directly
and indirectly interact with a number of our customers' hardware systems and
software applications. These third party hardware systems and software
applications may contain errors or defects associated with Year 2000 date
functions. We do not currently have any information concerning the Year 2000
compliance status of our customers. We are presently unable to predict to what
extent our business may be affected if hardware systems or software
applications that operate in conjunction with our products contain errors or
defects associated with Year 2000 date functions. Known or unknown Year 2000-
related errors or defects that affect the operation of our products, when used
in conjunction with other hardware systems or software applications could
result in service interruptions of network operators using our products, damage
to our reputation and possible litigation, any of which could materially
adversely affect our business and results of operations.
We incorporate hardware and software obtained from third parties into our
products. We are seeking assurances from our vendors that such hardware and
software comply with Year 2000 date functions. Despite testing by us and our
current and potential customers, and assurances from developers of hardware and
software incorporated into our products, our products may contain undetected
errors or defects associated with Year 2000 date functions. Known or unknown
Year 2000-related errors or defects in hardware and software we obtain from
third parties could result in service interruptions of network operators using
our products, damage to our reputations and possible litigation, any of which
could materially adversely affect our business and results of operations.
Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failure interruptions. Year 2000 issues affecting our business,
if not adequately addressed by us, our third party vendors or suppliers or our
customers, could have a number of "worst case" consequences, including:
. the inability of our customers to use our products and services to
procure and manage their operating resources
. claims from our customers asserting liability, including liability
for breach of warranties related to the failure of our products
and services to function properly, and any resulting settlements
or judgments
. our inability to manage our own business
. damage to our reputation
State of Readiness. We have developed and implemented a company-wide
program to identify and remedy Year 2000 problems that may be present in our
products as a result of incorporating into them the Year 2000 defective
hardware and software obtained from third parties. Our program also covers
searching for Year 2000 problems that may have been overlooked in the design of
our products. We expect to complete testing our products in the fourth quarter
of 1999. We are not currently aware of any material operational issues or costs
associated with testing our products for Year 2000 compliance as such testing
is a normal part of our quality assurance process. We have not tested and do
not intend to test any non-current versions of our products. However, we may
experience material unanticipated problems and costs caused by undetected Year
2000-related errors or defects in the technology used in our products.
Costs. We have funded our company-wide Year 2000 program from operating
cash flows and have not separately accounted for these costs in the past. To
date, these costs have not been material. We will incur
34
<PAGE>
additional costs related to the company-wide Year 2000 program for
administrative personnel to manage the program, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience presently unanticipated material
costs with our company-wide Year 2000 program that could seriously harm our
business.
Contingency Plan
We have developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations. This plan is designed to mitigate the impact on our business and
our customers' business in the event a Year 2000 problem occurs. The plan calls
for the preparation and readiness of certain technical personnel on critical
dates and provides for the ability of those personnel to access critical data
at such times. Although we do not expect significant customer Year 2000
problems, the plan also contains a customer response component pursuant to
which certain technical teams are prepared to deal with potential customer Year
2000 problems, including on an onsite basis if necessary, at relatively short
notice. This plan may result in additional expense for us and may require the
allocation of engineering resources to solve any such Year 2000 problems. The
extent of any expense that may be incurred is unknown at this time, but we
believe that the financial and operational impact on us will not be material.
35
<PAGE>
BUSINESS
Our Business
We are the leading worldwide provider of software that enables digital
interactive television. Our software is running on over 4.3 million set-top
boxes worldwide, with 22 network operators in 17 countries having selected our
OpenTV Runtime software as their interactive platform. Our 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. The majority of our revenues today are
generated from royalties and fees related to our core software platform. In
addition, we are developing interactive applications that we intend to license
to network operators in exchange for a share of advertising and e-commerce
revenues.
Increasing competition to acquire and retain subscribers is driving
network operators to differentiate themselves by providing enhanced television
viewing and other interactive services. Our patented software platform provides
a comprehensive and highly portable solution for the development and delivery
of digital interactive services to television viewers, without significant
investment in hardware or digital infrastructure by network operators. We
believe our software products are accelerating the acceptance and use of
digital interactive television worldwide and will serve as a bridge to the
future by providing digital interactive television over both existing and
broadband networks.
Strategy
The following are principal components of our business and growth
strategy.
. Continue to expand our global presence. Our OpenTV system is the
first digital interactive television software being deployed by
multiple network operators and set-top box manufacturers on a
significant scale. Our software platform has been adopted by 22
network operators in 17 countries, including France, Italy, Spain
and the United Kingdom. We plan to leverage this first mover
advantage by expanding within our current markets and entering new
markets in Europe, Asia, Latin America and the United States. For
example, as a result of our focus on Asia, which has nearly one-
half of all worldwide television households, we recently signed an
agreement with CBSat, a network operator in China.
. Capitalize on worldwide transition to digital television. We
believe the vast installed base of one billion television
households worldwide will rapidly migrate to digital technology.
We believe that digital set-top boxes will provide the bridge to
mass adoption of digital technology prior to the eventual
proliferation of more costly digital television sets. Our proven
platform enables the reception of digital signals and provides a
fully-functional interactive television experience that can be
delivered through a low-cost set-top box and within today's
digital network infrastructure. Because network operators
frequently pay for much of the expense of deploying set-top boxes
and installing digital network infrastructure, our low-cost
solution is attractive to network operators planning to deploy
interactive television services on a large scale. In contrast,
many competing products require a retooling of broadcast
facilities with more expensive hardware and additional network
infrastructure.
. Enhance and extend our technology. We are continually enhancing
and upgrading our software. For example, we are currently shipping
the third generation of our OpenTV Runtime software. We are
developing additional software features in anticipation of the
eventual proliferation of two-way broadband communication and
increased set-top box memory and performance. Through our close
partnership with Sun Microsystems, Inc. we are developing future
versions of OpenTV Runtime based on Java technology. As we update
our technology, we intend to make future versions of OpenTV
Runtime backward compatible, which allows existing applications to
run on future versions of our software without
36
<PAGE>
modification. Our software can be upgraded by network operators
via "flash downloads" that are transmitted directly to set-top
boxes without viewer involvement, and we anticipate that software
upgrades will become a significant source of future revenues.
Furthermore, we maintain our technology leadership through
participation in standards-setting bodies, including Digital Video
Broadcasting, Advanced Television Systems Committee and Open
Cable.
. Encourage independent application development. We encourage
television program developers and independent parties to design
and create additional applications with the help of our training
and support services and user-friendly authoring tools. A
substantial and growing number of independent programmers are
designing interactive television applications to run on our open
software platform. We have created an in-house team with training
in traditional television production that assists third-parties
with their projects and helps us with our own application
development. As the volume and quality of interactive content and
services provided using the OpenTV system expands, we expect that
more viewers and customers will be attracted to our solution.
. Develop our applications business and share revenues from
advertising and e-commerce. We are creating, with our content and
e-commerce partners, a core set of turn-key applications to run on
the OpenTV system. These include applications for an interactive
weather service, e-commerce, home banking and e-mail. We expect to
participate in the recurring advertising and transaction-based
revenue generated by these applications through revenue sharing
agreements with our content partners and network operators. For
example, we have recently signed a revenue-sharing agreement with
EchoStar Satellite Corporation in which we will provide certain
applications in exchange for a percentage of the revenues
generated by these applications.
Customers and Industry Relationships
We have established significant relationships with network operators,
set-top box manufacturers, chip set manufacturers, conditional access vendors
and independent application developers around the world. Our customer and
industry relationships include the following:
. 22 network operators that use our OpenTV Runtime software,
generally along with our head-end software for broadcasting
interactive content, our application development tools and other
specially developed applications
. 21 set-top box manufacturers that license OpenTV Runtime for
distribution in their set-top boxes, generally including the use
of our Hardware Porting Kit
. 7 chip set manufacturers that use our Hardware Porting Kit to
assure the compatibility of their products with OpenTV Runtime
. 5 conditional access vendors with which we have worked to ensure
the compatibility of our system
. numerous independent application developers that use our
application development tools to author programs for use with the
OpenTV system
. digital television set manufacturers can incorporate our software,
which is platform-neutral, at the time of production, or our
software can be subsequently downloaded into digital television
sets via broadcast from a network operator (a "flash" download)
for the reception of digital interactive television without a set-
top box
37
<PAGE>
Since our introduction of the OpenTV system in late 1996, the number of
our customers and the number of set-top boxes deployed with our software have
both grown rapidly. The following table demonstrates our recent growth.
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30, Dec. 31, June 30, Sept. 30,
1997 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- ---------
(all figures cumulative)
<S> <C> <C> <C> <C> <C> <C>
Network operators
launched............... 1 3 7 9 12
Set-top box
manufacturers
shipping............... 3 4 4 9 13
Set-top boxes deployed
(000's)................ 252 687 1,121 1,925 3,501
</TABLE>
Network Operators
OpenTV based interactive services have been launched by 13 network
operators around the world. Another nine network operators are planning to
launch digital interactive services on the OpenTV platform within the next
year. The following chart provides information about network operators that are
currently using the OpenTV system:
<TABLE>
<CAPTION>
Network Operator Country Launch Type
---------------- ------------ ------ ---------------
<S> <C> <C> <C>
Television par Satellite (TPS)......... France Q4:96 Satellite
MultiChoice Africa..................... South Africa Q4:97 Satellite
Telia Infomedia TV..................... Sweden Q4:97 Cable/Satellite
France Telecom......................... France Q1:98 Cable
Lyonnaise Cable........................ France Q1:98 Cable
Tele Danmark Kabel TV.................. Denmark Q1:98 Cable
MultiChoice Middle East................ Middle East Q2:98 Satellite
BSkyB.................................. UK Q4:98 Satellite
FUN (FreeTV)........................... Germany Q4:98 Satellite
Stream................................. Italy Q1:99 Cable/Satellite
Senda.................................. Sweden Q2:99 Terrestrial
Via Digital............................ Spain Q2:99 Satellite
Teleon................................. Turkey Q3:99 Satellite/MMDS
</TABLE>
The following network operators are planning to launch digital
interactive services on the OpenTV platform within the next year:
<TABLE>
<CAPTION>
Network Operator Country Type
---------------- ----------- ---------
<S> <C> <C>
Austar............................................... Australia Satellite
Casema............................................... Netherlands Cable
CBSat................................................ China Satellite
EchoStar............................................. USA Satellite
Foxtel............................................... Australia Satellite
Image Wireless....................................... Canada MMDS
MediaKabel........................................... Netherlands Cable
MultiChoice Hellas................................... Greece Satellite
Sky New Zealand...................................... New Zealand Satellite
</TABLE>
38
<PAGE>
Set-Top Box Manufacturers
We market and license our OpenTV Runtime software and our Hardware
Porting Kit to digital set-top box manufacturers. Because our software is
platform neutral and flexible, we have been able to establish relationships
with a number of set-top box manufacturers. To date, 13 manufacturers have
shipped set-top boxes enabled with OpenTV Runtime and we have signed license
agreements with another eight manufacturers. We believe that our extensive base
of relationships with set-top box manufacturers is an important advantage of
the OpenTV system as it provides network operators with a broad choice of
compatible, competitively priced hardware alternatives. The following table
lists the set-top box manufacturers with which we have established
relationships.
<TABLE>
<CAPTION>
Shipping
Manufacturer Began
------------ --------
<S> <C>
Sagem............................................................. Q4:96
UEC Technologies (Pty) Limited.................................... Q1:97
Pace Micro Technology plc......................................... Q2:97
Asia Digital Broadcast Ltd........................................ Q3:97
Amstrad (Manufactured by Samsung)................................. Q4:98
Grundig........................................................... Q4:98
Humax Electronics Co Ltd.......................................... Q4:98
Matsushita/Panasonic.............................................. Q4:98
Samsung Electro-Mechanics Company, Ltd............................ Q4:98
Thomson Multimedia................................................ Q4:98
Italtel s.p.a..................................................... Q1:99
EchoStar Technologies Corp........................................ Q2:99
Nokia Satellite Systems........................................... Q2:99
</TABLE>
We are continuing to build relationships with additional set-top box
manufacturers by targeting certain strategic vendors. The following
manufacturers have signed licensing agreements with us and will begin producing
set-top boxes containing our operating system in the near future.
Avias Technology Philips
International Sony Corporation
CPS Europe Visionetics
Galaxis Zinwell Corporation
Kiryung Electronics
Chip Set Manufacturers
We also license our Hardware Porting Kit to chip set manufacturers that
use it to ensure the compatibility of their products with the OpenTV system. By
doing so, we are able to maximize the portability and compatibility of our
system. Our relationship with chip set vendors helps us anticipate the
evolution of their products 12 to 24 months in advance, giving us time to plan
enhancements to OpenTV that will take advantage of the new product features.
Furthermore, some of these vendors have developed software that is embedded
into their chip sets that is designed to work with the OpenTV platform as a
means to minimize time to market and technical risk for hardware manufacturers.
To date, the following chip set manufacturers have licensed our Hardware
Porting Kit.
Conexant ST Microelectronics
IBM Corporation Toshiba Corporation
LSI Logic Corporation VLSI Technology
NEC Electronics (UK) Limited
39
<PAGE>
Conditional Access Vendors
We have developed relationships with five conditional access vendors that
have licensed our Hardware Porting Kit or with which we have consulted to
ensure the compatibility of their products with the OpenTV system. Conditional
access vendors produce systems that scramble and decode information streams to
prevent access by unauthorized parties. Because the ability to integrate with
multiple conditional access systems is difficult to achieve, we believe our
relationships with these vendors are an important advantage. The following
conditional access vendors have ensured the compatibility of their systems with
OpenTV.
Mindport France Telecom S.A.
Nagra USA, Inc. NDS Limited
Telenor A.S.
Independent Application Developers
Numerous independent application developers have begun authoring programs
for use with OpenTV, including many using our application development tools. We
believe the proliferation of independent developers will facilitate the
acceptance of the OpenTV system to the extent that it results in the
availability of a rich and diverse set of applications.
Digital Television Set Manufacturers
Digital television set manufacturers can incorporate chip sets that are
compatible with our operating system or directly incorporate our operating
system into digital television sets to enable the reception of digital
interactive television without a set-top box. Digital television set
manufacturers can incorporate chip sets designed to work with the OpenTV
platform so that their television sets are compatible with our operating
system. Our OpenTV Runtime software would be downloaded to these televisions by
network operators without viewer involvement. Alternatively, if demand exists,
digital television set manufacturers can incorporate our OpenTV Runtime
software during the manufacturing process.
Network Operator Case Studies
BSkyB
BSkyB launched OpenTV-enabled interactive services in October 1998 and
now offers them to over 1.8 million of its subscribers. Because the majority of
BSkyB's more than seven million subscribers are equipped with an analog set-top
box, the rate of the rollout is dependent upon how quickly subscribers switch
their existing analog set-top boxes for digital set-top boxes, which BSkyB is
providing free of charge. Through the first six months of 1999, BSkyB added an
average of approximately 100,000 digital interactive subscribers per month, 43%
of whom were new BSkyB subscribers. BSkyB uses OpenTV software to offer its
viewers an interactive soccer service that allows fans to choose camera angles,
view replays and access statistics, among others.
In October 1999, BSkyB launched an interactive shopping service through a
joint venture between BSkyB, Panasonic, HSBC and British Telecom. The service
provides viewers with a shopping environment that combines video and audio with
rapid and easy site navigation using a standard remote control. BSkyB viewers
are using the service to access the following interactive features.
. On-line shopping. Viewers are browsing and purchasing a variety of
products, including clothing, groceries, travel and automobiles
from major British merchants, along with pizzas from Dominos.
. Home banking. Viewers are accessing their bank statements, paying
bills and buying products, such as mortgages.
40
<PAGE>
. Entertainment. Viewers are reviewing a wealth of information on
films, music and weather and are booking tickets for concerts,
sporting events, films and theater.
. E-mail. Viewers can send and receive e-mail using either a remote
control or an optional keyboard.
EchoStar
We have signed a contract with EchoStar Satellite Corporation for the
installation of OpenTV Runtime over its DISH Network satellite platform in the
United States. EchoStar currently has over 2.7 million total subscribers and
has been increasing its subscriber base by over 100,000 subscribers per month.
EchoStar has announced that it will launch OpenTV-enabled interactive services
and download them to a subset of customers using digital set-top boxes in early
2000.
We are working with EchoStar to create and launch a compelling set of
interactive services that will establish the DISH Network as the leader in the
provision of interactive television in the United States. Services that are
expected to be available upon launch will include e-mail, Internet access, an
interactive weather forecast service, customer care and e-commerce applications
with more enhanced services being introduced over time. In the event that we
and EchoStar are unable to agree upon certain matters related to the
development of these applications, EchoStar has the right to terminate our
agreement. In exchange for our participation in developing and launching these
applications, we will receive a fixed percentage of the net revenues these
applications generate from advertising, commercial transactions and license
fees. We intend to enter into similar arrangements with other network
operators.
TPS (Television par Satellite)
TPS launched digital interactive television on OpenTV-enabled set-top
boxes in December 1996 and currently has nearly 750,000 subscribers on its pay
television platform. TPS uses the OpenTV system to provide over 40 separate
interactive services, including the following:
. Interactive banking. Within two months of its introduction, nearly
one-third of the TPS subscribers who were also customers of the
partner bank had used the service and one-half of those had
executed transactions.
. Interactive weather service. TPS reports that this service is used
by over 50% of its viewers on a typical day and averages over 70
million hits per month.
. Interactive advertisements. TPS, in concert with its advertising
partners, is creating interactive advertisements. For example,
Renault aired an interactive television advertisement. Of TPS's
200,000 subscribers at the time, 76,000 used the interactive
feature to access additional data. Of those customers, 5.4% used
the service to order an information package to be delivered to
their homes. In addition, 80% of users are demanding more
interactive advertising.
. Electronic program guide. We developed this application for TPS,
which reports that 52% of its viewers use this service and that
the EPG receives approximately 70 million hits per month.
Strategic Partners
In October 1999, we completed a private placement of 23,648,646 Series C-
1 Convertible Preference Shares and warrants to purchase 23,648,646 Class A
Ordinary Shares to America Online, Inc., General Instrument Corp., Liberty
Digital, Inc., News Corporation and Time Warner, Inc. We also sold 4,504,504
Series C-2 Convertible Preference Shares to Sun Microsystems, Inc. Upon
consummation of our initial public offering, the Series C-1 Convertible
Preference Shares and Series C-2 Convertible Preference Shares will convert
into our Class A Ordinary Shares on a one-to-one basis.
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In connection with the investments, we entered into strategic agreements
with three of our new investors. We believe these strategic agreements will
increase our U.S. market penetration and allow us to expand the range of
interactive applications available to our global client base.
America Online
Our agreement with America Online, or AOL, provides for us to collaborate
on the development and marketing of AOL applications to be delivered to
television sets over our OpenTV Runtime software. Under the terms of the
agreement, we will develop a suite of applications to deliver AOL's most
popular online services to the television, including e-mail, instant messaging
and information services such as news, financial information and weather. In
addition, AOL and OpenTV will jointly market AOL services to cable, satellite
and terrestrial broadcast network operators.
News Corporation
We entered into a worldwide agreement with News Corporation to develop,
license, market and sell OpenTV enabled "World Box-2" digital interactive
television solutions to News Corporation's affiliated satellite television
platforms around the world. Eligible News Networks include BSkyB in the United
Kingdom, Stream in Italy, Sky New Zealand, Foxtel in Australia, Sky Brazil, Sky
Mexico, Sky Columbia, Sky Chile and Star TV in Asia. BSkyB and Stream are
already deploying OpenTV set-top box software to their subscribers, and Sky New
Zealand has announced its intent to deploy OpenTV enabled programs and
services. This agreement will provide us with access to News Corporation's
extensive global satellite and cable subscriber base and will enable us to grow
in markets where News Corporation is expanding and deploying its digital
interactive services. News Network subscribers will be able to rapidly
introduce interactive programming into both existing and new markets.
Time Warner
We entered into an agreement with Warner Brothers and Turner Broadcasting
Systems (Time Warner Inc. subsidiaries) to develop and market enhanced
interactive television applications. Through this relationship, conventional
television programs and television advertising will be enhanced with
interactive information and e-commerce services. Initially, OpenTV and Time
Warner will focus on enabling Warner and Turner programs with interactive
features, but will later also market the interactive applications to other
programming companies. OpenTV and Time Warner plan to address a wide range of
programming genres and develop at least three interactive applications per
year.
The OpenTV System
The OpenTV system consists of the following comprehensive set of software
products that enables the development and delivery of interactive television
services in a digital environment:
. OpenTV Runtime. The core software platform or operating system
that manages the interactive television environment and enables
digital reception on a viewer's set-top box.
. Hardware Porting Kit. Documentation and tools that enable set-top
box manufacturers, chip set manufacturers, conditional access
vendors and others to extend and integrate OpenTV Runtime into,
and make it compatible with, their products and devices.
. OpenStreamer. Server software that resides at a network operator
or e-commerce provider's central broadcasting facility or head-end
and enables real-time interactive services by mixing data with
audio and video streams into subscriber homes.
. Application Development Tools. Our Software Development Kit and
OpenAuthor products enable network operators and third-party
developers to author interactive television applications and
services.
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. Applications for Interactive Television. Our in-house application
development group creates and authors, often in collaboration with
content and e-commerce partners, interactive television
applications and services.
OpenTV Runtime
Our core product is our OpenTV Runtime software, an open, highly
portable, modular and easy-to-install operating system for interactive
television. OpenTV Runtime resides in each subscriber's set-top box where it
provides a platform for and coordinates the digital broadcast and interactive
services offered to that subscriber. OpenTV Runtime is composed of a
comprehensive set of software components that serves as an operating system and
supports very specialized digital interactive television features. It also
includes an interpreter that translates between application software and the
specific instruction set of the set-top box's processor on a real time basis.
OpenTV Runtime offers the following significant advantages for network
operators:
. Ease of Installation. OpenTV Runtime can either be loaded on a
set-top box by its manufacturer and shipped to a network operator,
or it can be downloaded by a network operator directly into
digital set-top boxes in subscribers' homes. These "flash
downloads" typically occur in early morning hours and are
completed within ten minutes. They have already been successfully
performed for initial installation and upgrades of OpenTV Runtime
without any subscriber intervention. Via Digital executed a flash
download through which over 260,000 subscribers received OpenTV
Runtime in May 1999 and TPS sent an overnight upgrade to over
500,000 subscribers in February 1999.
. Maximum Flexibility and Compatibility. OpenTV Runtime is designed
so that network operators can employ a wide variety of set-top box
and head-end equipment brands, chip set vendors and conditional
access systems. Accordingly, applications written for OpenTV
Runtime can run on varying combinations of equipment on the same
or different platforms. For example, BSkyB is running common
applications across its system, even though its set-top boxes are
being provided by four separate manufacturers.
. Small Footprint. OpenTV Runtime is currently sized around the
market need for digital interactive services to run on a low-cost
set-top box having low processing and hardware memory
requirements. OpenTV Runtime also allows a network operator to
rapidly deploy interactive television services to a large number
of subscribers without incurring prohibitive costs in the purchase
of set-top boxes. OpenTV Runtime uses the experience of digital
streaming to effect this advantage by enabling the set-top box to
acquire only the applications it needs at the time the subscriber
desires them.
. Broadcast Technology. Our broadcast technology is designed to
limit bandwidth consumption and server usage. We achieve these
goals through broadcasting a continual stream of interactive
programming that viewers can select and access without delay.
. Modular Architecture. OpenTV Runtime is based on modular
architecture making it easy to upgrade and extend to cover new
hardware and software features. New versions of OpenTV Runtime
will be backward compatible with earlier versions, allowing
existing applications to operate on new versions without
modification.
. Television Protocol Compatibility. OpenTV Runtime interfaces with
established television protocols, including MPEG.
. Internet Protocol Compatibility. In addition to interactive
television services, OpenTV Runtime is capable of providing key
Internet applications, such as e-mail and chat. OpenTV Runtime
also supports standard protocols such as TCP/IP and HTTP, in order
to permit programming that leverages Internet technologies and e-
commerce infrastructure.
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. Comprehensive Applications Programming Interfaces ("API"). Since
our initial deployment of OpenTV Runtime, we have extended our
APIs so that the system today can run a wide array of services.
For instance, TPS is currently running over 40 different
interactive applications.
Future Development. We are currently shipping the third version of OpenTV
Runtime. The first, OpenTV 1.0, was released in the second quarter of 1996 and
was replaced by OpenTV EN1 in the second quarter 1998. OpenTV EN1 features more
advanced graphics, modem services, video synchronization and greater
reliability. The newest generation, OpenTV EN2, was released in the second
quarter of 1999. OpenTV EN2 features upgraded modularity, new Internet protocol
extensions, video scaling and graphic improvements.
In the future, we expect to migrate toward two different versions of
OpenTV Runtime. The first will retain the small footprint that embodies our
existing versions. It will be able to operate on platforms featuring affordable
infrastructure and hardware. We will also develop a version that exploits the
richer functionality of broadband networks and more sophisticated hardware,
including set-top boxes with higher memory, mass storage devices and DVDs.
As part of our partnership with Sun Microsystems, we have agreed to
develop future versions of our OpenTV Runtime software that incorporate Sun's
Java technology and are compatible with the appropriate JavaTV application
programming interfaces. Software developers will be able to write applications
that will run on OpenTV Runtime as well as platforms from other vendors that
are Java compatible. We believe this functionality will expand the number of
third party developers creating applications for the OpenTV system.
Extensions. OpenTV Runtime's modular architecture supports extensions
that can be chosen to achieve the exact product specification appropriate to a
given network. Using this approach, our customers have the ability to tailor
their solutions to particular cost, market and technical requirements while
retaining the option to add features later when and if those parameters change.
Using the flash download mechanism, field-deployed set-top boxes with
appropriate hardware can be upgraded to support these extensions as the
subscriber base becomes ready for new services.
Hardware Porting Kit
Our Hardware Porting Kit enables manufacturers to integrate OpenTV
Runtime into and make it compatible with their products. With its rich feature
set and proven architecture, the Hardware Porting Kit gives manufacturers
complete freedom in the design of the hardware, which empowers them to develop
the most cost-effective products.
Our Hardware Porting Kit is flexible. We are able to deliver a specific
Hardware Porting Kit (including a complete interactive television library) for
any central processing unit and digital video architecture without requiring
any modification to our source code. This flexibility has allowed some of the
largest manufacturers of digital set-boxes and leading chip set vendors to
integrate with OpenTV Runtime. In addition, the Hardware Porting Kit provides
integration with several conditional access providers and supports multiple-
standard, real-time operating systems, including industry leaders Integrated
Systems, Greenhills, Microware, Nucleus, and WindRiver.
Because of the simplicity of its interfaces, the Hardware Porting Kit,
combined with the consulting support of our Integration Services Group,
significantly reduces the time required by manufacturers to bring a product to
the market.
OpenStreamer
OpenStreamer is a system that resides at a network operator or e-commerce
provider's head-end and is used to broadcast interactive content via standard
digital broadcast facilities. As our second generation broadcasting product,
OpenStreamer is a high-level software product that allows broadcasters to
multiplex data
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with audio and video signals for reception by OpenTV Runtime enabled digital
receivers. It is capable of updating a data stream in real-time, allowing up-
to-the-second transmission of sports scores, stock quotes or other time-
sensitive data. For example, viewers watching a sporting event will be able to
get updated selected statistics and scores from other games on demand rather
than having to wait for the broadcaster to provide these updates.
In addition to real-time data updates, OpenStreamer allows network
operators to broadcast multiple streams of data reliably and efficiently. It
reduces deployment and maintenance costs by relying on a single, OpenTV-
supplied hardware architecture capable of interfacing with any standard
multiplexer broadcast system.
OpenStreamer consists of the following components:
. Application Streamer software that runs the head-end portion of
the OpenTV interactive application, responds to external data
sources and updates data in real-time, and then plays out the
stream to the broadcast streamer. We enable third parties to
develop their own application streamers to help facilitate the
proliferation of third party applications.
. Broadcast Streamer software that prepares the data from the
application streamers for broadcast and outputs the streams to the
broadcaster's hardware multiplexer.
Application Development Tools
We provide two different application development tools for authoring
interactive television applications and content for use on the OpenTV system.
The tools are used by network operators, independent application developers,
and our own application developers. The OpenTV Software Developers Kit is
targeted at sophisticated programmers, while OpenAuthor is designed for content
developers with little or no programming experience.
Software Developers Kit. Our Software Developers Kit, or SDK, is a
complete content development environment for programmers who want to create
interactive television services that are high in graphic content and have the
look and feel of television. SDK allows for numerous applications to be built
directly using OpenTV's applications programming interfaces. Applications
developed with SDK make the most efficient use of a set-top box's limited
memory and processing power, yet produce broadcast-quality television images.
Software programmers can use the C programming language (the most
commonly used language in the software industry) to develop OpenTV
applications. These programmers benefit from SDK because it provides them with
full and direct access to all the features of the OpenTV architecture. SDK
provides graphical and command-line tools along with applications programming
interfaces. These application program interfaces can be used to create
compelling new interactive applications, including interactive advertising,
gaming, shopping and information services.
OpenAuthor. OpenAuthor allows users to create an OpenTV application,
without writing a single line of code, by assembling and customizing pre-built
software components using a familiar point-and-click graphical interface. This
type of design allows operators to focus on content rather than software
programming. The complete authoring process can take place on a single personal
computer. Users can create their own content, import it into OpenAuthor and
design an application. Since the authoring station is connected to an actual
digital receiver, a user can fully simulate the real television broadcast
environment, thereby saving time and money.
OpenAuthor has many competitive advantages, including giving users the
ability to create media-rich, dynamic content without requiring knowledge of
the specific capabilities of audio, video and graphic hardware within
interactive digital receivers. Applications are created using a page-based
paradigm that is already familiar to most users. Through its "plug-in" design,
OpenAuthor can be extended by developers to create new features by developing
and adding new pre-built components to OpenAuthor as application requirements
grow. For example, all of BSkyB's interactive shopping services were built from
new pre-built components added to OpenAuthor and developed by Oracle to satisfy
requirements of the operator.
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OpenTV Studio. OpenTV Studio bundles the SDK together with OpenAuthor.
Using both tools, a customer can extend the functionality of OpenAuthor by
creating their own plug-in components. The plug-in design allows third parties
to approach the performance of SDK-authored applications while maintaining the
ease of use afforded by OpenAuthor.
Applications
We develop and market interactive applications for use by our customers.
These include both applications that we market to all OpenTV-enabled platforms
and applications that we develop for a specific customer on a fee for service
basis. Our commitment to develop the "supertext" information service for BSkyB
is an example of the type of customer-specific application development we plan
to pursue.
Our principal goal is to continue to develop a set of core applications
that we believe will be applicable across numerous platforms. Core applications
are those that will have consistent appeal in multiple interactive television
markets or that require a high degree of engineering ability to develop. Core
applications that we are currently offering to network operators include the
following:
. Interactive Advertising. Allows viewers to access television-
quality interactive advertisements and, with the touch of a remote
control, obtain additional product information, find the location
and contact number of a local vendor or request a call from a
sales representative.
. Home Banking. Allows viewers to access account information and
engage in banking transactions, including transferring funds,
writing checks and applying for loans, all using a standard remote
control.
. E-commerce. Allows viewers to instantaneously purchase goods and
services, while accessing relevant and entertaining information
about the items.
. Information Services. Supports the provision of information such
as weather, sports scores, news and stock quotes and allows the
viewer to selectively retrieve such information.
. E-mail. Allows viewers to retrieve and review e-mail messages with
a remote control and, using an infrared keyboard device, send
messages over the Internet.
. Enhanced Television. Allows viewers to control the information on
their television by creating graphical overlays that provide
information without interrupting programming.
. Web Viewing. Repackages HTML-based data for broadcasting to
viewers who can access the information using a standard remote
control and enables viewing of pre-selected web sites.
As we continue to roll out the OpenTV system to more network operators,
we expect to generate an increasing portion of our revenue from sharing in
advertising and transaction fees associated with our applications business. We
intend to continue developing our strategic relationships with content
providers in order to maximize the value of the OpenTV system for network
operators. Our agreement with Time Warner to develop at least three interactive
applications per year for the next three years is an example of the strategic
relationships we are seeking to procure with content providers.
Customer Service and Support
We offer the following technical support programs to our customers:
. Program Management. Assists network operators in their upgrade and
launch of interactive services and interactive applications.
. Integration Services. Provides support to set-top box
manufacturers, chip set manufacturers and conditional access
vendors as they port and integrate OpenTV Runtime into their
programs.
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. Tools Technical Support. Provides user training seminars and
coordinates bug-fixes and other support for our application
development products.
We believe that technical support is an important part of our
relationship with customers. Our technical support services are available
during normal business hours or, for an additional fee, available on a 24-hour
a day, 7-day a week basis. Customers electing to enter into support agreements
with us receive free product updates and a reduced price on full upgrades.
Sales and Marketing
We sell our software products through our direct sales organization,
which consisted of 20 people on August 1, 1999. Our sales force is organized
geographically with offices in Mountain View, California; Paris, France; Seoul,
South Korea; and Beijing, China. We expect to open additional U.S. and
international offices in the near future. Our sales efforts are primarily
focused on network operators, because we believe they heavily influence the
adoption of the OpenTV system. Secondarily, we are focusing our sales efforts
on system integrators and set-top box manufacturers.
Our marketing efforts are centered on the following activities:
. promoting the OpenTV brand with network operators, advertisers and
the creative and financial communities
. using targeted media to educate key communities on our products
and services
. providing our developers with marketing information for the
development of compelling products and services, including
upgrades and updates
In addition, we are establishing our Affiliate Services Group that will
coordinate our activities with our customers after an initial sale has been
made. This group will focus on establishing revenue sharing arrangements. They
will also coordinate joint marketing campaigns with customers, assist in
campaigns to educate subscribers on the use of OpenTV products and focus on
establishment of the OpenTV brand.
Principal Investors
MIH Limited. After these offerings, MIH Limited will indirectly own all
of our Class B Ordinary Shares (representing % of the voting rights). MIH
Limited is a multinational provider of pay-television services and pay-
television technology that is publicly listed on the Nasdaq National Market and
the Amsterdam Stock Exchange. MIH Limited's affiliates, MultiChoice Africa and
MultiChoice Middle East, license OpenTV software to offer interactive services
on their platforms. Another MIH Limited affiliate, MultiChoice Hellas, will
offer OpenTV in Greece upon the launch of its digital system there. MIH Limited
first became our shareholder in July 1997.
Sun Microsystems. After these offerings, Sun Microsystems will indirectly
own 19.5% ( % after giving effect to the exercise of outstanding employee
stock options and the issuance of additional shares of common stock of OpenTV,
Inc. to OpenTV Corp. at the closing of these offerings) of the common stock of
our operating subsidiary, OpenTV, Inc. and % of our Class A Ordinary Shares.
Sun has the right to exchange its shares of Class B Common Stock of OpenTV,
Inc. into our Class B Ordinary Shares. Sun, a global provider of enterprise
network computing products, has been a shareholder of OpenTV, Inc. since its
inception. We are currently working with Sun to develop future versions of
OpenTV Runtime based on Java technology.
Certain agreements that we have entered into with MIH Limited and Sun are
more fully described under "Transactions with Related Parties".
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Competition
We face competition from a number of companies in the new and rapidly
evolving digital interactive television market. We expect to face significant
barriers in our efforts to secure broad market acceptance of our products,
including intense competition at several different levels. Current and
potential competitors in one or more aspects of our business include dedicated
Internet set-top box companies, interactive television technology companies,
Internet-related companies and consumer electronics companies. These
competitors are more fully described in the section entitled "Risk Factors--We
operate in a highly competitive industry".
Intellectual Property
As a result of our sustained research and development efforts over the
past several years, we have built a substantial intellectual property
portfolio. We currently have 27 patents issued in the United States, with
another 27 pending. We are also filing and have been granted patents
internationally in all the major markets where we intend to be active. We
believe that our patent portfolio protects many of the key elements necessary
to support digital interactive television.
Our ability to compete is dependent in part upon our ability to protect
and further mature our internally developed, proprietary intellectual property.
We rely on patent, trademark, trade secret and copyright law, as well as
confidentiality procedures and licensing arrangements to establish and protect
our rights in our technology. We believe that our current portfolio of patents
is strong. It contains many early patents in the digital interactive television
field. Nevertheless, other companies may develop technologies that are similar
or superior to our own. These factors are discussed in "Risk Factors--We are
exposed to intellectual property related risks".
Employees
As of June 30, 1999, we employed approximately 180 full-time equivalents,
excluding temporary personnel and consultants. We are not subject to any
collective bargaining agreements and believe our relationship with our
employees is satisfactory.
Facilities
Our corporate headquarters and executive officers are in Mountain View,
California, where we occupy approximately 36,257 square feet of space. The
lease on this facility expires on February 27, 2001. We believe that we will be
able to renew this lease or secure sufficient space on reasonable terms upon
expiration of this lease. We also maintain sales and marketing offices in
Paris, France, Seoul, South Korea and Beijing, China.
Legal Proceedings
On October 12, 1999, one of our former employees brought suit against us
in California state court alleging wrongful termination and other related
claims. We believe that the suit is without merit and we intend to defend
ourselves vigorously.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information as of October 15, 1999
with respect to our executive officers and directors. Except for Jan Steenkamp,
Randall S. Livingston and Mark Meagher, who hold their positions in both
OpenTV, Inc. and OpenTV Corp., the officers listed below hold their positions
only with OpenTV, Inc.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Jacobus D. T. Stofberg..... 47 Chairman of the Board of Directors
Jan Steenkamp.............. 36 President, Chief Executive Officer and Director
Vincent Dureau............. 39 Chief Technology Officer
Randall S. Livingston...... 46 Executive Vice President, Office of the CEO,
Chief Financial Officer and Director
Regis Saint Girons......... 43 Executive Vice President and General Manager,
Applications Business
Mitch Berman............... 45 Senior Vice President, Worldwide Marketing
James F. Brown............. 35 Senior Vice President, Strategic Development,
General Counsel and Secretary
Thomas Jackson............. 40 Senior Vice President, Worldwide Sales
Michael Catalano........... 48 Vice President, Product Development
Clay Conrad................ 48 Vice President, Affiliate Services
Marilyn Hommes............. 45 Vice President, Human Resources
Mark Meagher............... 35 Vice President, Finance and Administration,
Treasurer and Assistant Secretary
Stephen Salvatore.......... 44 Vice President, Creative
Joel Zdepski............... 40 Vice President, Application Engineering
Jacobus P. Bekker.......... 46 Director
Stephen G. Oldfield........ 44 Director(/1/)(/2/)
William Raduchel........... 53 Director
Allan M. Rosenzweig........ 43 Director(/1/)(/2/)
</TABLE>
- ----------------
(1) Member of compensation committee.
(2) Member of audit committee.
Set forth below is information regarding the relevant business experience
for each of our executive officers and directors.
Jacobus D. T. Stofberg has served as Chairman of the Board of Directors
of OpenTV, Inc. since May 1999 and as a Director of OpenTV, Inc. since January
1999. Mr. Stofberg has served as Chairman of the Board of Directors of OpenTV
Corp. since October 1999. Mr. Stofberg is Chief Executive Officer and a
Director of MIH Limited, and serves as Managing Director of MIH Holdings. Mr.
Stofberg was one of the original members of the MIH Holdings management team
and has held a variety of positions within the MIH Holdings group of companies
since 1985.
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 President, Chief Executive Officer and a
Director of OpenTV Corp. since October 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 access and subscriber management systems. During his time
at Irdeto, Mr. Steenkamp managed business and product development as it grew
from 50 to 250 employees. While working at MIH
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Holdings, Mr. Steenkamp initiated the introduction of pay television in Greece,
managed a project 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. Mr. Steenkamp
studied Electrical Engineering at Witwatersrand Technicon.
Vincent Dureau has worked for us since our inception and has served as
our Chief Technology Officer since May 1998. He is responsible for developing
technologies and business relationships that will bring integrated, cost-
effective solutions to our customers and partners. Prior to becoming our CTO,
Mr. Dureau served as our Senior Vice President of Engineering. From 1984 to the
time he helped start our company, Mr. Dureau held a variety of positions in
Thomson's research department in Paris and Los Angeles, where he helped develop
technology in the fields of multimedia, consumer user interfaces, video
compression and interactive television. Mr. Dureau holds a degree in Agronomy
from the Institute National Agronomique and M.S. degrees from Universite Paris
VII in Applied Mathematics and Ecole Nationale Superieure des
Telecommunications in Computer Science.
Randall S. Livingston has served as Executive Vice President, Office of
the CEO, and a Director of OpenTV, Inc. since September 1999 and as Chief
Financial Officer of OpenTV, Inc. since May 1999. Mr. Livingston has served as
Chief Financial Officer and a Director of OpenTV Corp. since October 1999. From
November 1998 to September 1999, he worked with us under the terms of a
consulting agreement. From 1996 until joining us full-time in September 1999,
Mr. Livingston served as a consultant and part-time executive for several
Silicon Valley technology companies. From 1995 to 1996, he was Chief Financial
Officer of Heartport, Inc., where he managed that company's initial public
offering. Previously, Mr. Livingston spent seven years as Director of Corporate
Development at Apple Computer and as Chief Financial Officer for Taligent, a
400 employee Apple-IBM-HP joint venture system software company. Prior to
working at Apple, Mr. Livingston worked as Director of Corporate Sales and
Marketing for Ingres Corporation, a database software company, and as a
consultant with McKinsey and Company. Mr. Livingston holds a B.S. in Mechanical
Engineering and an M.B.A. from Stanford University.
Regis Saint Girons has worked for us since our inception and has served
as our Executive Vice President and General Manager of our Applications
Business since August 1999. Mr. Saint Girons joined us as Vice President of
Sales, Europe in July 1996 and was promoted to Managing Director, Europe in
August 1997. Prior to joining us, Mr. Saint Girons worked at Thomson. He joined
the engineering group there in 1982 and led the hardware development team of
its Home Computer Division in 1984 and later headed its research lab in Los
Angeles. Mr. Saint Girons holds a patent on MPEG compression and led the
development of MPEG at Thomson. He earned his engineering degree from Ecole
Polytechnique Federale de Lausanne, Switzerland.
Mitch Berman joined us in March 1997 as Vice President of Worldwide
Marketing. He was promoted to Senior Vice President of Sales and Operations in
June 1998, and to his current position as Senior Vice President of Worldwide
Marketing in June 1999. Prior to joining us, Mr. Berman served as General
Manager of Strategic Business Development at East Coast Pay Television, Ltd.,
where he was involved in the launch of Australia's first digital direct
broadcast satellite subscription television service. He was also President of
Strategic Marketing and Research Team, Inc., a Los Angeles-based company that
provided desktop software and strategic marketing services to entertainment,
consumer retail, cable, satellite, broadcast TV and telephone companies.
Previously, Mr. Berman was Director of Marketing at Sky Television in New
Zealand, Vice President at E! Entertainment Television in Los Angeles and
Regional Manager at Home Box Office, Inc. in Los Angeles. Mr. Berman has a
Master's degree in Public Administration/Government Management from the
University of Southern California and a B.A. in Sociology from the University
of California at Los Angeles.
James F. Brown has served as our Senior Vice President, Strategic
Development and General Counsel since June 1999, and as Secretary since August
1999. From June 1998 until he joined our company, Mr. Brown was a partner in
the law firm of McDermott Will & Emery. From June 1989 to June 1998, he had
been associated with the law firm of Pillsbury Madison & Sutro, where he was a
partner from January 1996 to
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June 1998. In his previous law practice, Mr. Brown focused on transactions
involving emerging growth companies, primarily in the cable television,
telecommunications, software and digital technology areas. Such transactions
involved corporate finance, mergers and acquisitions, strategic investments,
joint ventures and software licensing matters. Mr. Brown is also a Certified
Public Accountant.
Thomas Jackson has served as our Senior Vice President of Worldwide Sales
since June 1999. Prior to joining us, he was Vice President and Managing
Director for General Instrument Corporation, where he was responsible for all
sales, support, delivery, service, and business development for the
Asia/Pacific region. Prior to his Asian assignment, he was Vice President for
Sales and Business Development for General Instrument's European operation.
Before joining General Instrument, Mr. Jackson spent 15 years at Honeywell in a
variety of positions, including Director of USA Vertical Market Sales. He also
started a Strategic Business Unit for Honeywell in Europe. Mr. Jackson earned a
Bachelor's degree in Business Marketing/Management from Eastern Illinois
University. During the past six years, he has attended and graduated from two
executive global management programs, the first offered by Harvard University
and the second by Stanford University.
Michael Catalano has served as Vice President of Product Development
since December 1997. Prior to joining us, Mr. Catalano held engineering
management positions at FRAX Inc. (interactive multimedia for manufacturing),
Radius (digital video, graphics and monitors), Ariel Electronics, Megatest
(product marketing, engineering management and strategic marketing in ATE) and
Hewlett Packard (integrated circuit design). He interspersed these positions
with the successful management of his own consulting businesses, as well. Mr.
Catalano holds a B.S.E.E. from Carnegie Mellon University.
Clay Conrad joined us in May 1997 as Director of Business Development. He
was promoted to Vice President of Sales in September 1997 and was subsequently
appointed to his current position as Vice President, Affiliate Services in June
1999. Prior to joining us, Mr. Conrad served as Chief Operating Officer of
Prevue International, the TV Guide company providing electronic program guides
for television. Prior to his work at Prevue, Mr. Conrad was the Managing
Director for Millicom Satellite Television in Hong Kong, where he was
responsible for cable system operations in Asia. In addition, he has served in
an executive capacity with Showtime Networks in Denver, Colorado and
Continental Cablevision in Chicago. Mr. Conrad was the founder and first
President of the Cable and Satellite Broadcasting Association of Asia,
(CASBAA). Mr. Conrad holds a B.A. in Art from William Jewell College in Liberty
Missouri, an M.A. in Fine Arts from Arizona State University and a Master's
Degree in International Management from the American Graduate School of
International Management.
Marilyn Hommes joined us in August 1998 as Director, Human Resources and
was promoted to Vice President, Human Resources in August 1999. Prior to
joining us, she was Vice President, Human Resources at Wired Ventures,
publishers and producers of Wired Magazine, Hardwired, Wired TV, and Wired
Digital. Previously, she worked as a human resources consultant to venture
capital-backed software, biotech, video game and Internet start-ups. Ms. Hommes
began her career as a Compensation Consultant for Radford Associates, a human
resources consulting firm. She has an M.B.A. with an emphasis in Industrial
Relations from the University of Oregon.
Mark Meagher has served as Vice President, Finance and Administration of
OpenTV, Inc. since August 1999 and as Vice President, Finance and
Administration of OpenTV Corp. since October 1999. He is also the Treasurer and
Assistant Secretary of OpenTV, Inc. and OpenTV Corp. He joined us in January
1999 as Senior Controller. Prior to joining us, Mr. Meagher was Director of
Finance for Worldwide Sales and Marketing at LSI Logic Corporation. In
addition, Mr. Meagher previously was Vice President of Finance and
Administration at PlayNet Technologies, Inc., a Internet-enabled software
entertainment company, and Executive Director and Corporate Controller at Sony
Interactive Entertainment, Inc., which was the division responsible for the
Sony PlayStation launch in North America and Europe. Prior to his experience at
Sony Interactive Entertainment, Inc., Mr. Meagher spent seven years at Price
Waterhouse as an audit manager, leaving in 1993. He holds a B.S. in Business
and Economics from Lehigh University, and he is a Certified Public Accountant.
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Stephen Salvatore has served as our Vice President, Creative since July
1998. He joined us in June 1997 as our Director, Interactive Programming. Prior
to joining us, Mr. Salvatore spent 17 years managing domestic and international
television production. His efforts as director, producer and associate producer
have garnered multiple Emmy and Ace awards in sports, documentary films,
series, magazine and television programming. He has produced and directed
television for such diverse companies as HBO, NBC, CBS, ABC, Discovery Channel
Inc., Warner Brothers International, NFL Films, Universal Studios Television
and E! Entertainment Television International. Mr. Salvatore is currently
leading our development of original interactive shows and services to be
deployed worldwide later this year.
Joel Zdepski has served as our Vice President, Application Engineering
since July 1996. Prior to joining us, Dr. Zdepski held a number of positions at
RCA and Thomson. In 1986, he joined the Communications Laboratory at the David
Sarnoff Research Center, where he concentrated on video communications, and he
later ultimately became Group Head of the Digital Video Communications Group,
where his particular emphasis was on video compression for teleconferencing,
digital television and HDTV. His projects included development of the Digital
Satellite System (DSS) used for DBS service in the United States and the Grand
Alliance HDTV system before the FCC for standardization as the terrestrial
broadcast standard. He is a member of the MPEG-2 video and systems subgroups
and was a member of Grand Alliance Compression Specialist Group and Transport
Specialist Group. His research interests include combined source/channel
coding, compression algorithms, error concealment, and packet video
applications. He has authored or co-authored over 20 conference and journal
papers and holds more than 21 patents, with several pending. Dr. Zdepski
received his B.S.E.E., M.S.E.E. and Ph.D. degrees from Rutgers University in
1981, 1986 and 1994, respectively.
Jacobus P. Bekker has served as a Director of OpenTV Corp. since October
1999. Mr. Bekker founded MIH Holdings in 1985 with Mr. Stofberg and has held a
variety of positions within the MIH Holdings group of companies since that
time. Mr. Bekker was Chief Executive Officer of MIH Holdings until 1997, when
he became the Managing Director of Naspers Limited. He is also currently the
Chairman of the Board of Directors of M-Web and a Director of MIH Holdings,
SSIH, M-Net Ltd. and M-Cell. Mr. Bekker is also a Director of a number of South
African print media companies and served as a Director of NetHold from
September 1995 to April 1997.
Stephen G. Oldfield has served as a Director of OpenTV, Inc. since
January 1998, and has served as a Director of OpenTV Corp. since October 1999.
Mr. Oldfield is also Chief Executive Officer of Mindport, a subsidiary of MIH
Limited and is also a Director of MIH Limited. Mr. Oldfield has held a variety
of positions within the MIH Holdings group of companies since 1986.
William J. Raduchel has served as a Director of OpenTV, Inc. since May
1999, and has served as a Director of OpenTV Corp. since October 1999. Mr.
Raduchel has been the Chief Technology Officer of America Online Incorporated
since September 1999. Prior to that, he was the Chief Strategy Officer of Sun
Microsystems, Inc., where he also had been Chief Information Officer, acting
Vice President of Human Resources, Chief Financial Officer and Vice President
of Corporate Planning and Development. Mr. Raduchel joined Sun in 1988 after
executive positions at Xerox Corporation and McGraw-Hill, Inc. He holds A.M.
and Ph.D. degrees in economics from Harvard University and a B.A. from Michigan
State University. Mr. Raduchel is also a Director of MIH Limited as well as
several startup companies.
Allan M. Rosenzweig has served as a Director of OpenTV, Inc. since June
1997, and has served as a Director of OpenTV Corp. since October 1999.
Mr. Rosenzweig is also Group Director, Corporate Finance and a Director of MIH
Limited. Prior to joining MIH Limited in 1996, Mr. Rosenzweig was the Director
of Corporate Finance of NetHold. In addition, he was previously the Managing
Director of Intertax (Pty) Ltd., an international tax consultancy firm. He also
serves on the boards of United Services Technologies Limited and Brait S.A.
The business address of our Directors and executive officers is our
registered office: Abbot Building, Mount Street, Tortola, Road Town, British
Virgin Islands.
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<PAGE>
Board Committees
Our board of directors has a compensation committee and an audit
committee. The compensation committee consists of Messrs. Rosenzweig and
Oldfield. It establishes salaries, incentives and other forms of Compensation
for our directors, executive officers, employees and consultants and
administers our stock option incentive and other benefit plans. Compensation
for our CEO and those employees who report directly to him is reviewed and
approved by the full board of directors. None of the members of our
compensation committee is currently or has been at any time since our formation
an officer or employee. Prior to the formation of the compensation committee,
all decisions regarding compensation for directors, officers, employees and
consultants and administration of stock incentive and other benefit plans were
made solely by the board of directors.
The audit committee consists of Messrs. Rosenzweig and Oldfield. The
audit committee reviews our audit policies and internal accounting controls and
oversees the engagement of our independent auditors.
Compensation of Directors and Officers
The aggregate salary, bonus and other compensation paid by us and our
subsidiaries to our executive officers and directors as a group during the
fiscal year ended December 31, 1998 was approximately $1.5 million. Our
directors do not currently receive cash compensation for serving as directors
other than the reimbursement of out-of-pocket expenses incurred in attending
the meetings.
The following table sets forth information for the year ended December
31, 1998, regarding the compensation of our current chief executive officer and
each of our four other most highly compensated executive officers. We refer to
these individuals as our named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Salary($) Bonus($) Compensation($) Options Compensation($)
------------------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Jan Steenkamp........... 97,500(/1/) -- 12,898(/2/) 2,850,000 --
President and Chief
Executive Officer
Vincent Dureau.......... 164,283 25,500 -- 1,300,000 3,000(/3/)
Chief Technology
Officer
Mitchell Berman......... 182,914 12,500 -- 1,000,000 3,000(/3/)
Senior Vice President,
Worldwide Marketing
Michael Catalano........ 172,470 17,169 -- 900,000 --
Vice President,
Product Development
Deborah Kanarek(/4/).... 156,121 29,240 -- 650,000 3,000(/3/)
Vice President, Legal
and General Counsel
</TABLE>
- --------
(1) Reflects compensation from July 6, 1998, which is the date of Mr.
Steenkamp's employment agreement. Prior to July 6, 1998, Mr.Steenkamp's
salary was paid by our parent company, MIH Limited.
(2) In 1998, Mr. Steenkamp was reimbursed for part of his housing expenses and
was provided a leased automobile by us.
(3) Represents matching contributions made by us to the named executive
officers' 401(k) plan accounts in the fiscal year ending December 31, 1998.
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<PAGE>
(4) Ms. Kanarek was our Vice President, Legal and General Counsel from
September 1998 through January 15, 1999. Ms. Kanarek served as our Director
of Legal Services and General Counsel from September 1997 through August
1998.
Aggregate Options to Purchase Securities
At October 15, 1999, our executive officers and directors as a group held
the following options to purchase our Class A Ordinary Shares. These data do
not take into account any beneficial interest of our directors and officers in
options to purchase our Class A Ordinary Shares held by a consulting subsidiary
of MIH Limited because economic interests in this entity have not yet been
allocated.
<TABLE>
<CAPTION>
Option Shares Purchase Price Expiration Date
------------- -------------- ---------------
<S> <C> <C>
5,700,000 $0.21 January 2008
2,975,000 0.21 July 2008
3,750,000 0.21 February 2009
850,000 0.42 May 2009
400,000 0.58 July 2009
1,350,000 1.20 August 2009
2,000,000 1.20 September 2009
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning options to purchase
shares granted to our named executive officers during the year ended December
31, 1998. No stock appreciation rights were granted during this period.
<TABLE>
<CAPTION>
Potential Realizable Value
% of Total at Assumed Annual
Number of Options Rates of Stock Price
Shares Granted to Appreciation for
Underlying Directors and Exercise Option Term(2)
Options Employees in Last Price Expiration ---------------------------
Name Granted Fiscal Year(1) ($ per share) Date 5%($) 10%($)
---- ---------- ----------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jan Steenkamp........... 2,850,000 12.71% 0.21 7/27/2008 376,393 953,855
Vincent Dureau.......... 1,300,000 5.8 0.21 1/27/2008 171,688 435,092
Mitchell Berman......... 1,000,000 4.46 0.21 1/27/2008 132,068 334,685
Michael Catalano........ 900,000 4.01 0.21 1/27/2008 118,861 301,217
Deborah Kanarek......... 250,000 1.12 0.21 1/27/2008 33,017 83,671
250,000 1.12 0.21 3/3/2008 33,017 83,671
150,000 0.67 0.21 9/23/2008 19,810 50,203
</TABLE>
- --------
(1) Percentages shown under "Percent of Total Options Granted to Employees in
the Last Fiscal Year" are based on an aggregate of 22,416,781 options
granted to employees, directors and consultants of OpenTV under its 1998
Stock Option/Stock Issuance Plan during the fiscal year ended December 31,
1998.
(2) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Share price appreciation of 5% and 10%
(compounded annually) is assumed in accordance with rules promulgated by
the SEC and does not represent our prediction of our share price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the estimated fair market value on the date of
grant appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price. We do not necessarily agree that
this method can properly determine the value of an option. Actual gains, if
any, on share option exercises depend on numerous factors, including our
future performance, overall market conditions and the option holder's
continued employment with us throughout the entire vesting period and
option term, which factors are not reflected in this table.
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year Option Values
There were no option exercises by our named executive officers during the
fiscal year ended December 31, 1998.
Employment Agreements
Employment Agreement with Jan Steenkamp. On July 6, 1999, we entered into
an Employment Agreement with Jan Steenkamp, our President and Chief Executive
Officer. The Employment Agreement is for a three year term and may be
terminated by us or by Mr. Steenkamp at any time and for any reason.
Mr. Steenkamp's annual salary is $205,000 and he is eligible for an annual
bonus. We are required to make payments to Mr. Steenkamp if (a) his employment
is involuntarily terminated for any reason other than those set forth in the
Employment Agreement, or (b) he resigns. Mr. Steenkamp also receives a
reimbursement of certain housing expenses and the use of a car leased by us. If
we experience a change in control, any unvested option shares held by Mr.
Steenkamp will become vested if he is involuntarily dismissed for a reason
other than cause or voluntarily resigns due to certain changes in his duties,
compensation or place of employment.
Employment Agreement with Randy Livingston. On September 1, 1999, we
entered into an Employment Agreement with Randall S. Livingston, our Executive
Vice President, Office of the CEO, and Chief Financial Officer. The Employment
Agreement is for a two year term and may be terminated by us or by Mr.
Livingston at any time and for any reason. We are required to make payments to
Mr. Livingston if (a) his employment is involuntarily terminated for any reason
other than those set forth in the Employment Agreement, or (b) he resigns. If
we experience a change in control, any unvested option shares held by Mr.
Livingston will become vested if he is involuntrily dismissed for a reason
other than cause or voluntarily resigns due to certain changes in his duties,
compensation or place of employment.
Employee Share Option Plan
Adoption. Our board of directors adopted, and our shareholders approved,
our 1998 Stock Option/Stock Issuance Plan on January 26, 1998. The board of
directors amended and restated the 1998 plan on February 11, 1999 and August
13, 1999.
Share Reserve. We have reserved 33,800,000 Class A Ordinary Shares for
issuance under the 1998 plan. OpenTV, Inc. has reserved 3,917,500 shares of
Class A Common Stock for issuance to option holders for whom our reorganization
would have had adverse tax consequences. If options or shares awarded under the
1998 plan are forfeited or canceled, expire or otherwise terminate without
being exercised, then those options or shares will again become available for
issuance under the 1999 plan.
Administration. The compensation committee of our board of directors
administers the 1998 plan. The committee has complete discretion to make all
decisions relating to the interpretation, operation and amendment of the 1998
plan. The committee has discretion to determine the following:
. grant recipients
. grant dates
. number of shares
. type of award
. exercisability of the award
. vesting requirements
. exercise price
. type of consideration
. any other terms and conditions of the award
Eligibility. The following groups of individuals are eligible to
participate in the plan:
. employees
. members of the board of directors who are not employees
. consultants
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<PAGE>
Structure of Plan. The plan is divided into the following two programs:
. the Option Grant Program under which eligible individuals may be
granted options to purchase Class A Ordinary Shares (the "Option
Grant Program")
. the Stock Issuance Program under which eligible persons may be
issued ordinary shares directly, either through the immediate
purchase of such shares or as a bonus for services rendered to us
(the "Stock Issuance Program")
Option Grant Program. Options to purchase our Class A Ordinary Shares may
be either incentive options or non-statutory options as designated by the
committee, in its sole discretion. The exercise price of incentive options
granted under the plan will be no less than the fair market value of our Class
A Ordinary Shares at the time the option is granted. The exercise price may be
paid in cash, in ordinary shares valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. The other terms of the incentive options will be determined
by the committee. Any options intended to qualify as incentive options will
meet all the requirements of Section 422 of the Internal Revenue Code.
Incentive options are not transferable.
The exercise price and other terms of non-statutory options granted under
the plan will be determined by the committee. The committee may provide that
non-statutory options will be transferable.
Stock Issuance Program. Under the Stock Issuance Program, we may issue
our Class A Ordinary Shares directly, either through immediate purchase of such
shares or as a bonus for services rendered to us. The purchase price and other
terms of shares issued under the Stock Issuance Program will be determined by
the committee. The committee may, in its discretion, subject any shares issued
under the Stock Issuance Program to vesting and a right of repurchase by us.
Repurchase Rights. The committee has the discretion to authorize the
issuance of unvested ordinary shares upon the exercise of options granted or as
shares otherwise issued under the 1998 plan. If the purchaser or optionee
ceases to be employed by or provide services to us, any or all of the ordinary
shares issued to the purchaser or optionee which are unvested at the time of
cessation shall be subject to repurchase by us at the purchase or exercise
price paid for such shares. The terms and conditions upon which the repurchase
rights are exercisable by us are determined by the committee and set forth in
the Repurchase Rights Agreements evidencing such rights.
Awards Granted. As of October 1, 1999, options to purchase 37,387,781
shares of our Class A Ordinary Shares had been granted under the Option Grant
Program, 5,866,909 of which have been cancelled under employees termination of
employment and no shares had been issued under the Stock Issuance Program.
First Refusal Right. We have right of first refusal in the event of any
proposed disposition of our Class A Ordinary Shares issued under the 1998 plan.
The right of first refusal is exercisable in accordance with terms and
conditions established by the board. Our right of first refusal will terminate
upon completion of these offerings.
Put Option. Participants who purchase shares under the plan and hold such
shares for at least six months have the right to require us to repurchase the
shares at the fair market value of the shares. This put option will terminate
upon completion of these offerings.
Corporate Transaction. Options will automatically vest upon the
occurrence of certain change of control events, if such options are not assumed
or exchanged for equivalent rights by the successor entity in accordance with
the terms of the plan.
In the event of a corporate transaction that does not result in the
automatic vesting of options and other awards, the board of directors or the
compensation committee has discretion to accelerate vesting of such options and
other awards.
56
<PAGE>
Amendments and Termination. The board of directors may amend the plan at
any time. If the board of directors amends the 1998 plan, shareholder approval
will only be sought if required by applicable law. The 1998 plan will terminate
upon the earliest of (i) January 25, 2008, (ii) the date on which all shares
available for issuance under the 1998 plan have been issued as vested shares,
or (iii) the termination of all outstanding options in connection with certain
corporate transactions.
401(k) Plan
We maintain the OpenTV, Inc. 401(k) Plan for eligible U.S. employees. In
order to be a participant in the 401(k) plan, an employee must have attained
age 21. A participant may contribute up to the lesser of 25%, of his/her total
annual compensation or the statutorily prescribed annual limit. The annual
limit for both 1998 and 1999 was $10,000. We may make discretionary
contributions as a percentage of participants' contributions, subject to
established conditions and limits. The 401(k) plan is intended to qualify under
Section 401of the Internal Revenue Code, so that contributions by us or our
employees to the 401(k) plan, and income earned on the 401(k) plan
contributions, are not taxable to employees until withdrawn, and so that our
contributions, if any, will be deductible by us when made.
Bonus Plan
Certain of our executive officers are eligible for our Executive Bonus
Plan. The Executive Bonus Plan is an annual incentive award plan that provides
for a target bonus equal to a specified percentage of base salary for each
participant. The actual bonus earned may be higher or lower depending on the
extent to which company and individual performance objectives are achieved.
Typically, at the start of each year, the compensation committee or the board
of directors reviews and approves the performance objectives for the company
and individual officers. Our objectives consist of operating, strategic and
financial goals that are considered critical to our fundamental long-term goal
of building shareholder value. Our current bonus is based on performance from
July 1, 1998 through December 31, 1999.
At the end of the year, the compensation committee or board of directors
determines actual bonus awards based on the degree to which we have met
corporate goals and participants have met their individual goals. Awards are
paid in cash in January or February following the performance year.
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<PAGE>
TRANSACTIONS WITH RELATED PARTIES
The following describes the significant transactions entered into between
us and our directors, executive officers, shareholders and affiliates of the
shareholders. All future transactions between us and any such party will be
subject to approval by a majority of the disinterested members of the Board.
Shareholders who previously owned or currently own 5% or more of our
ordinary shares or the common stock of OpenTV, Inc. include the following:
. THOMSON multimedia, S.A. ("Thomson"), who was a holder of more
than 5% of the common stock of OpenTV, Inc. from its inception
until March 18, 1999
. Sun Microsystems, Inc. ("Sun"), who has been a holder of more than
5% of the common stock of OpenTV, Inc. since its inception
. MIH Limited, which in turn is controlled by MIH Holdings Limited;
MIH Limited has owned 5% or more of our ordinary shares or the
common stock of OpenTV, Inc. since July 1997
Agreements with Sun and Sun Affiliates
Software License. Under a Source Code License and Binary Distribution
Agreement, effective as of July 1, 1996, Sun agreed to grant us a license to
certain media stream manager software. OpenTV retains ownership of all
derivatives of the software created by OpenTV and all related intellectual
property rights (subject to Sun's underlying rights) but OpenTV must promptly
grant back licenses to such derivatives and intellectual property rights and
deliver copies of the same to Sun.
Java License. In March 1998, we entered into a licensing and distribution
agreement with Sun under which Sun granted us a non-exclusive, non-transferable
license to develop and distribute products based upon Sun's Java technology. In
June 1999 we amended the agreement and committed to develop future versions of
our OpenTV Runtime software incorporating Sun's Java technology and compatible
with the appropriate JavaTV application programming interfaces. We are
obligated to pay Sun license, support and royalty fees through December 31,
2004.
March 1999 Agreements with Thomson and MIH Limited
In March 1999, a series of agreements were entered into by Thomson, MIH
Limited, Sun and us pursuant to which:
. Thomson sold all of our ordinary shares held by it to MIH Limited
and MIH Limited resold a portion of those shares to Sun
. Thomson assigned and licensed specific intellectual property
valued at $7.6 million to us
. we cross-licensed specific intellectual property rights to Thomson
. Thomson, MIH Limited and OpenTV, Inc. entered into mutual releases
all as described more fully below
Pursuant to an assignment agreement between Thomson and us, Thomson
assigned to us specific intellectual property relating to our business. In a
license agreement between Thomson and us, Thomson granted to us a non-exclusive
license to make, have made, use, sell, improve, lease, or otherwise transfer,
import or export our products and services (including a limited right to
sublicense), specific Thomson intellectual property relating to our business.
Under a still picture encoder license agreement, Thomson agreed to grant
to us a non-exclusive license to copy, display, modify, distribute and use the
software known as MPEG Encoder 3.0.2 developed by
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<PAGE>
Thomson for our own internal use, to develop derivative works, and to
sublicense the software solely in connection with the marketing and
distribution of OpenTV Runtime and the development of interactive television
applications.
Pursuant to the OpenTV License Agreement, we agreed to grant back a
license to Thomson and Thomson Broadcast Systems, S.A. under the technology
assigned to us by Thomson and its affiliates under the assignment agreement.
Pursuant to the Release Agreement, each of Thomson, MIH Limited, and the
Company released any and all claims, subject to certain exceptions, that each
could have asserted against the others or any of their affiliates, agents,
representatives, officers, directors, and employees as of March 18, 1999.
Amended and Restated Stockholders' Agreement
On October 23, 1999, we entered into the Amended and Restated
Stockholders' Agreement with OpenTV, Inc., Sun, a Sun subsidiary and a
subsidiary of MIH Limited. It contains the following provisions:
Fundamental Business Decisions
. If the board of directors of OpenTV Corp. approves any of the
following fundamental business decisions, it must submit the
matter to Sun (treating Sun as though it had exchanged its common
stock of OpenTV, Inc. for ordinary shares of OpenTV Corp.) and MIH
Limited for their approval:
(1) any business combination involving a change of control of
OpenTV Corp. (unless approved by a Sun designee to the OpenTV
Corp. board of directors),
(2) any change to the Memorandum or Articles of OpenTV Corp.
that
(a) adversely affects Sun's rights under the Exchange
Agreement described herein,
(b) affects Sun more adversely than MIH Limited or
(c) would impact the intellectual property rights licensed
by Sun to OpenTV, Inc. or
(3) any assignment or sublicensing of licensed Sun intellectual
property made outside of the ordinary course of business.
. If the board of directors of OpenTV, Inc. approves any of the
following fundamental business decisions, it must submit the
matter to Sun and OpenTV Corp. for their approval:
(1) any business combination involving a change of control of
OpenTV, Inc. (unless approved by a Sun designee to the OpenTV,
Inc. board of directors),
(2) any change to the charter of OpenTV, Inc. that
(a) adversely affects Sun's rights under the Exchange
Agreement described herein,
(b) affects Sun more adversely than OpenTV Corp. or
(c) would impact the intellectual property rights licensed
by Sun to OpenTV, Inc. or
(3) any assignment or sublicensing of licensed Sun intellectual
property made outside of the ordinary course of business.
. OpenTV Corp. fundamental business decisions require the
affirmative vote of at least 95% of all votes in respect of OpenTV
Corp. ordinary shares exercisable by MIH Limited and Sun (treating
Sun as though it had exchanged all its common stock of OpenTV,
Inc. for ordinary shares of OpenTV Corp.). OpenTV, Inc.
fundamental business decisions require the affirmative vote of at
least 95% of all votes in respect of OpenTV, Inc. common stock
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<PAGE>
exercisable by OpenTV Corp. and Sun. If the 95% test is not
satisfied, a representative of Sun's subsidiary and OpenTV Corp.
must attempt to resolve the deadlock and, if they are
unsuccessful, a representative of Sun and MIH Limited must attempt
to resolve the deadlock. If the deadlock is not resolved within
31 days, then OpenTV Corp. shall purchase, and if OpenTV Corp.
cannot purchase, then MIH Limited may purchase, all of the shares
of OpenTV, Inc. and OpenTV Corp. held by Sun at their fair market
value.
Restrictions on Transfer of Shares by Sun
. Sun may not transfer any shares of OpenTV, Inc. other than: (1) in
exchange for shares of OpenTV Corp. pursuant to the terms of the
Exchange Agreement described herein, or (2) to an affiliate of Sun
so long as Sun remains bound and the transferee agrees to be bound
by the terms of the Amended and Restated Stockholders' Agreement.
Term
. The Amended and Restated Stockholders' Agreement terminates when
Sun exchanges all its shares of common stock of OpenTV, Inc. for
ordinary shares of OpenTV Corp.
Shareholders' Agreement
On October 23, 1999, OpenTV Corp. entered into a Shareholders' Agreement
with a subsidiary of Sun and a subsidiary of MIH Limited. Through these
subsidiaries, Sun and MIH Limited have agreed that, prior to transferring
equity securities of OpenTV Corp., they will offer such securities to each
other.
Stock Option Grant to MIH Limited Affiliate
In May 1999, we granted a non-statutory stock option to purchase
1,650,000 ordinary shares to a consulting firm subsidiary of MIH Limited. The
subsidiary expects that it will make available the economic benefit of these
options to its employees, including Allan Rosenzweig and Stephen Oldfield, who
are directors of OpenTV Corp., and employees of MIH Limited, our parent
company. The options were granted pursuant to the Amended and Restated 1998
Stock Option/Stock Issuance Plan and have exercise prices equal to the fair
market value of our ordinary shares on the date of grant.
Purchase and Exchange Agreement with MIH Limited and Sun
On July 16, 1999, OpenTV, Inc. filed an Amended and Restated Certificate
of Incorporation pursuant to which, among other things, it:
. created two classes of common stock designated, respectively,
Class A and Class B Common Stock and
. reclassified each share of its common stock outstanding at the
close of business on July 12, 1999, as one share of Class A Common
Stock
In connection with the reclassifcation, OpenTV, Inc. offered to sell up
to 10,411,504 shares of Class B Common Stock at a purchase price of $0.58 per
share to existing stockholders of OpenTV, Inc. who qualified as "accredited
investors" (as defined in Regulation D promulgated under the Securities Act of
1933, as amended) in accordance with the terms and conditions of the Purchase
and Exchange Agreement. The number of shares offered to each qualified existing
stockholder corresponded to the stockholder's ownership percentage of OpenTV,
Inc.'s then outstanding common stock. Qualified stockholders who participated
in the financing received, on a one-for-one basis and in accordance with the
terms and conditions of a purchase and exchange agreement, Class B Common Stock
in exchange for all of the Class A Common Stock held by such stockholder.
Qualified stockholders who elected to participate in the financing include,
among others, MIH Limited and Sun.
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Investors' Rights Agreement
On October 23, 1999, OpenTV Corp., MIH Limited, Sun, America Online,
General Instrument, Liberty Digital, News Corporation and Time Warner, Inc.
entered into an Investors' Rights Agreement. We refer to MIH Limited and Sun as
the existing investors and America Online, General Instrument, Liberty Digital,
News Corporation and Time Warner as the new investors. The Investors' Rights
Agreement contains the following provisions:
Board of Directors
The existing investors and the new investors have agreed to vote their
shares so that our board of directors has the following composition:
. so long as the new investors own ordinary shares equal to at least
60% of the issued amount, two directors designated by the new
investors
. so long as the new investors own ordinary shares equal to at least
30% of the issued amount, one director designated by the new
investors
. so long as Sun owns shares equal to at least 30% of the aggregate
amount of Class B Ordinary Shares issuable in respect of their
shares of Class B Common Stock of OpenTV, Inc., one director
designated by Sun
. a majority of the directors designated by Sun
Such agreement shall terminate no later than October 1, 2009.
Veto Rights
For a period not to exceed two years (other than with respect to the
required consent for affiliate transactions, which survives until the earlier
of a change of control and the new investors ceasing to own 50% of the issued
number) following these offerings, without the consent of the new investors, we
may not:
. enter into a merger, reorganization, sale of all or substantially
all our assets or liquidation
. enter into material affiliate transactions that are not on arms'
length terms
. other than issuances of Class B Ordinary Shares to Sun pursuant to
the Exchange Agreement and to other existing holders of Class B
Common Stock of OpenTV, Inc., issue any equity securities having
voting rights superior to our Class A Ordinary Shares
. increase the number of Class A Ordinary Shares eligible for
employee compensation in excess of 22 million
. issue equity securities at a per share price that is less than the
conversion price of the warrants issued to the new investors
. devote substantial resources to any line of business outside our
existing business
So long as the new investors have the right to designate two directors
and at least one of their directors is on our board, we may not adopt new or
make material modifications to existing stock option and other equity
compensation plans without the approval of our board of directors, including
the approval of a director designated by the new investors.
Transfers and Exchanges of Shares
Prior to transferring any equity securities of OpenTV Corp. to a non-
affiliate, MIH Limited must first offer such shares to the new investors. The
new investors' right of first refusal is subject to Sun's right of first
refusal in respect of such equity securities pursuant to the Shareholders'
Agreement.
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Prior to transferring any Class B Ordinary Shares to a non-affiliate or
converting any Class B Ordinary Shares into Class A Ordinary Shares, the
existing investors and any new investor that acquires Class B Ordinary Shares
must first offer to exchange such shares for Class A Ordinary Shares held by
the new investors.
MIH Limited must make provision for the new investors to participate in
any transfer of shares by it that will result in a change of control of OpenTV
Corp.
Prior to transferring any shares to a non-affiliate, the new investors
must offer such shares first, to the other new investors and, second, to MIH
Limited.
Each of these restrictions is subject to specified exceptions.
Transfers of Warrants
Subject to an exception in the event a new investor is unable to obtain
government approval to exercise its warrants, the warrants held by the new
investors can only be transferred to other new investors.
Registration Rights
Each of the existing investors and the new investors has certain rights
to require us to register its shares on demand and in the event of specified
registered offerings of securities by us.
Exchange Agreement
Right to Exchange
In connection with the creation of OpenTV Corp., on October 23, 1999, we
entered into an Exchange Agreement with Sun that permits Sun to exchange all or
a portion of its shares of Class B Common Stock of OpenTV, Inc. for our Class B
Ordinary Shares. The rate of exchange, which is subject to customary
antidilution adjustments, is one Class B Ordinary Share for one share of Class
B Common Stock of OpenTV, Inc.
OpenTV Corp. has agreed to reserve the number of its authorized but
unissued Class B Ordinary Shares as will be sufficient to permit the exchange
in full of Sun's OpenTV, Inc. Class B Common Stock for OpenTV Corp.'s Class B
Ordinary Shares.
Preservation of OpenTV Corp.'s Interest in OpenTV, Inc.
OpenTV, Inc., OpenTV Corp. and Sun have agreed that each time OpenTV
Corp. issues additional Class A Ordinary Shares or Class B Ordinary Shares
(other than on conversion of Class B Ordinary Shares), OpenTV, Inc. will sell
and OpenTV Corp. will purchase, at a purchase price of $0.001 per share, an
equal number of shares of Class A Common Stock or Class B Common Stock of
OpenTV, Inc., respectively.
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PRINCIPAL SHAREHOLDERS
The table below sets forth, after giving effect to the offerings, certain
information with respect to the beneficial ownership of each class of our
voting securities by (1) each person who is known by us to be the beneficial
owner of more than 5% of any class or series of our voting securities and (2)
all directors and executive officers as a group. The share data for directors
and officers do not take into account any of their holdings in our parent
company, MIH Limited, or any beneficial interest deriving therefrom. These data
also do not take into account any beneficial interest of our directors and
officers in options to purchase our Class A Ordinary Shares held by a
consulting subsidiary of MIH Limited because economic interests in this entity
have not yet been allocated.
<TABLE>
<CAPTION>
Class A Class B
Ordinary Shares Ordinary Shares
------------------ --------------------
Identity of Person or Percent Percent Total
Group Number of Class Number of Class Voting Rights
- --------------------- ------ -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Myriad International
Holdings BV............ -- --% 153,158,733 100.0% %
Sun Microsystems,
Inc. ................... 4,504,504 -- --
Directors and officers
as a group (
persons)................
The following table sets forth the same information and is based upon the
same assumptions as the preceding table, but it also assumes that Sun has
exchanged its shares of Class B Common Stock in OpenTV, Inc. for Class B
Ordinary Shares in OpenTV Corp.
<CAPTION>
Class A Class B
Ordinary Shares Ordinary Shares
------------------ --------------------
Identity of Person or Percent Percent Total
Group Number of Class Number of Class Voting Rights
--------------------- --------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Myriad International
Holdings BV. .......... -- --% 153,158,733 80.1% %
Sun Microsystems, Inc... 4,504,504 37,973,980 19.9
Directors and officers
as a group
( persons)...........
</TABLE>
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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, and qualified in its entirety by, the
provisions of our Memorandum and Articles of Association which are included as
exhibits to the Registration Statement of which this prospectus is a part, and
by the provisions of applicable BVI law.
Our Memorandum and Articles authorize the issuance of up to: (1)
500,000,000 Class A Ordinary Shares, (2) 200,000,000 Class B Ordinary Shares
and (3) 500,000,000 preference shares.
We have applied to list our Class A Ordinary Shares on the Nasdaq
National Market and on the Amsterdam Stock Exchange under the symbol "OPTV".
The transfer agent and registrar for our Class A Ordinary Shares is ChaseMellon
Shareholder Services LLC, and the paying agent in the Netherlands is
MeesPierson N.V.
We intend to apply to The Depository Trust Company ("DTC"), Euroclear and
Cedel Bank S.A. ("Cedel") for acceptance of our Class A Ordinary Shares in
their respective book-entry settlement systems. Initial settlement of our Class
A Ordinary Shares will take place on the closing date through DTC, Euroclear
and Cedel in accordance with their respective customary settlement procedures
for equity securities. Each person owning a beneficial interest in our 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 our Class A Ordinary Shares. Persons
wishing to obtain certificates for their Class A Ordinary Shares must make
arrangements with DTC, Euroclear or Cedel, respectively.
We were incorporated on September 30, 1999 in the British Virgin Islands.
Our founding statutes do not prescribe any time period for existence.
Trading through ASAS
Trading of 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 our 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 our 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 our 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 our Class A Ordinary Shares credited to their
account. Our 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 our Class
A Ordinary Shares are effected through book-entries.
Payments by us in respect of our Class A Ordinary Shares in ASAS are made
through that system. Shareholder notices are not sent directly to investors
holding our Class A Ordinary Shares through ASAS. Instead, notices will be
published in the Daily Official List (Officiele Prijscourant) of the Amsterdam
Stock Exchange and in at least one Netherlands newspaper, indicating, when
applicable, where shareholders can obtain copies of any documents referred to
in the notice.
The above is only a summary of ASAS. Investors should consult their
professional advisors if they require more information or if they have any
questions about ASAS.
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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 ten 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 our Class A Ordinary Shares and in
the form of our Class B Ordinary Shares to holders of our Class B Ordinary
Shares. Neither our Class A 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 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 Class B Ordinary Shares or
issue options, rights or warrants to subscribe for additional Class B Ordinary
Shares, except that we may issue Class B Ordinary Shares in exchange for shares
of Class B Common Stock of OpenTV, Inc. and 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 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 for the holders of our Class B Ordinary Shares to receive
voting securities (or rights to acquire voting securities) entitling them to
ten 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, our Series C-1 Convertible Preference Shares or
Series C-2 Convertible Preference Shares or an affiliate
. 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
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. 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 (x) 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 (y) requirements
under any applicable law, in each of cases (x) and (y), 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 our 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 powers (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
. 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
Series C-1 Convertible Preference Shares
Until these offerings are completed, we will have 23,648,646 Series C-1
Convertible Preference Shares authorized, issued and outstanding. Our Series C-
1 Convertible Preference Shares carry voting rights equal to 10 votes for each
Class A Ordinary Share into which they are convertible. Upon consummation of
these offerings, all of our outstanding Series C-1 Convertible Preference
Shares will be converted into our Class A Ordinary Shares.
Series C-2 Convertible Preference Shares
Until these offerings are completed, we will have 4,504,504 Series C-2
Convertible Preference Shares authorized, issued and outstanding. Our Series C-
2 Convertible Preference Shares carry voting rights equal to 10 votes for each
Class A Ordinary Share into which they are convertible. Upon consummation of
these offerings, all of our outstanding Series C-2 Convertible Preference
Shares will be converted into our Class A Ordinary Shares.
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Upon the completion of these offerings, there will be no preference
shares outstanding. See "--Certain Anti-Takeover Matters--Blank Check
Preference Shares".
Warrants to Purchase Class A Ordinary Shares
As of October 23, 1999, we had outstanding warrants to purchase
23,648,646 of our Class A Ordinary Shares at an exercise price of $1.11 per
share. These warrants currently are exercisable in full and will expire in
October 2001.
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 our directors under United
States federal securities laws.
Certain Anti-Takeover Matters
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, 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 ten
votes per share and our Class A Ordinary Shares are entitled to one vote per
share. Therefore, after these offerings, our Class B Ordinary Shares will
represent % of the voting power of all our ordinary shares even though they
represent % of our economic interests. Since MIH Limited will indirectly own
all of our outstanding Class B Ordinary Shares after these offerings, it will
have effective control over any proposals to acquire us, rendering futile any
attempts to pursue unsolicited tender offers or takeover attempts without
negotiation with MIH Limited.
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
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.
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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 or 66 2/3% of the members of our board of directors
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 that would have the effect of
making changes in our Memorandum and Articles which would have required such
affirmative vote if effected directly as an amendment. This requirement will
render more difficult the dilution of the anti-takeover provisions 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 Preference Shares. Our Memorandum and Articles provide for
authorized preference shares, none of which are outstanding. 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 rights of such holders, 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 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 Class A Ordinary
Shares outstanding ( Class A Ordinary Shares if the underwriters' over-
allotment options are exercised in full) and Class B Ordinary Shares
outstanding. Of these, the Class A Ordinary Shares sold by us in these
offerings ( Class A Ordinary Shares if the underwriters' over-allotment
options are exercised in full) will be freely tradable without restriction or
further registration under the Securities Act, unless held by one of our
"affiliates" (as that term is defined under the Securities Act and the
regulations promulgated thereunder). The remaining Class A Ordinary Shares
outstanding (the "Unregistered Shares"), were issued or sold without
registration under the Securities Act 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 Rule 144.
There are Unregistered Shares held by our non-affiliates. These shares
will be available for resale under the following conditions:
. shares can be resold freely beginning 90 days after the
date of this prospectus
. shares can be resold subject to the volume and manner of
sale requirements of Rule 144 under the Securities Act beginning
90 days after the date of this prospectus and will become
available for unrestricted resale on various dates up to one year
after the date of this prospectus
. shares will become available for resale subject to the
volume and manner of sale requirements of Rule 144 on various
dates up to one year after the date of this prospectus and will
become available for unrestricted resale one year thereafter
There are Unregistered Shares held by our affiliates. In addition, Sun
holds 37,973,980 shares of the Class B Common Stock of OpenTV, Inc., which may
be exchanged into a total of 37,973,980 of our Class B Ordinary Shares. These
shares will be available for resale under the following conditions:
. shares can be resold subject to the volume and manner of
sale requirements of Rule 144 beginning 90 days after the date of
this prospectus
. shares will become available for resale subject to the
volume and manner of sale requirements of Rule 144 on varying
dates up to one year after the date of this prospectus
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell within any three-month period
a number of shares that does not exceed the greater of (i) 1% of the number of
then outstanding Class A Ordinary Shares or (ii) the average weekly trading
volume of the outstanding Class A Ordinary Shares during the four calendar
weeks preceding such sale.
Lock-Up Agreements. Except for the issuance by us of options under our
Stock Option/Issuance Plan, we and our directors, executive officers and
existing shareholders have agreed not to, directly or indirectly, (i) sell,
grant any option to purchase or otherwise transfer or dispose of any ordinary
shares or securities convertible into or exchangeable or exercisable for
ordinary shares or file a registration statement under the Securities Act with
respect to the same or (ii) enter into any swap or other agreement or
transaction that transfers, in whole or in part, the economic consequence of
ownership of the ordinary shares (each a "disposal"), without the prior written
consent of Merrill Lynch for a period of 180 days after the date of this
prospectus.
In addition, MIH Limited, in its capacity as a shareholder that
individually holds more than 5% of our ordinary shares outstanding, has agreed
(in accordance with the rules for admission to listing on the Amsterdam Stock
Exchange of issuers with less than three financial years' net profit) that they
will not, for a maximum period of three years after the date of such admission,
dispose of common stock that totals, in the aggregate:
. more than 25% (as long as none of our fiscal years have closed
with a net profit)
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. 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% (until two of our fiscal years have closed with a
net profit)
of the number of ordinary shares currently outstanding for a maximum period of
three years after the date of admission of the Class A Ordinary Shares to
listing on the Amsterdam Stock Exchange. This prohibition is subject to the
following exceptions:
. such shareholder may sell to another shareholder or to
professional investors, provided the purchaser agrees to be bound
by the same restrictions on the disposal of the common stock being
transferred as the transferor
. under certain conditions, such shareholder may sell by a
registered public offering occurring at least one year after the
date of admission of the Class A Ordinary Shares to listing on the
Amsterdam Stock Exchange
Our directors (to whom the above rules would apply if they held shares of
our common stock as of the date of this prospectus) have not entered into
similar undertakings as described above, since none of them, directly or
indirectly, holds or has any ownership interest in or control over the disposal
of ordinary shares currently outstanding.
Shares of OpenTV, Inc. Not Held by Sun. We intend to facilitate the
disposition of the 4,020,985 shares of common stock of OpenTV, Inc. and
3,917,500 shares of common stock of OpenTV, Inc. issuable on exercise of
employee stock options held by holders other than Sun Microsystems and OpenTV
Corp. either by purchasing such shares directly or by providing such holders
the ability to exchange their shares in OpenTV, Inc. for shares in OpenTV Corp.
If all those shareholders, other than OpenTV Corp. and Sun Microsystems, effect
such an exchange, then we will issue an additional 7,265,615 Class A Ordinary
Shares and 672,870 Class B Ordinary Shares, many of which would be freely
tradeable without restriction. These shareholders in OpenTV, Inc. will not be
able to effect any such exchange until at least 180 days after these offerings.
Registration Rights. We are a party to an Investors' Rights Agreement
that provides MIH Limited, Sun Microsystems, America Online, General
Instrument, Liberty Digital, News Corporation and Time Warner with the ability
to demand registration of all or a portion of the Class A Ordinary Shares they
own or have the right to purchase and certain shares they subsequently acquire.
These shareholders also have the right to include all or any portion of the
Class A Ordinary Shares they own on registration statements we file, other than
registration statements relating to acquisition transactions and stock-based
compensation.
Effect of Resales. Prior to these Offerings, there has been no public
market for our Class A Ordinary Shares. No predictions can be made of the
effect, if any, that future sales of ordinary shares, options to acquire
ordinary shares or the availability of shares for future sale will have on the
market price prevailing from time to time. Sales of substantial amounts of
ordinary shares in the public market, or the perception that such sales may
occur, could have a material adverse effect on the market price of our Class A
Ordinary Shares.
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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.
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 entity taxable as a corporation, that was
created under U.S. law (federal or state); or
. an estate or trust whose world-wide income is subject to U.S.
Federal income tax.
If you are not a U.S. holder, you are a "Non-U.S. holder" and the
discussion below titled "Tax Consequences to Non-U.S. Holders" 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.
Tax Consequences to U.S. Holders
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
71
<PAGE>
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 common stock).
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 adjusted 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.
. 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 of making certain elections designed to lessen those adverse consequences.
Information Return
If you, either individually or in connection with a person related to
you within the meaning of the applicable Treasury Regulations, purchase more
than $100,000 of our ordinary shares within the 12-month period ending at the
time of the offering, you may be required to furnish information pertaining to
such purchase to the Internal Revenue Service. If you fail to furnish any such
necessary information, you could be subject to penalties. Accordingly, we urge
you to contact your own tax advisor to ascertain whether it is necessary for
you to furnish any such information to the Internal Revenue Service.
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<PAGE>
Tax Consequences to Non-U.S. Holders
Distributions
If you are a Non-U.S. holder, you generally will not be subject to U.S.
Federal income tax on distributions made on our ordinary shares unless:
. you conduct a trade or business in the United States and,
. the dividends are effectively connected with the conduct of that
trade or business (and, if an applicable income tax treaty so
requires as a condition for you to be subject to U.S. Federal
income tax on a net income basis in respect of income from our
ordinary shares, such dividends are attributable to a permanent
establishment that you maintain in the United States).
If you fail the above test, you generally will be subject to tax in
respect of such dividends in the same manner as a U.S. holder, as described
above. In addition, any effectively connected dividends received by a non-U.S.
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Sale or Other Disposition of Our Ordinary Shares
If you are a Non-U.S. holder, you will not be subject to U.S. Federal
income tax, including withholding tax, in respect of gain recognized on a sale
or other taxable disposition of our ordinary shares unless:
. your gain is effectively connected with a trade or business that
you conduct in the United States (and, if an applicable income tax
treaty so requires as a condition for you to be subject to U.S.
Federal income tax on a net income basis in respect of gain from
the sale or other disposition of our ordinary shares, such gain is
attributable to a permanent establishment maintained by you in the
United States), or
. you are an individual and are present in the United States for at
least 183 days in the taxable year of the sale or other
disposition, and either:
. your gain is attributable to an office or other fixed place of
business that you maintain in the United States, or
. you have a tax home in the United States.
Effectively connected gains realized by a non-U.S. corporation may also,
under certain circumstances, be subject to an additional "branch profits tax"
at a rate of 30% or such lower rate as may be specified by an applicable income
tax treaty.
Backup Withholding and Information Reporting
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 not a United States person, 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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<PAGE>
BRITISH VIRGIN ISLANDS TAXATION
Under the International Business Companies Act of the British Virgin
Islands as currently in effect, a holder of common stock 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 common stock and all holders of common
stock 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 common stock is 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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<PAGE>
[US]
UNDERWRITING
General
We 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 and
Thomas Weisel Partners LLC are acting as U.S. representatives 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 and the U.S. underwriters, and
concurrently with the sale of shares of Class A Ordinary Shares to the
international managers, we 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 our company, the number of Class A Ordinary Shares set forth opposite its
name below.
<TABLE>
<CAPTION>
Number of
U.S. Underwriters Shares
----------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Thomas Weisel Partners LLC.......................................
----
Total ......................................................
====
</TABLE>
We have also entered into an international purchase agreement with
certain international managers outside the United States and Canada for whom
Merrill Lynch International, Thomas Weisel Partners LLC 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
Class A Ordinary Shares to the U.S. underwriters pursuant to the U.S. purchase
agreement, we have agreed to sell to the international managers, and the
international managers severally have agreed to purchase from us, an aggregate
of Class A Ordinary Shares. The initial 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.
These offerings of our Class A Ordinary Shares are conditioned upon
receipt of the approval of the shareholders of MIH Holdings Limited as required
by the Johannesburg Stock Exchange.
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 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 of 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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<PAGE>
Commitments and Discounts
The U.S. representatives have 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 initial 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 to the U.S. underwriters and the
international managers and the proceeds before expenses to us. 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>
Without With
Per Share Option Option
--------- ------- ------
<S> <C> <C> <C>
Public offering price............................. $ $ $
Underwriting discount............................. $ $ $
Proceeds, before expenses, to OpenTV.............. $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
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 initial 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
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 additional Class A Ordinary Shares to cover over-allotments, if any, on
terms similar to those granted to the U.S. underwriters.
Reserved Shares
At our request, the U.S. underwriters have reserved for sale, at the
initial public offering price, up to ( %) of the Class A Ordinary Shares
offered hereby to be sold to some of our directors, officers,
76
<PAGE>
employees, business associates and related persons. The number of our Class A
Ordinary Shares available for sale to the general public will be reduced to the
extent that those persons purchase the reserved shares. Any reserved shares
which are not orally confirmed for purchase within one day of the pricing of
the offering will be offered by the U.S. underwriters to the general public on
the same terms as the other Class A Ordinary Shares offered by this prospectus.
No Sales of Similar Securities
We and our executive officers and directors and all existing shareholders
have agreed, with certain exceptions, 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, not to directly or indirectly
. 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, lend or otherwise
dispose of or transfer any of our Class A Ordinary Shares or
securities convertible into or exchangeable or exercisable for or
repayable with our Class A Ordinary Shares, whether now owned or
later acquired by the person executing the agreement or with
respect to which the person executing the agreement later acquires
the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our Class A Ordinary
Shares or
. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequence of ownership of our Class A
Ordinary Shares whether any such swap or transaction is to be
settled by delivery of our Class A Ordinary Shares or other
securities, in cash or otherwise.
Quotation on the Nasdaq National Market
We expect our Class A Ordinary Shares to be approved for quotation on the
Nasdaq National Market and the Amsterdam Stock Exchange, subject to official
notice of issuance, under the symbol "OPTV".
Before this offering, there has been no public market for our Class A
Ordinary Shares. The initial public offering price will be determined through
negotiations between us and the U.S. representatives and the lead managers. The
factors to be considered in determining the initial public offering price, in
addition to prevailing market conditions, are the valuation multiples of
publicly traded companies that the U.S. representatives and the lead managers
believe to be comparable to us, certain of our financial information, the
history of, and the prospects for, our company and the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, future revenues of our company, the present
state of our development, and the above factors in relation to market values
and various valuation measures of other companies engaged in activities similar
to ours. There can be no assurance that an active trading market will develop
for our Class A Ordinary Shares or that our Class A Ordinary Shares will trade
in the public market subsequent to the offering at or above the initial public
offering price.
The underwriters do not expect sales of the Class A Ordinary Shares to
any accounts over which they exercise discretionary authority to exceed 5% of
the number of ordinary shares being offered in this offering.
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
underwriters and certain selling group members to bid for and purchase our
Class A Ordinary Shares. As an exception to these rules, the U.S.
representatives are permitted to engage in 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.
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<PAGE>
If the underwriters create a short position in our Class A Ordinary
Shares in connection with the offering, ie., if they sell more Class A Ordinary
Shares than are set forth on the cover page of this prospectus, the U.S.
representatives may also elect to reduce any short position by purchasing our
Class A Ordinary Shares in the open market. The U.S. representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above.
The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
Class A Ordinary Shares in the open market to reduce the underwriters' short
position or to stabilize the price of our Class A Ordinary Shares, they may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares.
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 discourages resales of our Class A Ordinary Shares.
Neither our company nor any of the underwriters makes any representation
or prediction 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 our company nor any of the underwriters makes any
representation that the U.S. representatives or the lead managers will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Other Relationships
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, our company in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking and
investment banking transactions with our company, for which they have received
customary compensation.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or co-
manager on 60 filed public offerings of equity securities, of which 33 have
been completed, and has acted as a syndicate member in an additional 27 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with these
offerings.
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<PAGE>
LEGAL MATTERS
The validity of Class A Ordinary Shares offered hereby will be passed
upon for us 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. Certain United States legal matters will be passed
upon for the underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements of OpenTV, Inc. (the predecessor to
OpenTV Corp.) as of December 31, 1998 and 1997 and for the period July 1, 1996
(date of inception) to December 31, 1996 and for each of the two years in the
period ended December 31, 1998 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The balance sheet of OpenTV Corp. as of September 30, 1999 included in
this prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Upon completion of the offering, we will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and will file
reports and other information with the Commission. These will include annual
reports on Form 20-F and periodic reports on Form 6-K. We expect our
information furnished on Form 6-K to include quarterly financial information.
Such reports and other information, as well as the registration statement,
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 site http://www.sec.gov.
79
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
OpenTV Corp.
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Notes to Balance Sheet..................................................... F-4
OpenTV, Inc. and Subsidiary (Predecessor to OpenTV Corp.)
Report of Independent Accountants.......................................... F-5
Consolidated Balance Sheets................................................ F-6
Consolidated Statements of Operations and Comprehensive Loss............... F-7
Consolidated Statements of Stockholders' Equity (Deficit).................. F-8
Consolidated Statements of Cash Flows...................................... F-9
Notes to Consolidated Financial Statements................................. F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
OpenTV Corp.:
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of OpenTV Corp. as of September 30,
1999, in conformity with generally accepted accounting principles in the United
States of America. The balance sheet is the responsibility of OpenTV Corp.'s
management; our responsibility is to express an opinion on the balance sheet
based on our audit. We conducted our audit of the balance sheet in accordance
with generally accepted auditing standards in the United States of America
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
San Jose, California
- --------------------------------------------------------------------------------
F-2
<PAGE>
OPENTV CORP.
BALANCE SHEET
September 30, 1999
<TABLE>
<S> <C>
ASSETS
------
Total assets......................................................... $ --
=======
SHAREHOLDERS' EQUITY
--------------------
Class A ordinary shares, no par value: 500,000,000 shares authorized,
none issued and outstanding......................................... $ --
Class B ordinary shares, no par value: 200,000,000 shares authorized,
153,158,733 issued and outstanding.................................. 1,000
Class C preference shares, no par value: 500,000,000 shares
authorized, none issued and outstanding.............................
Receivable from shareholder.......................................... (1,000)
-------
Total shareholders' equity......................................... $ --
=======
</TABLE>
See Notes to balance sheet.
F-3
<PAGE>
OPENTV CORP.
NOTES TO BALANCE SHEET
Note 1. Formation and Business of OpenTV Corp.:
OpenTV Corp. was formed as an international business company under the
laws of the British Virgin Islands on September 30, 1999, through the issuance
of 153,158,733 Class B Ordinary Shares to OTV Holdings Limited, an indirect
subsidiary of MIH Limited, in exchange for a note receivable of $1,000. The
purpose of OpenTV Corp. is to act as a holding company for MIH Limited's
ownership interest in OpenTV, Inc., a Delaware corporation engaged in
designing, developing, marketing and supporting software and related components
to enable digital interactive television worldwide. OpenTV Corp. is a majority
owned subsidiary of MIH Limited.
Note 2. Subsequent Events (unaudited):
Acquisition of OpenTV, Inc. Shares
On October 18, 1999, a subsidiary of MIH Limited transferred 153,158,733
shares of Class B Common Stock, representing 78.5% of the common stock and
79.6% of the voting power of OpenTV, Inc., to OpenTV Corp. in consideration of
the 153,158,733 Class B Ordinary Shares of OpenTV Corp. previously issued to a
subsidiary of MIH Limited. OpenTV Corp. will consolidate OpenTV, Inc.'s results
and record a minority interest for the portion not owned.
Strategic Financing
On October 23, 1999, OpenTV Corp. sold 23,648,646 Series C-1 Convertible
Preference Shares, 4,504,504 Series C-2 Convertible Preference Shares and
warrants to purchases 23,648,646 Class A Ordinary Shares to six investors for
aggregate net proceeds of $31.0 million. Concurrent with the financing, OpenTV
Corp. entered into strategic agreements with three of the six investors:
America Online, Inc., News Corporation and Time Warner, Inc.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
OpenTV, Inc. and Subsidiary (Predecessor to OpenTV Corp.):
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive loss, of
stockholders' equity (deficit), and of cash flows present fairly, in all
material respects, the financial position of OpenTV, Inc. and its subsidiary as
of December 31, 1997 and 1998, and the results of their operations and their
cash flows for the period from July 1, 1996 (date of inception) to December 31,
1996 and for the years ended December 31, 1997 and 1998, in conformity with
generally accepted accounting principles in the United States of America. These
financial statements are the responsibility of OpenTV, Inc.'s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 9, 1999
- --------------------------------------------------------------------------------
F-5
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
CONSOLIDATED BALANCE SHEETS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, September
------------------ 30,
1997 1998 1999
-------- -------- ----------
Assets (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 293 $ 3,324 $ 2,580
Accounts receivable, net..................... 2,262 2,218 3,345
Prepaid expenses and other current assets.... 209 703 1,002
-------- -------- --------
Total current assets....................... 2,764 6,245 6,927
Property and equipment, net.................... 2,080 3,381 4,146
Intangible assets, net......................... -- -- 6,813
Other assets................................... 34 412 426
-------- -------- --------
Total assets............................... $ 4,878 $ 10,038 $ 18,312
======== ======== ========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable............................. $ 943 $ 1,978 $ 1,387
Accrued liabilities.......................... 1,831 2,171 3,399
Related parties payable...................... 1,036 337 532
Deferred revenue............................. 1,226 3,218 2,934
-------- -------- --------
Total current liabilities.................. 5,036 7,704 8,252
Convertible notes payable to stockholders...... -- 7,000 --
-------- -------- --------
Total liabilities.......................... 5,036 14,704 8,252
-------- -------- --------
Commitments (Notes 4 and 8)
Redeemable common stock, par value $0.001;
none, 557,914 and 3,588,847 shares issued and
outstanding in 1997, 1998 and 1999,
respectively.................................. -- 117 3,744
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock par value $0.001; 25,000,000
shares authorized; none issued and
outstanding................................. -- -- --
Class A Common Stock, par value $0.001:
275,000,000 shares authorized; 165,918,298,
165,918,298 and no shares issued and
outstanding in 1997, 1998 and 1999,
respectively................................ 166 166 --
Class B Common Stock, par value $0.001;
225,000,000 shares authorized; no shares
issued and outstanding in 1997 and 1998 and
191,169,126 shares issued and outstanding in
1999........................................ -- -- 191
Additional paid-in capital................... 23,949 23,998 45,213
Receivable from stockholders................. (9,700) -- (11)
Deferred compensation........................ -- (36) (2,952)
Accumulated other comprehensive income
(loss)...................................... 74 (62) (29)
Accumulated deficit.......................... (14,647) (28,849) (36,096)
-------- -------- --------
Total stockholders' equity (deficit)....... (158) (4,783) 6,316
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................. $ 4,878 $ 10,038 $ 18,312
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
For the
Period from
July 1, 1996
(date of
inception) For the Nine Months
to Year Ended December 31, Ended September 30,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Royalties............. $ -- $ 2,382 $ 2,788 $ 1,890 $10,061
License fees.......... 287 1,255 1,578 1,043 1,904
Services and other.... 731 3,322 5,102 3,183 5,592
---------- ----------- ----------- ----------- -----------
Total revenues...... 1,018 6,959 9,468 6,116 17,557
---------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of services and
other revenues....... 587 3,290 4,736 3,131 3,450
Research and
development.......... 2,590 6,219 7,514 5,328 7,949
Sales and marketing... 845 4,323 7,418 5,433 7,601
General and
administrative....... 1,126 3,929 3,982 2,845 3,934
Amortization of
intangibles.......... -- -- -- -- 827
Stock-based
compensation......... -- -- 13 -- 1,083
---------- ----------- ----------- ----------- -----------
Total operating
expenses........... 5,148 17,761 23,663 16,737 24,844
---------- ----------- ----------- ----------- -----------
Loss from
operations.......... (4,130) (10,802) (14,195) (10,621) (7,287)
Interest expense........ (1) (26) (75) (15) (73)
Other income (expense),
net.................... 173 139 68 16 113
---------- ----------- ----------- ----------- -----------
Net loss............. $(3,958) $(10,689) $(14,202) $(10,620) $(7,247)
Other comprehensive
income (loss):
Foreign currency
translation.......... 20 54 (136) (129) 33
---------- ----------- ----------- ----------- -----------
Comprehensive loss... $(3,938) $(10,635) $(14,338) $(10,749) $(7,214)
========== =========== =========== =========== ===========
Net loss per share,
basic and diluted...... $ (0.09) $ (0.09) $ (0.09) $ (0.06) $ (0.04)
========== =========== =========== =========== ===========
Shares used in computing
net loss per share,
basic and diluted...... 46,054,387 124,868,070 166,064,015 165,986,307 180,924,293
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Receivable Accumulated
Class A Class B Additional from Deferred Other Accumu-
Common Stock Common Stock Paid-In Stock- Compen- Comprehensive lated
Shares Amount Shares Amount Capital holders sation Income (Loss) Deficit Total
------------- ------ ----------- ------ ---------- ---------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock... 92,108,774 $ 92 -- $ -- $ 8,523 $ -- $ -- $ -- $ -- $ 8,615
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 20 -- 20
Net loss........ -- -- -- -- -- -- -- -- (3,958) (3,958)
------------- ------ ----------- ---- ------- ------- ------- ----- -------- --------
Balances,
December 31,
1996........... 92,108,774 92 -- -- 8,523 -- -- 20 (3,958) 4,677
Issuance of
common stock... 73,809,524 74 -- -- 15,426 (9,700) -- -- -- 5,800
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 54 -- 54
Net loss........ -- -- -- -- -- -- -- -- (10,689) (10,689)
------------- ------ ----------- ---- ------- ------- ------- ----- -------- --------
Balances,
December 31,
1997........... 165,918,298 166 -- -- 23,949 (9,700) -- 74 (14,647) (158)
Cash receipt
from
stockholder.... -- -- -- -- -- 9,700 -- -- -- 9,700
Deferred
compensation
arising from
options
issued......... -- -- -- -- 49 -- (49) -- -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- 13 -- -- 13
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- (136) -- (136)
Net loss........ -- -- -- -- -- -- -- -- (14,202) (14,202)
------------- ------ ----------- ---- ------- ------- ------- ----- -------- --------
Balances,
December 31,
1998........... 165,918,298 166 -- -- 23,998 -- (36) (62) (28,849) (4,783)
Conversion of
notes payable
to Class A
Common Stock 14,869,588 15 -- -- 7,118 -- -- -- -- 7,133
Conversion of
Class A Common
Stock to
Clase B Common
Stock.......... (180,787,886) (181) 180,787,886 181 -- -- -- -- -- --
Conversion of
related party
payable to
Class B Common
Stock.......... -- -- 4,310,345 4 2,496 -- -- -- -- 2,500
Issuance of
Class B Common
Stock.......... -- -- 6,070,895 6 3,515 (11) 3,510
Deferred
compensation
arising from
options
issued......... -- -- -- -- 3,999 -- (3,999) -- -- --
Capital
contribution
from
stockholder
(Note 8)....... -- -- -- -- 7,640 -- -- -- -- 7,640
Accretion on
redeemable
common stock .. -- -- -- -- (3,553) -- -- -- -- (3,553)
Amortization of
deferred
compensation... -- -- -- -- -- -- 1,083 -- -- 1,083
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 33 -- 33
Net loss........ -- -- -- -- -- -- -- -- (7,247) (7,247)
------------- ------ ----------- ---- ------- ------- ------- ----- -------- --------
Balances,
September 30,
1999
(unaudited).... -- $ -- 191,169,126 $191 $45,213 $ (11) $(2,952) $ (29) $(36,096) $ 6,316
============= ====== =========== ==== ======= ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
For the
Period from For the Nine
July 1, 1996 Months
(date of Year Ended Ended
inception) to December 31, September 30,
December 31, ------------------ -----------------
1996 1997 1998 1998 1999
------------- -------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $(3,958) $(10,689) $(14,202) $(10,620) $(7,247)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization........... 106 415 830 586 645
Amortization of
intangible assets...... -- -- -- -- 827
Amortization of deferred
compensation........... -- -- 13 -- 1,083
Provision for doubtful
accounts............... 31 330 85 -- 126
Loss on write-off of
equipment.............. -- -- 96 -- --
Interest on note payable
converted to common
stock -- -- -- -- 133
Changes in operating
assets and liabilities:
Accounts receivable... (1,011) (1,812) (41) (683) (1,254)
Prepaid expenses and
other current
assets............... (95) (114) (494) (316) (299)
Accounts payable...... 336 607 1,035 604 (591)
Accrued liabilities... 747 1,084 373 (800) 1,229
Related parties
payable.............. 903 133 (732) 545 195
Deferred revenue...... 819 607 1,992 3,141 (283)
------- -------- -------- -------- -------
Net cash used in operating
activities............... (2,122) (9,439) (11,045) (7,543) (5,436)
------- -------- -------- -------- -------
Cash flows used in
investing activities:
Purchases of property and
equipment................ (258) (1,445) (2,227) (1,406) (1,410)
Increase in other assets.. -- (34) (378) (378) (15)
------- -------- -------- -------- -------
Net cash used in investing
activities............... (258) (1,479) (2,605) (1,784) (1,425)
------- -------- -------- -------- -------
Cash flows from financing
activities:
Proceeds from issuance of
common stock............. 7,717 5,800 -- -- 3,510
Proceeds from issuance of
redeemable common stock.. -- -- 117 36 74
Proceeds from notes
payable.................. -- -- 7,000 -- 2,500
Payment on receivable from
stockholder.............. -- -- 9,700 9,700 --
------- -------- -------- -------- -------
Net cash provided by
financing activities..... 7,717 5,800 16,817 9,736 6,084
------- -------- -------- -------- -------
Effect of exchange rate
changes on cash.......... 20 54 (136) (129) 33
------- -------- -------- -------- -------
Net increase (decrease) in
cash and cash
equivalents.............. 5,357 (5,064) 3,031 280 (744)
Cash and cash equivalents,
beginning of period...... -- 5,357 293 293 3,324
------- -------- -------- -------- -------
Cash and cash equivalents,
end of period............ $ 5,357 $ 293 $ 3,324 $ 573 $ 2,580
======= ======== ======== ======== =======
Supplemental disclosure of
cash flow information:
Cash paid for interest.... $ 1 $ 26 $ 60 $ 15 $ --
======= ======== ======== ======== =======
Noncash investing and
financing activities:
Equipment contributed by
founder in exchange for
common stock............. $ 269
=======
Equipment acquired in
exchange for common
stock.................... $ 629
=======
Deferred compensation
arising from issuance of
options.................. $ 49 $ 3,999
======== =======
Conversion of notes
payable and accrued
interest to common stock
......................... $ 7,133
=======
Intangible assets
contributed by
stockholder.............. $ 7,640
=======
Accretion on redeemable
common stock............. $ 3,553
=======
Conversion of related
party payable to common
stock.................... $ 2,500
=======
Notes receivable issued on
exercise of options for
redeemable common stock.. $ 563
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 1. Formation and Business of OpenTV:
OpenTV (formerly Thomson Sun Interactive, LLC) was formed July 1, 1996 as
a limited liability company (LLC). Upon formation of the LLC, Thomson Consumer
Electronics (TCE) contributed $7,053 of cash, equipment and licenses to certain
technology in exchange for an 80.133% interest and Sun TSI Subsidiary (SSI)
contributed cash of $664, equipment and licenses to certain technology in
exchange for a 19.867% interest. TCE's contribution was recorded at historical
cost since there was no change in control. The contribution by SSI was recorded
as a purchase by the LLC. The fair value of $1,293 was allocated $664 to cash
and $629 to equipment and software. In March 1998, the LLC was converted into a
C Corporation. All share and per share data have been retroactively adjusted to
reflect the conversion.
OpenTV, a majority owned subsidiary of MIH Limited, designs, develops,
markets and supports software and related components to enable digital
interactive television worldwide.
Note 2. Summary of Significant Accounting Policies:
Principles of consolidation and basis of presentation
The financial statements include the accounts of OpenTV and its wholly
owned foreign subsidiary. All significant intercompany balances and
transactions have been eliminated.
OpenTV has incurred losses from operations since inception and has an
accumulated deficit at September 30, 1999, and will require additional funding
for operations. OpenTV has obtained a commitment from its majority shareholder
to provide additional debt or equity financings to fund operations for at least
through January 2001.
Interim financial statements (unaudited)
The financial statements as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 are unaudited but have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and the rules of the Securities and Exchange Commission and do not
include all disclosures required by generally accepted accounting principles
for annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
have been included. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
OpenTV considers all highly liquid investments with original or remaining
maturities of three months or less at the date of purchase to be cash
equivalents.
F-10
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Fair value of financial instruments
The reported amounts of certain of OpenTV's financial instruments,
including cash and cash equivalents, receivables, accounts payable, accrued
liabilities and notes payable, approximate fair value due to their short
maturities.
Concentration of credit risk
Cash and cash equivalents are deposited in a domestic bank and a bank
domiciled in France. With respect to accounts receivable, OpenTV's customer
base is dispersed across many geographic areas and OpenTV generally does note
require collateral. OpenTV monitors customers' payment history and establishes
allowances for bad debt as warranted.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to seven years. Leasehold improvements are amortized on a
straight line basis over the estimated life of the lease, or the useful life of
the asset, whichever is shorter.
Major additions and improvements are capitalized, while replacements,
maintenance, and repairs that do not improve or extend the life of the assets
are charged to expense. In the period assets are retired or otherwise disposed
of, the costs and related accumulated depreciation and amortization are removed
from the accounts, and any gain or loss on disposal is included in results of
operations.
Intangible assets
Intangible assets are stated at cost less accumulated amortization.
Amortization is computed on a straight-line basis over the estimated benefit
period of five years.
Long-lived assets
OpenTV accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
OpenTV to review for impairment of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amount of an asset might
not be recoverable. When such an event occurs, OpenTV estimates the future cash
flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized. To date, no
impairment loss has been recognized.
Revenue recognition
OpenTV adopted the provisions of Statement of Position 97-2 ("SOP 97-2"),
Software Revenue Recognition, as amended by Statement of Position 98-4,
Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective
January 1, 1998. SOP 97-2 delineates the accounting for software products,
products including software that is not incidental to the product, and
maintenance revenues. Under SOP 97-2, OpenTV recognizes product license revenue
upon shipment if a signed contract exists, the fee is fixed and determinable,
collection of the resulting receivables is probable and product returns are
reasonably estimable. OpenTV recognizes royalties upon notification from
licensees of revenues earned.
F-11
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
For contracts with multiple obligations (e.g., maintenance and other
services), revenue is allocated to each component of the contract based on
objective evidence of its fair value, which is specific to OpenTV, or for
products not being sold separately, the price established by management. OpenTV
recognizes revenue allocated to maintenance and support fees, for ongoing
customer support and product updates ratably over the period of the relevant
contract. Payments for maintenance and support fees are generally made in
advance and are non-refundable. For revenue allocated to consulting services
and for consulting services sold separately, OpenTV recognizes revenue as the
related services are performed. Maintenance and consulting services revenues
are included in services and other revenue.
For product licenses sold with integration services, OpenTV recognizes
revenue based on the completed contract method. Revenue from software
development contracts of less than six months duration is recognized based on
the completed contract method and for longer term contracts generally on the
percentage of completion method. Under the percentage of completion method the
extent of progress towards completion is measured based on actual costs
incurred to total estimated costs. Provisions for estimated losses on
uncompleted contracts are made in the period in which estimated losses are
determined. Revenue from integration services and software development
contracts are included in services and other revenue.
Revenue from sale of hardware components and manuals are recognized upon
shipment and included in services and other revenue.
Prior to the adoption of SOP 97-2, effective January 1, 1998, OpenTV
recognized revenue from the sale of product licenses upon shipment if remaining
obligations were insignificant and collection of the resulting receivables was
probable. Revenue from software maintenance contracts, including amounts
unbundled from product sales, were deferred and recognized ratably over the
period of the contract. Consulting services revenue was recognized as the
related services were performed.
Research and development
Research and development costs are charged to operations as incurred.
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. Amounts that could have been
capitalized under Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," have been insignificant and therefore no costs have been capitalized
to date.
Advertising
Cost related to advertising and promotion of products is charged to sales
and marketing expense as incurred. Advertising expense for the period from July
1, 1996 (date of inception) to December 31, 1996 was $23 and for the years
ended December 31, 1997 and 1998 was $172 and $757, respectively.
Income taxes
OpenTV was not subject to income taxes during 1996, 1997 and for the
period from January 1, 1998 to March 3, 1998, since it operated as a limited
liability company and any taxes due were payable by its members.
F-12
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
OpenTV has accounted for income taxes using an asset and liability
approach which requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in OpenTV's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
Stock-based compensation
OpenTV accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation". Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of OpenTV's shares and the exercise price of the
option. OpenTV accounts for equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") 96-18.
Comprehensive income
OpenTV adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130"). This statement requires companies to classify items
of comprehensive income by their nature in the financial statements and display
the accumulated balance of comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. Accordingly, OpenTV has reported foreign currency translation
adjustments in comprehensive income.
Foreign currency translation
The functional currency of the foreign subsidiary is the local currency.
Assets and liabilities are translated into U.S. dollars at the balance sheet
date exchange rate. Revenues and expenses are translated at the average
exchange rate prevailing during the period. The related gains and losses from
translation are recorded as a translation adjustment in a separate component of
stockholders' equity. Foreign currency transaction gains and losses are
included in results of operations.
Net loss per share
Basic and diluted net loss per share are computed using the weighted
average number of shares of common stock outstanding net of common stock
subject to repurchase. Options totaling 5,769,000, 15,063,500, 17,537,500,
18,188,330 and 30,069,986 were not included in the computation of diluted net
loss per share for 1996, 1997, 1998 and the nine months ended September 30,
1998 and 1999, respectively, because the effect would be antidilutive.
Certain risks and uncertainties
OpenTV's products and services are concentrated in the digital
interactive television software industry which is characterized by rapid
technological advances, changes in customer requirements and evolving
regulatory requirements and industry standards. Any failure by OpenTV to
anticipate or to respond adequately to technological developments in its
industry, changes in customer requirements or changes in regulatory
F-13
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
requirements or industry standards, or any significant delays in the
development or introduction of products or services, could have a material
adverse effect on OpenTV's business and operating results. Achieving and
sustaining profitability will require widespread adoption of the OpenTV system
by multiple industry participants and the television viewing public.
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. OpenTV adopted this standard on January
1, 1999 and its adoption did not have a material impact on its results of
operations, financial position or cash flows.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As OpenTV has historically
expensed these costs, the adoption of SOP 98-5 on January 1, 1999 did not have
any impact on its results of operations, financial position or cash flows.
In December 1998, AcSEC released SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition,' with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for multiple
element arrangements by means of the "residual method" when (1) there is
vendor-specific objective evidence ("VSOE") of the fair values of all the
undelivered elements that are not accounted for by means of long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements, and (3) all revenue recognition criteria of SOP 97-2 (other
than the requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. OpenTV does not expect the adoption of SOP 98-9 to have a material
effect on current revenue recognition policies.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which 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. SFAS No. 133 is
effective for fiscal quarters beginning after June 15, 2000. OpenTV does not
expect the adoption of SFAS No. 133 to have a material effect on its financial
results.
F-14
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 3. Balance Sheet Components:
<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1997 1998 1999
------ ------- -------------
<S> <C> <C> <C>
Accounts receivable
Trade accounts receivable .................... $2,323 $ 2,044 $ 3,539
Amounts billed under long term contracts...... 300 474 100
------ ------- -------
2,623 2,518 3,639
Less allowance for doubtful accounts.......... (361) (300) (294)
------ ------- -------
$2,262 $ 2,218 $ 3,345
====== ======= =======
Prepaid expenses and other current assets
Prepaid expenses and other current assets..... $ 209 $ 657 $ 733
Withholding tax receivable.................... -- 46 269
------ ------- -------
$ 209 $ 703 $ 1,002
====== ======= =======
Property and equipment
Computer equipment and software............... $2,179 $ 3,610 $ 4,827
Furniture and fixtures........................ 130 198 375
Leasehold improvements........................ 292 631 647
------ ------- -------
2,601 4,439 5,849
Less accumulated depreciation and
amortization................................. (521) (1,058) (1,703)
------ ------- -------
$2,080 $ 3,381 $ 4,146
====== ======= =======
Intangible assets
Patents and copyrights........................ $ -- $ -- $ 7,640
Less accumulated amortization................. -- -- (827)
------ ------- -------
$ -- $ -- $ 6,813
====== ======= =======
Accrued liabilities
Accrued payroll and related liabilities....... $1,203 $ 1,107 $ 2,359
Other accrued liabilities..................... 628 1,064 1,040
------ ------- -------
$1,831 $ 2,171 $ 3,399
====== ======= =======
</TABLE>
Note 4. Commitments:
OpenTV subleases its facilities from a third party under operating lease
agreements which expire in February 2001. Total rent expense for the period
July 1, 1996 (date of inception) to December 31, 1996 was $314 and for the
years ended December 31, 1997 and 1998 was $687 and $1,819, respectively.
Future minimum payments under noncancelable operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999.................................. $1,755
<S> <C>
2000.................................. 1,755
2001.................................. 300
------
$3,810
======
</TABLE>
F-15
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
In May 1998, OpenTV subleased part of its facilities to a third party
under an operating lease agreement which expires in November 1999. In March
1999, OpenTV extended the sublease to May 31, 2000. Future sublease income
under this agreement amounts to $675 in 1999 and $281 in 2000.
OpenTV is subject to legal proceedings, claims, and litigation arising in
the ordinary course of business. OpenTV's management does not expect that the
ultimate costs to resolve these matters will have a material adverse effect on
OpenTV's consolidated financial position, results of operations, or cash flows.
Note 5. Employee Incentive Plan:
In July 1996, OpenTV adopted the Employee Incentive Plan (the "1996
Plan") under which 18,000,000 shares were reserved for issuance.
In January 1998, OpenTV adopted the 1998 Stock Option/Stock Issuance Plan
(the "1998 Plan"). All options outstanding from the 1996 Plan were cancelled
and regranted under the 1998 Plan. Under the 1998 Plan, 29,000,000 shares of
Class A common stock were reserved for issuance to directors, officers,
employees and consultants of OpenTV. Options can be granted at a price not less
than 85% of the fair value of a share as determined by OpenTV's Board of
Directors on the date of grant. If the optionee is a 10% stockholder, then the
exercise price shall not be less than 110% of the fair market value of common
stock on the date of grant. Options granted to employees generally vest 25%
after 12 months of continuous service with OpenTV and 1/48 over the next 36
months. The term of the options is 10 years from the date of grant. Unexercised
options generally expire three months after termination of employment with
OpenTV. The optionee has the right to exercise the option immediately, however,
the shares are subject to repurchase by OpenTV at the exercise price. The
repurchase right generally lapses 25% after 12 months of continuous service
with OpenTV and 1/48th over the next 36 months. A total of 2,500 shares of
Class A common stock were subject to repurchase at September 30, 1998. There
were no shares of common stock subject to repurchase at December 31, 1998 and
September 30, 1999.
Optionees who purchase shares under the 1998 Plan and hold such shares
for at least six months have the right to require OpenTV to repurchase the
shares at fair market value. This right terminates on the earliest of (1) the
date when shares outstanding are held by more than 500 persons, (2) the Board
of Directors determines that a public market exists for the common stock, or
(3) a firmly underwritten public offering in which gross proceeds are at least
$10,000. OpenTV's cumulative repurchase obligation related to options exercised
under the 1998 Plan is included as redeemable common stock in the consolidated
balance sheet.
In January 1999, OpenTV adopted the Amended and Restated 1998
Option/Stock Issuance Plan (the "Amended 1998 Plan"). Under the Amended 1998
Plan, options can be granted at not less than 100% of the fair value of a share
as determined by OpenTV's Board of Directors on the date of grant and the
optionee's right to exercise the option immediately was deleted. All other
terms and conditions under the Amended Plan are the same as for the 1998 Plan.
F-16
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Activity under the Plans is as follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------------------
Class A
Common Weighted Weighted
Stock Average Average
Available Number of Exercise Aggregate Exercise Deemed
for Grant Shares Price Price Price Fair Value
----------- ----------- -------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options reserved at
inception of 1996
Plan................... 18,000,000
Options granted......... (5,769,000) 5,769,000 $0.715 $ 4,125 $0.715
----------- ----------- -------
Balances, December 31,
1996................... 12,231,000 5,769,000 4,125 $0.715
Options granted......... (9,294,500) 9,294,500 $0.715 6,645 $0.715 $0.715
----------- ----------- -------
Balances, December 31,
1997................... 2,936,500 15,063,500 10,770 $0.715
Options cancelled under
1996 Plan.............. (2,936,500) (15,063,500) $0.715 (10,770) $0.715
Options reserved at
inception of 1998
Plan................... 29,000,000 -- --
Options granted......... (22,416,781) 22,416,781 $ 0.21 4,708 $ 0.21 $ 0.21
Options exercised....... -- (557,914) $ 0.21 (117) $ 0.21
Options cancelled....... 4,321,367 (4,321,367) $ 0.21 (908) $ 0.21
----------- ----------- -------
Balances, December 31,
1998................... 10,904,586 17,537,500 3,683 $ 0.21
Additional options
reserved............... 4,800,000 -- --
Options granted......... (17,216,000) 17,216,000 $ 0.21--$ 1.20 10,168 $ 0.59 $ 0.75
Options exercised....... -- (3,029,742) $ 0.21 (636) $ 0.21
Options cancelled....... 1,653,772 (1,653,772) $ 0.21--$ 0.58 (352) $ 0.21
----------- ----------- -------
Balances, September 30,
1999 (unaudited)....... 142,358 30,069,986 $12,863 $ 0.43
=========== =========== =======
</TABLE>
The following table summarizes information with respect to options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0.21 17,537,500 9.20 $0.21 17,537,500 $0.21
</TABLE>
There were no options exercisable at December 31, 1996 and there were
2,135,667 options exercisable at a weighted average exercise price of $0.715 at
December 31, 1997.
F-17
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Fair value disclosures
Had compensation cost for OpenTV's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, OpenTV's net loss would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the
Period from
July 1, 1996
(date of Year Ended
inception) to December 31,
December 31, ------------------
1996 1997 1998
------------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported............................... $(3,958) $(10,689) $(14,202)
Pro forma................................. $(4,062) $(11,386) $(14,474)
Net loss per share,
basic and diluted:
As reported............................... $ (0.09) $ (0.09) $ (0.09)
Pro forma................................. $ (0.09) $ (0.09) $ (0.09)
</TABLE>
OpenTV calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following assumptions for
1996, 1997 and 1998: dividend yield at 0% for all periods; weighted average
expected option term of six years for all periods; risk free interest rate of
5.97% to 6.64%, 5.77% to 6.76%, and 4.95% to 5.70%, respectively. The weighted
average fair value of options granted during 1996, 1997 and 1998 was $0.49,
$0.50 and $0.15, respectively.
These pro forma amounts may not be representative of the effects on
reported net loss for future years as options vest over several years and
additional awards are generally made each year.
Stock-based compensation
In connection with certain option grants to employees during the year
ended December 31, 1998 and the nine months ended September 30, 1999, OpenTV
recorded stock-based compensation totaling $49 and $2,023, respectively, which
is being amortized in accordance with FASB Interpretation No. 28 over the
vesting periods of the related options, which is generally four years. Stock-
based compensation amortization recognized during the year ended December 31,
1998 and the nine months ended September 30, 1999 totaled $13 and $553,
respectively. In addition, OpenTV recorded accretion of $3,553 for the nine
months ended September 30, 1999 for the increase in fair value on outstanding
redeemable common stock.
In connection with the grant of options to purchase common stock to non-
employees during the period from February 1, 1999 through September 30, 1999,
OpenTV recorded compensation in accordance with Emerging Issues Task Force 96-
18 and SFAS No. 123. As of September 30, 1999, OpenTV has recorded aggregate
deferred compensation of $1,976 related to these options. Such deferred
compensation will be amortized over the vesting period relating to these
options. OpenTV recorded amortization of $530 for the nine months ended
September 30, 1999.
F-18
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 6. Employee Benefit Plan:
OpenTV's employees participate in the OpenTV 401(k) Plan (the "Plan"),
which was adopted on March 3, 1998. Prior to March 1998, employees participated
in the Thomson Consumer Electronics 401(k) Plan ("Thomson Plan"). In connection
with the establishment of the Plan, OpenTV and Thomson agreed to directly
transfer all of the assets and liabilities under the previous Thomson Plan to
the Plan. The Plan qualifies under Section 401(k) of the Internal Revenue Code
of 1986 and provides retirement benefits through tax deferred salary deductions
for all eligible employees meeting certain age and service requirements. OpenTV
may make discretionary matching contributions on behalf of employees. All
employee contributions are 100% vested. OpenTV made contributions to the Plans
in the amounts of $56 for the period from July 1, 1996 (date of inception) to
December 31, 1996 and $70 and $259 during the years ended December 31, 1997 and
1998, respectively.
Note 7. Income Taxes:
Effective March 3, 1998, OpenTV changed its status from a limited
liability company to a C corporation.
OpenTV's deferred tax assets as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforwards................. $4,053
Accrued liabilities and allowances............... 787
Other............................................ 135
------
4,975
Less valuation allowance......................... (4,975)
------
Net deferred tax asset.......................... $ --
======
</TABLE>
Management believes that, based on the losses incurred to date, it is
more likely than not that the deferred tax assets will not be utilized and a
full valuation allowance has been recorded.
At December 31, 1998, OpenTV had approximately $10,567, $4,670 and $469,
respectively, in federal, state and foreign net operating loss carryforwards to
reduce future taxable income. These carryforwards expire in the year 2018 for
federal, and 2003 for state and foreign income tax purposes, if not utilized.
For federal and state income tax purposes, a portion of OpenTV's net
operating loss carryforwards may be subject to certain limitations on
utilization in the case of a change in ownership, as defined by federal and
state tax law.
F-19
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 8. Related Party Transactions:
Related party transactions are as follows:
<TABLE>
<CAPTION>
For the
Period from For the
July 1, 1996 Nine Months
(date of Year Ended Ended
inception) to December 31, September 30,
Nature of December 31, ------------- ---------------
Related Party Transaction 1996 1997 1998 1998 1999
- ------------- ---------------------------------- ------------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sun Microsystems........ . Consulting expense $241 $ 398 $ 15 $ -- $ --
. Facilities rent expense 314 123 -- -- --
. Software technology license and
equipment purchases -- -- 477 353 572
. Interest expense on notes
payable -- -- 7 -- 8
Thomson Consumer
Electronics, Inc. ..... . General and administrative
expense reimbursement 270 398 -- -- --
. Royalties, license fees and
service revenue 99 334 205 205 376
. Interest expense on notes
payable -- -- 26 -- 33
Myriad International
Holdings Limited....... . Consulting expense -- -- 278 -- --
. Interest expense on notes
payable -- -- 26 -- 33
</TABLE>
Related parties balances are as follows:
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Related parties payable
Thomson Consumer Electronics, Inc................... $ 852 $ 26 $ --
Sun Microsystems.................................... 184 7 --
Myriad International Holdings Limited............... -- 304 532
------ ------ -----
$1,036 $ 337 $ 532
====== ====== =====
Convertible notes payable to shareholders
Myriad International Holdings Limited............... $ -- $3,114 $ --
Thompson Consumer Electronics, Inc.................. -- 3,114 --
Sun Microsystems.................................... -- 772 --
------ ------ -----
$ -- $7,000 $ --
====== ====== =====
</TABLE>
The convertible notes bear interest at 5% per annum. In March 1999, the
notes and accrued interest were converted into 14,869,588 shares of common
stock at $0.48 per share.
F-20
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
In March 1998, OpenTV entered into a technology license and distribution
agreement with a related party. Under the agreement OpenTV is committed to pay
fees of at least $4,000 through December 31, 2004.
On March 18, 1999, Myriad International Holdings Limited ("MIH") agreed
to pay Thomson Consumer Electronics, Inc. ("Thomson") $7,640 for certain
intellectual property which Thomson contributed to OpenTV and $38,566 for
Thomson's 80,424,260 shares of OpenTV's common stock. MIH issued a promissory
note to Thomson for the total amount. Thomson exchanged the promissory note for
shares in MIH, a publicly traded company, in April 1999. Sun exercised its
right to acquire from MIH its pro rata share of common stock of OpenTV which
was acquired by MIH from Thomson. As a result of these transactions, a new
Stockholders' Agreement was adopted on March 18, 1999 among OpenTV, MIH and
Sun.
Note 9. Segment Information:
OpenTV currently has only one segment because there is only one
measurement of profitability for its operations.
<TABLE>
<CAPTION>
For the
Period from
July 1, 1996
(date of Year Ended For the Nine Months
inception) to December 31, ended September 30,
December 31, ------------- -------------------- ---
1996 1997 1998 1998 1999
------------- ------ ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue by country:
Denmark $ 13 $ 383 $ 300 $ 300 $ --
France 337 2,907 2,915 2,303 1,974
Italy 35 213 483 470 792
South Africa 156 188 660 206 1,049
Spain 8 43 66 80 1,684
Taiwan -- 221 606 307 1,463
United Kingdom 4 1,361 2,333 1,240 6,686
United States 258 246 1,039 391 914
Other foreign countries 207 1,397 1,066 819 2,995
------ ------ ------ --------- ----------
$1,018 $6,959 $9,468 $ 6,116 $ 17,557
====== ====== ====== ========= ==========
</TABLE>
Revenues are attributed to countries based on the location of customers.
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Property and equipment, net:
United States................................... $2,030 $3,131 $3,839
France.......................................... 50 250 307
------ ------ ------
$2,080 $3,381 $4,146
====== ====== ======
</TABLE>
F-21
<PAGE>
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
(Information relating to the nine months ended September 30, 1998 and 1999 is
unaudited)
Major customers by period are as follows:
<TABLE>
<CAPTION>
For the
Period from
1-Jul-96
(date of Year Ended For the nine months
inception) to December 31, ended September 30,
December 31, -------------- --------------------
1996 1997 1998 1998 1999
------------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
A 30% 35% 16% 19% --
B 20% -- -- -- --
C 15% -- -- -- --
D 10% -- -- -- --
E -- -- 14% -- --
F -- -- -- -- 13%
G -- -- -- -- 10%
</TABLE>
As of December 31, 1997 and 1998, three customers accounted for 63% of
accounts receivable and one customer accounted for 16% of accounts receivable,
respectively.
Note 10. Subsequent Events (unaudited):
On July 6, 1999, OpenTV granted to employees 1,160,000 options to acquire
Class A Common Stock at $0.58 per share and on August 13, 1999 and September
28, 1999, OpenTV granted to employees 3,330,000 and 2,245,000 options,
respectively, to acquire Class A Common Stock at $1.20 per share. On August 13,
1999, the Board of Directors increased the number of shares of Class A Common
Stock available for grant under the Amended 1998 Plan by 4,800,000 shares.
On July 16, 1999, OpenTV filed an Amended and Restated Certificate of
Incorporation which created two classes of common stock designated,
respectively, Class A Common Stock and Class B Common Stock, and one class of
preferred stock. OpenTV is authorized to issue 525,000,000 shares with a par
value of $0.001 per share, allocated 275,000,000 shares to Class A Common
Stock, 225,000,000 shares to Class B Common Stock, and 25,000,000 shares to
preferred stock. Each share of its Common Stock outstanding at the close of
business on July 12, 1999 was reclassified as one share of Class A Common
Stock. The primary difference between Class B and Class A Common Stock is that
holders of Class B Common Stock are entitled to five votes for each share held,
while holders of Class A Common Stock are entitled to one vote for each share
held. All share data have been retroactively adjusted to reflect the three
classes.
In connection with the reclassification, OpenTV offered to sell up to
10,433,504 shares of Class B Common Stock at a purchase price of $0.58 per
share to existing stockholders based on their pro rata ownership prior to the
offering. Stockholders who elected to participate in the offering were also
entitled to receive, on a one-for-one basis, Class B Common Stock in exchange
for all of the Class A Common Stock held by such stockholder.
Qualified stockholders who elected to participate in the offering
included, among others, MIH and Sun, with gross proceeds of $6,021 for
10,381,240 shares of Class B Common Stock. A total of 181,424,343 shares of
Class A Common Stock were reclassed to Class B Common Stock.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in these offerings, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Shares
[LOGO OF OPENTV]
Class A Ordinary Shares
-----------------
P R O S P E C T U S
-----------------
Merrill Lynch & Co.
Thomas Weisel Partners LLC
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[I] Subject to Completion
Preliminary Prospectus dated , 1999
PROSPECTUS
Shares
[LOGO OF OPENTV]
Class A Ordinary Shares
-----------
This is OpenTV's initial public offering. The international managers will
offer shares outside the United States and Canada and the U.S. underwriters
will offer shares in the United States and Canada.
We expect that the public offering price will be between $ and $ per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will trade on the Nasdaq National Market
and the Amsterdam Stock Exchange under the symbol "OPTV".
Investing in the shares involves risks which are described in the "Risk
Factors" section beginning on page 8 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price................................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to OpenTV.................... $ $
</TABLE>
The international managers may also purchase up to an additional shares
at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus to cover over-allotments. The U.S.
underwriters may similarly purchase up to an aggregate of an additional
shares.
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 , 1999.
-----------
Merrill Lynch International
Thomas Weisel Partners LLC
MeesPierson N.V.
-----------
The date of this prospectus is , 1999.
<PAGE>
ADDITIONAL INFORMATION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by us in connection with the sale of class A
common stock 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............................................. $ 13,900
NASD filing fee.................................................. $ 5,500
Nasdaq National Market listing fee............................... $
Amsterdam Stock Exchange listing fee............................. $
Printing, mailing and engraving expenses......................... $
Legal fees and expenses.......................................... $
Accounting fees and expenses..................................... $
Transfer agent and registrar fees................................ $
Miscellaneous expenses........................................... $
Total............................................................ $
</TABLE>
A copy of this Prospectus, including the Financial Statements, and the
Memorandum and Articles are available for inspection at the offices of
MeesPieson N.V., Rokin 55, 1012 KK, Amsterdam, The Netherlands, tel: +31(0) 20
527 2467, fax: +31 (0)20 527 1928.
The issuance of Class A Ordinary Shares being offered by us in the
offerings was authorized by resolution of our Board of Directors on ,
1999 and , 1999.
Other than as disclosed herein, there has been no material adverse change
in our financial condition or results of operations since .
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
this 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.
<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. 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 our ordinary shares.
Individual and Corporate Income Tax
Individuals Not Engaged in an Enterprise
As a general rule, an individual who is resident or deemed to be resident
in the Netherlands ("Netherlands resident individual") and who holds our
ordinary shares ("Netherlands 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 us as well as on certain
distributions deemed made by us as described below.
Distributions to Netherlands Shareholders. Distributions by us made to
Netherlands Shareholders who are subject to Netherlands income tax include, but
are not limited to:
. distributions in cash or in kind, deemed and constructive distribution
and repayments of paid-in capital not recognized for Netherlands
income tax purposes; and
. liquidation proceeds, proceeds of redemption of our common stock or,
as a rule, consideration for the repurchase (buy-back) of our ordinary
shares by us in excess of the average paid-in capital recognized for
Netherlands income tax purposes.
Capital Gains. Capital gains realized on the disposition of our common
stock by a Netherlands resident individual are generally exempt from
Netherlands income tax if
. the individual does not have a substantial interest as defined below
and
. the common stock is 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, our ordinary shares if such holder has a substantial
interest (deemed or actual) in us. Generally, a holder of our 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, our ordinary shares representing five percent
or more of our total issued and outstanding capital (or the issued and
outstanding capital of any class of our ordinary shares), or rights to acquire
our 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 our
ordinary shares) or the ownership of certain profit participating certificates
that relate to five percent or more of our annual profit of 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.
<PAGE>
Individuals Engaged in an Enterprise, Companies and Other Entities
Netherlands resident individuals who own our 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
our 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 our common stock.
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 our ordinary shares.
Gift, Estate and Inheritance Taxes
Gift, estate and inheritance taxes will rise in the Netherlands with
respect to an acquisition of our ordinary shares by way of a gift by, or on the
death of, a holder of our ordinary shares who is resident or deemed to be
resident of the Netherlands.
For purposes of Netherlands gift, estate and inheritance taxes, an
individual who holds the Netherlands nationality will be deemed to be resident
in the Netherlands if he has been resident in the Netherlands at any time
during the ten years preceding the date of the gift or his death. Furthermore,
for purposes of Netherlands gift tax, an individual not holding the Netherlands
nationality will be deemed to be resident in the Netherlands if he has been
resident in the Netherlands at any time during the twelve months preceding the
date of the gift.
Other Taxes and Duties
No Netherlands capital tax, registration tax, transfer tax, stamp duty or
any other similar documentary tax or duty will be payable in the Netherlands in
respect of or in connection with the subscription, issue, placement, allotment
or delivery of our ordinary shares.
YOU SHOULD CONSULT LEGAL AND TAX ADVISORS IN THE COUNTRIES OF YOUR
CITIZENSHIP, RESIDENCE AND DOMICILE TO DETERMINE THE POSSIBLE TAX CONSEQUENCES
OF PURCHASING, HOLDING AND REDEEMING OUR ORDINARY SHARES UNDER THE LAWS OF YOUR
RESPECTIVE JURISDICTION.
<PAGE>
[I]
UNDERWRITING
General
We intend to offer our Class A Ordinary Shares outside the United States
and Canada through a number of international managers and in the United States
through a number of U.S. underwriters. Merrill Lynch International, Thomas
Weisel Partners LLC and MeesPierson N.V. are acting as lead managers for each
of the international managers named below. Subject to the terms and conditions
set forth in an international purchase agreement among our company and the
international managers, and concurrently with the sale of Class A Ordinary
Shares to the U.S. underwriters, we have agreed to sell to the international
managers, and each of the international managers severally and not jointly has
agreed to purchase from our company the number of Class A Ordinary Shares set
forth opposite its name below.
<TABLE>
<CAPTION>
Number
of
International Managers Shares
---------------------- ------
<S> <C>
Merrill Lynch International.......................................
Thomas Weisel Partners LLC........................................
MeesPierson N.V...................................................
----
Total........................................................
====
</TABLE>
We 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 and Thomas Weisel Partners LLC are acting as U.S.
representatives. Subject to the terms and conditions set forth in the U.S.
purchase agreement, and concurrently with the sale of Class A Ordinary
Shares to the international managers pursuant to the international purchase
agreement, we have agreed to sell to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase from us, an aggregate of
Class A Ordinary Shares. The initial public offering price per share and
the total underwriting discount per Class A Ordinary Share are identical under
the international purchase agreement and the U.S. purchase agreement. All of
the shares in these offerings are being sold under either the U.S. purchase
agreement or the international purchase agreement.
These offerings of our Class A Ordinary Shares are conditioned upon
receipt of the approval of the shareholders of MIH Holdings Limited as required
by the Johannesburg Stock Exchange.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters,
respectively, have agreed, subject to the terms and conditions set forth in
those agreements, to purchase all 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 nondefaulting 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 international managers and the U.S. underwriters are
conditioned upon one another.
We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the U.S. underwriters and the
international managers may be required to make in respect of 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.
<PAGE>
Commitments and Discounts
The lead managers have advised us that the international managers 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 international managers may allow, and such dealers
may reallow, a discount not in excess of $ per Class A Ordinary Share to
certain other dealers. After the initial 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 to the international managers and the
U.S. underwriters and the proceeds before expenses to us. This information is
presented assuming either no exercise or full exercise by the international
managers and the U.S. underwriters of their over-allotment options.
<TABLE>
<CAPTION>
Without With
Per Share Option Option
--------- ------- ------
<S> <C> <C> <C>
Public offering price............................... $ $ $
Underwriting discount............................... $ $ $
Proceeds, before expenses, to OpenTV................ $ $ $
</TABLE>
The expenses of the offering (exclusive of the underwriting discount) are
estimated at $ and are payable by us.
Intersyndicate Agreement
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the terms of the intersyndicate agreement, the international
managers and the U.S. underwriters are permitted to sell our Class A Ordinary
Shares to each other for purposes of resale at the initial 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. persons 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 international managers, exercisable for
30 days after the date of this prospectus, to purchase up to an aggregate of
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 the Class A Ordinary Shares offered
hereby. To the extent that the international managers exercise this option,
each international manager will be obligated, subject to certain conditions, to
purchase a number of additional Class A Ordinary Shares proportionate to such
international manager's initial amount reflected in the foregoing table.
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
additional Class A Ordinary Shares to cover over-allotments, if any, on
terms similar to those granted to international managers.
Reserved Shares
At our request, the international managers have reserved for sale, at the
initial public offering price, up to ( %) of the Class A Ordinary Shares
offered hereby to be sold to some of our directors,
<PAGE>
officers, employees, business associates and related persons. The number of our
Class A Ordinary Shares available for sale to the general public will be
reduced to the extent that those persons purchase the reserved shares. Any
reserved shares which are not orally confirmed for purchase within one day of
the pricing of the offering will be offered by the international managers to
the general public on the same terms as the other Class A Ordinary Shares
offered by this prospectus.
No Sales of Similar Securities
We and our executive officers and directors and all existing shareholders
have agreed, with certain exceptions, 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, not to directly or indirectly
. 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, lend or otherwise dispose
of or transfer any of our Class A Ordinary Shares or securities
convertible into, exchangeable or exercisable for or repayable with
our Class A Ordinary Shares, whether now owned or later acquired by
the person executing the agreement or with respect to which the
person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities
Act relating to any of our Class A Ordinary Shares or
. enter into any swap or other agreement that transfers, in whole or
in part, the economic consequences of ownership of our Class A
Ordinary Shares whether any such swap or transaction is to be
settled by delivery of our Class A Ordinary Shares or other
securities, in cash or otherwise.
Quotation on the Nasdaq National Market
We expect our Class A Ordinary Shares to be approved for quotation on the
Nasdaq National Market and the Amsterdam Stock Exchange, subject to official
notice of issuance under the symbol "OPTV".
Before this offering, there has been no public market for our Class A
Ordinary Shares. The initial public offering price will be determined through
negotiations between us and the U.S. representatives and the lead managers. The
factors to be considered in determining the initial public offering price, in
addition to prevailing market conditions, are the valuation multiples of
publicly traded companies that the U.S. representatives and the lead managers
believe to be comparable to us, certain of our financial information, the
history of, and the prospects for, our company and the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, future revenues of our company, the present
state of our development, and the above factors in relation to market values
and various valuation measures of other companies engaged in activities similar
to ours. There can be no assurance that an active trading market will develop
for our Class A Ordinary Shares or that our Class A Ordinary Shares will trade
in the public market subsequent to the offering at or above the initial public
offering price.
The underwriters do not expect sales of the Class A Ordinary Shares to
any accounts over which they exercise discretionary authority to exceed 5% of
the number of shares being offered in this offering.
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
underwriters and certain selling group members to bid for and purchase our
Class A Ordinary Shares. As an exception to these rules, the U.S.
representatives are permitted to engage in 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 the offering, i.e., if they sell more shares of our
Class A Ordinary Shares than are set forth on the cover page of this
prospectus,
<PAGE>
the U.S. representatives may reduce that short position by purchasing our Class
A Ordinary Shares in the open market. The U.S. representatives may also elect
to reduce any short position by exercising all or part of the over-allotment
options described above.\
The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
our Class A Ordinary Shares in the open market to reduce the underwriters'
short position or to stabilize the price of our Class A Ordinary Shares, they
may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares.
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 discourages resales of our Class A Ordinary Shares.
Neither our company nor any of the underwriters makes any representation
or prediction 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 our company nor any of the underwriters makes any
representation that the U.S. representatives or lead managers will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
UK Selling Restrictions
Each international manager has agreed that (i) it has not offered or sold
and, prior to the expiration of the period of six months from the closing date,
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; (ii) it has complied and will
comply with all applicable provisions of 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 (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of Class A Ordinary Shares to a
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 as amended by the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997
or is a person to whom such document may otherwise lawfully be issued or passed
on.
No Public Offering Outside the United States
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the Class A Ordinary
Shares, or the possession, circulation or distribution of this prospectus or
any other material relating to our company or shares of our Class A Ordinary
Shares in any jurisdiction where action for that purpose is required.
Accordingly, our Class A Ordinary Shares may not be offered or sold, directly
or indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the Class A Ordinary Shares may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.
Purchasers of the ordinary shares offered by this prospectus may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the offering price set
forth on the cover page hereof.
Other Relationships
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, our company in the ordinary course of business
and have engaged, and may in the future engage, in
<PAGE>
commercial banking and investment banking with our company, for which they have
received customary compensation.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or co-
manager on 60 filed public offerings of equity securities, of which 33 have
been completed, and has acted as a syndicate member in an additional 27 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with these
offerings.
<PAGE>
LEGAL MATTERS
The validity of Class A Ordinary Shares offered hereby will be passed
upon for us 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 our company by Loyens & Volkmaars, Amsterdam, the Netherlands. Certain
United States legal matters will be passed upon for the underwriters by Simpson
Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements of OpenTV as of December 31, 1998
and 1997 and for the period July 1, 1996 (date of inception) to December 31,
1996 and for each of the two years in the period ended December 31, 1998,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The balance sheet of OpenTV Corp. as of September 30, 1999 included in
this prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Upon completion of the offering, we will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and will file
reports and other information with the Commission. These will include annual
reports on Form 20-F and periodic reports on Form 6-K. We expect our
information furnished on Form 6-K to include quarterly financial information.
Such reports and other information, as well as the registration statement,
exhibits and schedules, may be inspected, without charge, or copied, as
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 site is
http://www.sec.gov.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in these offerings, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Shares
[LOGO OF OPENTV]
Class A Ordinary Shares
-----------------
P R O S P E C T U S
-----------------
Merrill Lynch International
Thomas Weisel Partners LLC
MeesPierson N.V.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee.............................................. $ 13,900
NASD filing fee................................................... $ 5,500
Nasdaq National Market listing fee................................ $
Amsterdam Stock Exchange listing fee.............................. $
Printing, mailing and engraving expenses.......................... $
Legal fees and expenses........................................... $
Accounting fees and expenses...................................... $
Transfer agent and registrar fees................................. $
Miscellaneous expenses............................................ $
--------
Total........................................................... $
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Our Articles of Association provide that, to the fullest extent permitted
by the laws of the British Virgin Islands 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.
Item 15. Recent Sales of Unregistered Securities.
Since the Registrant's inception on September 30, 1999, the Registrant
has sold and issued the following unregistered securities:
a. On September 30, 1999, the Registrant issued 153,158,733 Class B
Ordinary Shares to a subsidiary of MIH Limited as part of its initial
capitalization.
b. On October 23, 1999, the Registrant sold Convertible Preference
Shares and warrants to purchase Class A Ordinary Shares to the following
parties in the following amounts:
<TABLE>
<CAPTION>
Warrants
to
Series C-1 Series C-2 Purchase
Convertible Convertible Class A
Preference Preference Ordinary
Investor Shares Shares Shares
-------- ----------- ----------- ---------
<S> <C> <C> <C>
Sun Microsystems, Inc...................... -- 4,504,504 --
America Online Inc......................... 4,504,504 -- 4,504,504
General Instrument Corp. .................. 2,252,252 -- 2,252,252
Liberty Digital, Inc. ..................... 5,630,630 -- 5,630,630
News Corporation........................... 5,630,630 -- 5,630,630
Time Warner, Inc. ......................... 5,630,630 -- 5,630,630
</TABLE>
II-1
<PAGE>
Each Series C-1 Preference Share and each Series C-2 Preference Share
will automatically convert into one Class A Ordinary Share upon the completion
of these offerings.
The issuance of securities described in Items 15(a) and (b) were made in
reliance upon an exemption from registration provided by Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
The recipients in all such transactions represented their intentions to acquire
the securities for investment only and not with a view to, or for sale in
connection with, any distribution thereof and appropriate legends were affixed
to the share certificates issued in all such transactions. All recipients
either received adequate information about the registrant or had access,
through employment or other relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1+ U.S. Purchase Agreement.
1.2+ International Purchase Agreement.
3.1+ Memorandum of Association of the Registrant.
3.2+ Articles of Association of the Registrant.
4.1+ Specimen Certificate for Class A Ordinary Share of the Registrant.
5.1+ Opinion of Harney, Westwood & Riegels with respect to the validity of
the securities being offered.
10.1 Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.2 Registrant's 1999 Employee Stock Purchase Plan and Related Documents.
10.3+ Registrant's Amended and Restated 1998 Stock Option/Stock Issuance
Plan and Related Documents.
10.4+* Shareholder's Agreement among OTV Holdings Limited, OpenTV Corp., and
Sun TSI Subsidiary, Inc., dated October 23, 1999.
10.5+ Trademark License Agreement between Sun Microsystems, Inc. and OpenTV,
Inc., dated March 20, 1998.
10.6+* Technology License and Distribution Agreement between Sun
Microsystems, Inc. and OpenTV, Inc., dated March 20, 1998.
10.7+* First Amendment to Technology License and Distribution Agreement,
dated June 30, 1999.
10.8 Sublease between Netscape Communications, Inc. and OpenTV, Inc., dated
March 19, 1998.
10.9+* Source Code License and Binary Distribution Agreement between Sun
Microsystems, Inc. and OpenTV, Inc., effective April 1, 1998.
10.10+* Convertible Preferred Stock Purchase Agreement between OpenTV Corp.
and Sun TSI Subsidiary, Inc., dated October 23, 1999.
10.11+* Convertible Preferred Stock and Warrant Purchase Agreement among
OpenTV Corp. and America Online, Inc., General Instrument Corp.,
Liberty Digital, Inc., News Corporation and Time Warner Entertainment
Company, L.P., dated October 23, 1999.
10.12+* Exchange Agreement between OpenTV Corp. and Sun TSI Subsidiary, Inc.,
dated October 23, 1999.
10.13+* Investors' Rights Agreement among OpenTV Corp., America Online, Inc.,
General Instrument Corp., Liberty Digital, Inc., News Corporation and
Time Warner Entertainment Company, L.P., dated October 23, 1999.
10.14+* Amended and Restated Stockholders' Agreement among OpenTV Corp.,
OpenTV, Inc., Sun Microsystems, Inc. and Sun TSI Subsidiary, Inc.,
dated October 23, 1999.
21.1 Subsidiaries of the Registrant.
23.1+ Consent of Harney, Westwood & Riegels (included in Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
- --------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions are included in the confidential treatment
request filed separately with the Commission.
+ To be filed by amendment.
II-2
<PAGE>
(b) Financial Statement Schedules
All financial schedules, other than that listed above, have been omitted
because the information required to be set forth therein is not applicable or
is shown in the Financial Statements or Notes thereto.
Item 17. Undertakings.
The Registrant will provide to the Underwriters at the closing specified
in the Purchase Agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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
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 the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant, OpenTV Corp., a corporation organized and existing under the
laws of the British Virgin Islands, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-1 and that
it has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Palo Alto,
California, on this 25th day of October, 1999.
OPENTV CORP.
/s/ Jan Steenkamp
By _________________________________
Jan Steenkamp
Chief Executive Officer
We, the undersigned officers and directors of OpenTV Corp. hereby
severally constitute and appoint Jan Steenkamp and Allan M. Rosenzweig, and
each of them, with full power of substitution, our true and lawful attorney
with full power to him singly to sign for us and in our names in the capacities
indicated below the Registration Statement on Form F-1 filed herewith and any
and all pre-effective and post-effective amendments to said Registration
Statement, and, in connection with any registration of additional securities
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, to sign
any abbreviated registration statement and any and all amendments thereto, and
to file the same, with all exhibits thereto and other documents in connection
therewith, in each case, with the Securities and Exchange Commission, and
generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable OpenTV Corp. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
Chairman of the
- ------------------------------------- Board
Jacobus D.T Stofberg
/s/ Jan Steenkamp Chief Executive
- ------------------------------------- Officer and
Jan Steenkamp Director (principal
executive officer)
/s/ Randall S. Livingston Chief Financial
- ------------------------------------- Officer and
Randall S. Livingston Director (principal
financial and
accounting officer)
/s/ James F. Brown U.S. Authorized
- ------------------------------------- Representative
James F. Brown
/s/ Jacobus P. Bekker Director
- -------------------------------------
Jacobus P. Bekker
/s/ Stephen G. Oldfield Director
- -------------------------------------
Stephen G. Oldfield
/s/ William Raduchel Director
- -------------------------------------
William Raduchel
Director
- -------------------------------------
Allan M. Rosenzweig
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
OpenTV, Inc. and Subsidiary (Predecessor to OpenTV Corp.):
In connection with our audits of the consolidated financial statements of
OpenTV, Inc. as of December 31, 1997 and 1998, and for the period from July 1,
1996 (date of inception) and for years ended December 31, 1997 and 1998, which
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16(b) herein. In our opinion, this
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 9, 1999
S-1
<PAGE>
SCHEDULE II
OPENTV, INC. AND SUBSIDIARY
(Predecessor to OpenTV Corp.)
VALUATION AND QUALIFYING ACCOUNTS
(in thousands of US dollars)
<TABLE>
<CAPTION>
Balance at Amounts
Beginning Charged to Balance at
Description of Period Profit and Loss Deductions End of Period
- ----------- ---------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
For the period July 1,
1996 (date of inception)
to December 31, 1996
Allowance for doubtful
accounts................ $ -- $ 31 $ -- $ 31
Year ended December 31,
1997
Allowance for doubtful
accounts................ $ 31 $ 330 $ -- $ 361
Year ended December 31,
1998
Allowance for doubtful
accounts................ $361 $ 85 $(146) $ 300
Allowance for Deferred Tax
Assets:
For the period July 1,
1996 (date of inception)
to December 31, 1996
Valuation Allowance...... $ -- $ -- $ -- $ --
Year ended December 31,
1997
Valuation Allowance...... $ -- $ -- $ -- $ --
Year ended December 31,
1998
Valuation Allowance...... $ -- $4,975 $ -- $4,975
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1+ U.S. Purchase Agreement.
1.2+ International Purchase Agreement.
3.1+ Memorandum of Association of the Registrant.
3.2+ Articles of Association of the Registrant.
4.1+ Specimen Certificate for Class A Ordinary Share of the Registrant.
5.1+ Opinion of Harney, Westwood & Riegels with respect to the validity of
the securities being offered.
10.1 Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.2 Registrant's 1999 Employee Stock Purchase Plan and Related Documents.
10.3+ Registrant's Amended and Restated 1998 Stock Option/Stock Issuance
Plan and Related Documents.
10.4+* Shareholder's Agreement among OTV Holdings Limited, OpenTV Corp., and
Sun TSI Subsidiary, Inc., dated October 23, 1999.
10.5+ Trademark License Agreement between Sun Microsystems, Inc. and OpenTV,
Inc., dated March 20, 1998.
10.6+* Technology License and Distribution Agreement between Sun
Microsystems, Inc. and OpenTV, Inc., dated March 20, 1998.
10.7+* First Amendment to Technology License and Distribution Agreement,
dated June 30, 1999.
10.8 Sublease between Netscape Communications, Inc. and OpenTV, Inc., dated
March 19, 1998.
10.9+* Source Code License and Binary Distribution Agreement between Sun
Microsystems, Inc. and OpenTV, Inc., effective April 1, 1998.
10.10+* Convertible Preferred Stock Purchase Agreement between OpenTV Corp.
and Sun TSI Subsidiary, Inc., dated October 23, 1999.
10.11+* Convertible Preferred Stock and Warrant Purchase Agreement among
OpenTV Corp. and America Online, Inc., General Instrument Corp.,
Liberty Digital, Inc., News Corporation and Time Warner Entertainment
Company, L.P., dated October 23, 1999.
10.12+* Exchange Agreement between OpenTV Corp. and Sun TSI Subsidiary, Inc.,
dated October 23, 1999.
10.13+* Investors' Rights Agreement among OpenTV Corp., America Online, Inc.,
General Instrument Corp., Liberty Digital, Inc., News Corporation and
Time Warner Entertainment Company, L.P., dated October 23, 1999.
10.14+* Amended and Restated Stockholders' Agreement among OpenTV Corp.,
OpenTV, Inc., Sun Microsystems, Inc. and Sun TSI Subsidiary, Inc.,
dated October 23, 1999.
21.1 Subsidiaries of the Registrant.
23.1+ Consent of Harney, Westwood & Riegels (included in Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
- --------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions are included in the confidential treatment
request filed separately with the Commission.
+ To be filed by amendment.
<PAGE>
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ________, 1999, by
and between OpenTV, Inc., a Delaware corporation (the "Corporation"), and
_________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as ____________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ____________ of
the corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent.
NOW, THEREFORE, in consideration of Agent's continued service as
____________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. Services to the Corporation. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
___________ of the Corporation or as a director, officer or other fiduciary of
an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold harmless
and to indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the
<PAGE>
extent that such amendment permits the Corporation to provide broader
indemnification rights than the Bylaws or the Code permitted prior to adoption
of such amendment).
3. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitration,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of the
Corporation, or is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and of the
Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit
or advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and the Agent have been advised that the Securities and Exchange
<PAGE>
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and shall continue thereafter so
long as Agent shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitration,
administrative or investigative, by reason of the fact that Agent was serving
in the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof, but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense
<PAGE>
thereof, the Corporation will not be liable to Agent under this Agreement for
any legal or other expenses subsequently incurred by Agent in connection with
the defense thereof except for reasonable costs of investigation or otherwise
as provided below. Agent shall have the right to employ separate counsel in
such action, suit or proceeding but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of Agent unless (i) the employment of counsel
by Agent has been authorized by the Corporation, (ii) Agent shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and Agent in the conduct of the defense of such action or (iii)
the Corporation shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have
made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the full
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
<PAGE>
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. Survival of Rights.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of
<PAGE>
which together shall constitute but one and the same Agreement. Only one such
counterpart need be produced to evidence the existence of this Agreement.
17. Heading. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with
postage prepaid;
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) It to the Corporation, to:
OpenTV, Inc.
401 East Middlefield Road
Mountain View, CA 94043
Attn: General Counsel
or to such other address as may have been furnished to Agent by
the Corporation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OPENTV, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
Agent Print Name and Address:
_______________________________________
Name
_______________________________________
Address
_______________________________________
_______________________________________
_______________________________________
Signature
<PAGE>
Exhibit 10.2
OPENTV, INC.
1999 Employee Stock Purchase Plan
Adopted by Board of Directors of OpenTV, Inc. October ___, 1999
Approved by Stockholders of OpenTV, Inc. October ___, 1999
Ratified by Board of Directors of OpenTV Corp. October 17, 1999
Approved by Shareholder of OpenTV Corp. October 22, 1999
Termination Date: December 31, 2009
1. Purpose.
(a) The purpose of the Plan is to provide a means by which Employees
of the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Parent.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted
under the Plan be considered options issued under an "employee stock purchase
plan," as that term is defined in Section 423(b) of the Code.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those
terms are defined in Sections 424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "Company" means OpenTV, Inc., a Delaware corporation.
(f) "Director" means a member of the Board.
(g) "Effective Date" has the meaning given to such term in Section 17
of the Plan.
<PAGE>
(h) "Eligible Employee" means an Employee who meets the requirements
set forth in the Offering for eligibility to participate in the Offering.
(i) "Employee" means any person employed by the Company or an
Affiliate incorporated in the United States, including officers, as well as
Directors who are also employed as employees of the Company. Service as a
Director (whether or not compensated by a director's fee) shall not be
sufficient, by itself, to constitute "employment" by the Company or the
Affiliate.
(j) "Employee Stock Purchase Plan" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as
that term is defined in Section 423(b) of the Code.
(k) "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
(l) "Fair Market Value" means the value of a security, as determined
in good faith by the Board. If the security is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq
SmallCap Market, then, except as otherwise provided in the Offering, the
Fair Market Value of the security shall be the closing sales price for such
security (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the relevant security of the Company) on the trading day prior
to the relevant determination date, as reported in The Wall Street Journal
or such other source as the Board deems reliable.
(m) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its Affiliate, does not
receive compensation (directly or indirectly) from the Company or its
Affiliate for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not
be required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K, and is not engaged in a business relationship as
to which disclosure would be required under Item 404(b) of Regulation S-K,
or (ii) is otherwise considered a "non-employee director" for purposes of
Rule 16b-3.
(n) "Offering" means the grant of Rights to purchase Shares under the
Plan to Eligible Employees.
(o) "Offering Date" means a date selected by the Board for an
Offering to commence.
(p) "Outside Director" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated
corporation" receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or
an
<PAGE>
"affiliated corporation" at any time, and is not currently receiving direct
or indirect remuneration from the Company or an "affiliated corporation"
for services in any capacity other than as a Director, or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the
Code.
(q) "Parent" means OpenTV Corporation, a British Virgin Islands
corporation.
(r) "Participant" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
(s) "Plan" means this 1999 Employee Stock Purchase Plan.
(t) "Purchase Date" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be
exercised and purchases of Shares carried out in accordance with such
Offering.
(u) "Right" means an option to purchase Shares granted pursuant to
the Plan.
(v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3 as in effect with respect to the Company at the
time discretion is being exercised regarding the Plan.
(w) "Securities Act" means the United States Securities Act of 1933,
as amended.
(x) "Share" means a share of the Class A ordinary shares of the
Parent.
3. Administration
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have
the final power to determine all questions of policy and expediency that
may arise in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to,
and within the limitations of, the express provisions of the Plan.
(i) To determine when and how Rights to purchase Shares shall
be granted and the provisions of each Offering of such Rights (which need
not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under it, and
to establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
<PAGE>
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts
as it deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be
treated as an Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee
of the Board composed of two (2) or more members, all of the members of
which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors, If administration is delegated to a
Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the
power to delegate to a subcommittee of two (2) or more Outside Directors
any of the administrative powers the Committee is authorized to exercise
(and references in this Plan to the Board shall thereafter be to the
Committee or such a subcommittee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted from
time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan.
4. Shares Subject to the Plan.
(a) Subject to the provision of paragraph 13 relating to adjustments
upon changes in stock, the Shares that may be sold pursuant to Rights
granted under the Plan shall not exceed in the aggregate two million
(2,000,000) Shares (subject to adjustment pursuant to Section 13 hereof,
including for any changes in the Parent's capital stock between the date
this Plan is adopted by the Board and the Effective Date). If any Right
granted under the Plan shall for any reason terminate without having been
exercised, the Shares not purchased under such Right shall again become
available for the Plan.
(b) The aggregate number of Shares that may be sold pursuant to
Rights granted under the Plan as specified in paragraph 4(a) hereof
automatically shall be increased as follows:
(i) On the last day of each fiscal year of the Company (the
"Calculation Date") for ten (10) years, commencing on December 31, 1999 and
ending on December 31, 2008, the aggregate number of Shares specified in
paragraph 4(a) hereof shall be increased by the lesser of (1) that number
of Shares equal to five percent (5%) of the Diluted Shares Outstanding, (2)
five hundred thousand (500,000) Shares (based on the number of Shares of
the Parent to be outstanding on the Effective Date, and no adjustment to
such number shall be made in connection with changes in the Parent's
capital stock between the date this Plan is adopted by the Board and the
Effective Date), or (3) a smaller number of Shares as determined by the
Board.
(ii) For purposes of paragraph 4(b)(i) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding
Shares on such Calculation Date, plus (2) the number of Shares issuable
upon such Calculation Date assuming the conversion of all outstanding
preferred shares and convertible notes of the Parent, plus (3) the
additional number of dilutive ordinary share equivalents of the Parent
outstanding as the result of any options or warrants outstanding during the
fiscal year.
<PAGE>
(c) The Shares subject to the Plan may be unissued Shares of Shares
that have been bought on the open market at prevailing market prices or
otherwise.
5. Grant of Rights; Offering.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares under the Plan to Eligible Employees in an
Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the
Board shall deem appropriate, which shall comply with the requirements of
Section 423(b)(5) of the Code that all Employees granted Rights to purchase
Shares under the Plan shall have the same rights and privileges. The terms
and conditions of an Offering shall be incorporated by reference into the
Plan and treated as part of the Plan. The provision of separate Offerings
need not be identical, but each Offering shall include (through
incorporation of the provisions of this Plan by reference in the document
comprising the Offering or otherwise) the period during which the Offering
shall be effective, which period shall not exceed twenty-seven (27) months
beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 6 through 9 hereof, inclusive.
(b) If a Participant has more than one Right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder: (i) each agreement or notice delivered by that
Participant will be deemed to apply to all of his or her Rights under the
Plan, and (ii) an earlier-granted Right (or a Right with a lower exercise
price, if two Rights have identical grant dates) will be exercised to the
fullest possible extent before a later-granted Right (or a Right with a
higher exercise price if two Rights have identical grant dates) will be
exercised.
6. Eligibility.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designate as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not
be eligible to be granted Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the Affiliate,
as the case may be, for such continuous period preceding such grant as the
Board may require, but in no event shall the required period of continuous
employment be equal to or greater than two (2) years. In addition, unless
otherwise determined by the Board and set forth in the terms of the
applicable Offering, no Employee shall be eligible to be granted Rights
under the Plan, unless, on the Offering Date, such Employee's customary
employment with the Company or such Affiliates is for at least twenty (20)
hours per week and at least five (5) months per calendar year.
(b) The Board may provide that each person who, during the course of
an Offering, first becomes an Eligible Employee, will, on a date or dates
specified in the Offering which coincides with the day on which such person
becomes an Eligible Employee or which occurs thereafter, receive a Right
under that Offering, which Right shall thereafter be deemed to be a part of
that Offering. Such Right shall have the same characteristics as any Rights
originally granted under that Offering, as described herein, except that:
<PAGE>
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of
the exercise price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights under
the Plan if, immediately after any such Rights are granted, such Employee
owns stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
Affiliate. For purposes of this subparagraph 6(c), the rules of Section
424(d) of the Code shall apply in determining the stock ownership of any
Employee, and stock wich such Employee may purchase under all outstanding
Rights and options shall be treated as stock owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee
Stock Purchase Plans of the Company and any Affiliates, as specified by
Section 423(b)(8) of the Code, do not permit such Eligible Employee's
rights to purchase Shares of the Company or any Affiliate to accrue at a
rate which exceeds twenty five thousand dollars ($25,000) of the fair
market value of such Shares (determined at the time such Rights are
granted) for each calendar year in which such Rights are outstanding at any
time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; provided, however,
that the Board may provide in an Offering that certain Employees who are
highly compensated Employees within the meaning of Section 423(b)(4)(D) of
the Code shall not be eligible to participate.
7. Rights; Purchase Price.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to
the number of Shares purchasable either:
(i) with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Base Salary (as defined by the
Board in each Offering) during the period which begins on the Offering
Date (or such later date as the Board determines for a particular Offering)
and ends on the date stated in the Offering, which date shall be no later
than the end of the Offering; or
(ii) with a maximum dollar amount designated by the Board that,
as the Board determines for a particular Offering, (1) shall be withheld,
in whole or in part, from such
<PAGE>
Employee's Base Salary (as defined by the Board in each Offering) during
the period which begins on the Offering Date (or such later date as the
Board determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering
and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering (the "Purchase Dates") on which Rights granted under the Plan
shall be exercised and purchases of Shares carried out in accordance with
such Offering.
(c) In connection with each Offering made under the Plan, the
Board may specify a maximum number of Shares that may be purchased by any
Participant as well as a maximum aggregate number of Shares that may be
purchased by all Participants pursuant to such Offering. In addition,
in connection with each Offering that contains more than one Purchase Date,
the Board may specify a maximum aggregate number of Shares which may be
purchased by all Participants on any given Purchase Date under the
Offering. If the aggregate purchase of Shares upon exercise of Rights
granted under the Offering would exceed any such maximum aggregate number,
the Board shall make a pro rata allocation of the Shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Purchase Date.
8. Participation; Withdrawal; Termination.
(a) An Eligible Employee may become a Participant in the Plan
pursuant to an Offering by delivering a participation agreement to the
Company within the time specified in the Offering, in such form as the
Company provides. Each such agreement shall authorize payroll deductions of
up to the maximum percentage specified by the Board of such Employee's
Earnings during the Offering (as defined in each Offering). The payroll
deductions made for each Participant shall be credited to a bookkeeping
account for such Participant under the Plan and shall either be deposited
with the general funds of the Company or may be deposited in a separate
account in the name of, and for the benefit of, such Participant with
financial institution designated by the Company. To the extent provided in
the Offering, a Participant may reduce (including to zero) or increase such
payroll deductions. To the extent provided in the Offering, Participant and
an Eligible Employee may begin such payroll deductions after the beginning
of the Offering only as provided for in the Offering.
(b) At any time during an Offering, a Participant may terminate his
or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a
<PAGE>
notice of withdrawal in such form as the Company provides. Such withdrawal
may be elected at any time prior to the end of the Offering except as
provided by the Board in the Offering. Upon such withdrawal from the
Offering by a Participant, the Company shall distribute to such Participant
all of his or her accumulated payroll deductions (reduced to the extent, if
any, such deductions have been used to acquire Shares for the Participant)
under the Offering, without interest unless otherwise specified in the
Offering, and such Participant's interest in that Offering shall be
automatically terminated. A Participant's withdrawal from an Offering will
have no effect upon such Participant's eligibility to participate in any
other Offerings under the Plan but such Participant will be required to
deliver a new participation agreement in order to participate in subsequent
Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's
employment with the Company or a designated Affiliate for any reason
(subject to any post-employment participation period required by law) or
other lack of eligibility and the Company shall distribute to such
terminated Employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire
Shares for the terminated Employee) under the Offering, without interest
unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph
8(a), then the distribution shall be made from the separate account,
without interest unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution,
or by a beneficiary designation as provided in paragraph 15 and, otherwise
during his or her lifetime, shall be exercisable only by the person to whom
such Rights are granted.
9. Exercise.
(a) On each Purchase Date specified therefor in the relevant
Offering, each Participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without
any increase for interest) will be applied to the purchase of whole Shares
up to the maximum number of Shares permitted pursuant to the terms of the
Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional Shares shall be issued upon the exercise of Rights
granted under the Plan unless specifically provided for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the
amount, if any, of accumulated payroll deductions remaining in any
Participant's account after the purchase of Shares that is equal to the
amount required to purchase one or more whole Shares on the final Purchase
Date of the Offering shall be distributed in full to the Participant after
such Purchase Date at the end of the Offering, without interest. If the
accumulated payroll deductions have been
<PAGE>
deposited with the Company's general funds, then the distribution shall be
made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account
with a financial institution as provided in subparagraph 8(a), then the
distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent
unless the Shares to be issued upon such exercise under the Plan (including
Rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act and the Plan is in material
compliance with all applicable state, foreign and other securities and
other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no Rights
granted under the Plan or any Offering shall be exercised on such Purchase
Date, and the Purchase Date shall be delayed until the Plan is subject to
such an effective registration statement and such compliance, except that
the Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from
the Offering Date. If, on the Purchase Date of any Offering hereunder, as
delayed to the maximum extent permissible, the Plan is not registered and
in such compliance, no Rights granted under the Plan or any Offering shall
be exercised and all payroll deductions accumulated during the Offering
(reduced to the extent, if any, such deductions have been used to acquire
Shares) shall be distributed to the Participants, without interest unless
otherwise specified in the Offering. If the accumulated payroll deductions
have been deposited with the Company's general funds, then the distribution
shall be made from the general funds of the Company, without interest. If
the accumulated payroll deductions have been deposited in a separate
account with a financial institution as provided in subparagraph 8(a), then
the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.
10. Covenants of the Company.
(a) During the terms of the Rights granted under the Plan, the
Company shall ensure that the amount of Shares required to satisfy such
Rights are available.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over
the Plan such authority as may be required to issue and sell Shares upon
exercise of the Rights granted under the Plan. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for lawful issuance and sale of Shares under the Plan, the
Company shall be relieved from any liability for failure to issue and sell
Shares upon exercise of such Rights unless and until such authority is
obtained.
11. Use of Proceeds from Shares.
Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.
<PAGE>
12. Rights as a Stockholder.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any Shares subject to Rights granted
under the Plan unless and until the Participant's Shares acquired upon exercise
of Rights under the Plan are recorded in the books of the Company.
13. Adjustments upon Changes in Securities.
(a) Except as otherwise provided in Section 4 hereof, if any change is
made in the Shares subject to the Plan, or subject to any Right, without the
receipt of consideration by the Parent (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Parent), the Plan will be
appropriately adjusted in the class(es) and maximum number of Shares subject to
the Plan pursuant to subparagraph 4(a), and the outstanding Rights will be
appropriately adjusted in the class(es), number of Shares and purchase limits of
such outstanding Rights. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Parent shall not be treated as a transaction that
does not involve the receipt of consideration by the Parent).
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company or the Parent; (ii) a merger or
consolidation in which neither the Company nor the Parent is the surviving
corporation; (iii) a reverse merger in which the Parent or the Company is the
surviving corporation but the Shares outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (iv) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act
or any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company or the Parent representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then, as
determined by the Board in its sole discretion then: (1) any surviving or
acquiring corporation shall assume Rights outstanding under the Plan or shall
substitute similar rights (including a right to acquire the same consideration
paid to Stockholders in the transaction described in this subparagaraph 13(b))
for those outstanding under the Plan, or (2) in the event any surviving or
acquiring corporation refuses to assume such Rights or to substitute similar
rights for those outstanding under the Plan, then, as determined by the Board in
its sole discretion such Rights may continue in full force and effect or the
Participants' accumulated payroll deductions (exclusive of any accumulated
interest which cannot be applied toward the purchase of Shares under the terms
of the Offering) may be used to purchase Shares immediately prior to the
transaction described above under the ongoing Offering and the Participants'
Rights under the ongoing Offering thereafter terminated.
<PAGE>
14. Amendment of the Plan.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Employee Stock
Purchase Plans and/or to bring the Plan and/or Rights granted under it into
compliance therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such Rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or Rights granted under the Plan comply
with the requirements of Section 423 of the Code.
15. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
<PAGE>
(b) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the Company shall deliver such Shares and/or cash to
the executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. Termination or Suspension of the Plan
(a) The Board in its discretion may suspend or terminate the Plan at
anytime. Unless sooner terminated, the Plan shall terminate on the earlier of
December 31, 2009, or at the time that all of the Shares subject to the Plan's
reserve, as increased and/or adjusted from time to time, have been issued under
the terms of the Plan. No Rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligation under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. Effective Date of Plan.
The Plan shall become effective on the effective date of the initial public
offering of the Shares (the "Effective Date"), but no Rights granted under the
Plan shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted by the Board, which date may be prior to the effective date
set by the Board.
<PAGE>
OPENTV, INC.
EMPLOYEE STOCK PURCHASE PLAN OFFERING
1. Grant; Offering Date.
(a) The Board of Directors of OpenTV, Inc. (the "Company"), pursuant to
the Company's Employee Stock Purchase Plan (the "Plan"), hereby authorizes the
grant of rights to purchase Shares of the Parent to all Eligible Employees (an
"Offering"). Defined terms not explicitly defined in this Offering but defined
in the Plan shall have the same definitions as in the Plan. In the event of any
conflict between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations that may from time to time be
promulgated and adopted pursuant to the Plan), the provisions of the Plan shall
control.
(b) An "Offering Date" is the first day of an Offering. An Offering may
consist of one purchase period or may be divided into shorter purchase periods
("Purchase Periods"). A "Purchase Date" is the last day of an Offering, or such
shorter Purchase Periods, as the case may be.
(c) Except as otherwise provided, there shall be two Offerings per year
hereunder, each approximately six (6) months in length, with the first beginning
on January 1 and ending on June 30 and the second beginning on July 1 and ending
on December 31.
(d) The first Offering shall begin on the effective date of the initial
public offering of the Shares and end on June 30, 2000 (the "Initial Offering").
(e) Prior to the commencement of any Offering, the Board of Directors (or
the Committee described in subparagraph 2(c) of the Plan, if any) may change
any or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
2. Eligible Employees.
(a) Each person who is an employee of the Company at least ten (10) days
prior to the Offering Date of the Offering, shall be granted rights to purchase
Shares under such Offering, provided that each such employee shall otherwise
meet the employment requirements of subparagraph 6(a) of the Plan (an "Eligible
Employee"). Notwithstanding the foregoing, the following employees shall not be
Eligible Employees or be granted rights under an Offering; (i) part-time or
seasonal employees whose customary employment is less than twenty (20) hours per
week or five (5) months per calendar year or (ii) five percent (5%) stockholders
(including ownership through unexercised options) described in subparagraph 5(c)
of the Plan.
<PAGE>
3. Rights.
(a) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of Shares purchasable with up to fifteen percent (15%) of such employee's
Base Salary paid during the period of such Offering beginning after such
Eligible Employee first commences participation; provided, however, that no
employee may purchase Shares on a particular Purchase Date that would result in
more than fifteen percent (15%) of such employee's Base Salary in the period
from the Offering Date to such Purchase Date having been applied to purchase
shares under all ongoing Offerings under the Plan and all other Company plans
intended to qualify as "employee stock purchase plans" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Notwithstanding the foregoing, the maximum number of Shares an
Eligible Employee may purchase on any Purchase Date in an Offering shall be such
number of Shares as has a fair market value (determined as of the Offering Date
for such Offering) equal to (x) $25,000 multiplied by the number of calendar
years in which the right under such Offering has been outstanding at any time,
minus (y) the fair market value of any other Shares (determined as of the
relevant Offering Date with respect to such shares) which, for purposes of the
limitation of Section 423(b)(8) of the Code are attributed to any of such
calendar years in which the Right is outstanding. The amount in clause (y) of
the previous sentence shall be determined in accordance with regulations
applicable under Section 423(b)(8) of the Code based on (i) the number of shares
previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of shares subject to other rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.
(c) The maximum aggregate number of Shares available to be purchased by
all Eligible Employees under an Offering shall be the number of Shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
Shares upon exercise of rights granted under the Offering would exceed the
maximum aggregate number of Shares available, the Board shall make a pro rata
allocation of the Shares available in a uniform and equitable manner.
(d) "Base Salary" means an Employee's regular base salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company
intended to comply with Section 401(k), Section 402(e)(3), Section 125, Section
402(h) of the Code), excluding any overtime, commissions, bonuses, the cost of
employee benefits paid for by the Company or an Affiliate, education or tuition
reimbursements, imputed income arising under any group insurance or benefit
program, traveling expenses, business and moving expense reimbursements, income
received in connection with stock options, contributions made by the Company or
an Affiliate under any employee benefit plan (other than elective deferrals
described in the previous parenthetical), and similar items of compensation.
2
<PAGE>
4. Purchase Price.
The purchase price of the Shares under the Offering shall be the lesser of
eighty five percent (85%) of the Fair Market Value of the Shares on the Offering
Date or eighty five percent (85%) of the Fair Market Value of the Shares on the
Purchase Date, provided, however, that the Fair Market Value of the Shares for
purposes of the Offering Date of the Initial Offering shall be the price per
Share at which Shares are first sold to the public in the initial public
offering as specified in the final prospectus with respect to that offering.
5. Participation.
(a) Except as otherwise provided in this paragraph 5, an Eligible Employee
may elect to participate in an Offering only at the beginning of the Offering.
An Eligible Employee shall become a participant in an Offering by delivering an
agreement authorizing payroll deductions. Such deductions must be in whole
percentages, with a minimum percentage of one percent (1%) and a maximum
percentage of fifteen percent (15%). A participant may not make additional
payments into his or her account. The agreement shall be made on such enrollment
form as the Company provides, and must be delivered to the Company before the
Offering Date to be effective for the remaining portion of that Offering, unless
a later time for filing the enrollment form is set by the Board for all
Eligible Employees with respect to a given Offering Date. As to the Initial
Offering, the time for filing an enrollment form and commencing participation
for individuals who are Eligible Employees on the Offering Date for the Initial
Offering shall be determined by the Company and communicated to such Eligible
Employees.
(b) A participant may not increase his or her participation level during
the course of an Offering. Except for complete withdrawals made pursuant to the
next following sentence, no decrease in a Participant's participation level
shall be permitted during the course of any Offering. Notwithstanding the
foregoing, a participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering, without interest, at any time
prior to the end of the Offering, excluding only each ten (10) day period
immediately preceding a Purchase Date or such shorter period of time determined
by the Company and communicated to participants, by delivering a withdrawal
notice to the Company in such form as the Company provides. A Participant may
increase or decrease his or her participation level prior to the beginning of a
new Offering, to be effective at the beginning of such new Offering, by
delivering the notice to the Company in such form and at such time as the
Company provides.
6. Purchases.
Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole Shares up to the maximum number of
Shares permitted under the Plan and the Offering. "Purchase Date" shall be
defined as the last day of each Offering.
7. Notices and Agreements.
<PAGE>
Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. Exercise Contingent on Stockholder Approval.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders of the Company as required for the Plan to obtain
treatment as a tax-qualified employee stock purchase plan under Section 423 of
the Code and to comply with the requirements of exemption from potential
liability under Section 16(b) of the Exchange Act set forth in Rule 16b-3
promulgated under the Exchange Act.
9. Offering Subject to Plan.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
<PAGE>
EXHIBIT 10.8
SUBLEASE
401 EAST MIDDLEFIELD RD.
This Sublease ("Sublease"), dated March 19, 1998 for reference purposes
only, is entered into by and between Netscape Communications, Inc., a Delaware
corporation ("Netscape") and Open TV, Inc., a Delaware corporation ("Open TV").
Recitals
A. Netscape leases certain premises consisting of an industrial building
containing approximately 36,257 square feet, located at 401 East Middlefield
Road, Mountain View, California, pursuant to that certain Lease dated April 10,
1997, between Middlefield Road Joint Venture as Lessor (the "Prime Landlord")
and Actra Business Systems as Lessee (as successor in interest to Netscape) (the
"Prime Lease"), as more particularly described therein (the "Premises").
Capitalized terms used but not defined herein have the same meanings as they
have in the Prime Lease.
B. Netscape desires to sublease the Premises to Open TV, and Open TV
desires to sublease the Premises from Netscape on the terms and provisions
hereof.
Now, Therefore, in consideration of the mutual covenants and conditions
contained herein, Netscape and Open TV covenant and agree as follows:
Agreement
1. Premises. On and subject to the terms and conditions below, Netscape
hereby leases to Open TV, and Open TV hereby leases from Netscape, the Premises.
The Premises contain approximately 36,257 square feet.
2. Term.
(a) This Sublease shall commence on May 15, 1998 (the "Commencement
Date"), provided Netscape has theretofore obtained the consent of Prime
Landlord, and shall expire at 11:59 p.m. on February 27, 2001, unless sooner
terminated pursuant to any provision hereof.
(b) Pursuant and subject to the terms of the Prime Lease, Netscape
has an option to renew the Prime Lease for an additional five (5) year term.
Notwithstanding the termination date in subsection (a) above, Netscape agrees
that it will exercise its option to extend the Prime Lease, and the term of this
Sublease will be extended for an additional five (5) years upon satisfaction of
all of the following conditions:
(i) Open TV gives Netscape irrevocable written notice of its
desire to have the option exercised not less that nine (9) months prior to
February 27, 2001 ("Notice of Exercise");
<PAGE>
(ii) As of the date of the Notice of Exercise, Open TV shall
not (with respect to this Sublease or to that certain Sublease of 415 East
Middlefield Road of even date herewith (the "415 Sublease")) be in default,
shall not have been in material default within the twelve (12) months prior to
the Notice of Exercise, and there shall not be then in existence any material
event of default or any event which, with notice or the passage of time or both
would constitute a material event of default;
(iii) Open TV agrees to extend this Sublease for an additional
five year term, on the same terms as contained herein except that base rent
shall be adjusted to equal the adjusted base rental payable by Netscape under
the Prime Lease;
(iv) Open TV agrees to extend the 415 Sublease for an
additional five-year term, on the same terms as contained in the 415 Sublease,
except that base rent shall be adjusted to equal the base rent payable by
Netscape for the premises with is the subject of the 415 Sublease (the "415 East
Middlefield Premises"); and
(v) As of the date of extension of this Sublease and the 415
Sublease, there then exists no event of default or any event which, with notice
or the passage of time or both would constitute an event of default, hereunder
or under the 415 Sublease.
3. Possession. Possession of the Premises ("Possession") shall be
delivered to Open TV on the Commencement Date. If for any reason Netscape does
not deliver Possession to Open TV on the Commencement Date, Netscape will not be
subject to any liability for this failure, the termination date will not be
extended by the delay, and the validity of this Sublease will not be impaired.
Rent shall be abated until delivery of Possession. However, if Netscape has not
delivered Possession (and possession of the 415 East Middlefield Premises) to
Open TV within twenty-five (25) days after the Commencement Date, Open TV shall
have five (5) days to notify Netscape in writing of its intention to cancel this
Sublease and the 415 Sublease. Such notice will set forth an effective date for
the cancellation, which will be at least five (5) days after delivery of notice
to Netscape. If Netscape delivers Possession and possession of the 415 East
Middlefield Premises to Open TV on or before the effective date of such
cancellation, this Sublease will remain in full force. If Netscape fails to
deliver Possession and possession of the 415 East Middlefield Premises to Open
TV on or before such effective date, this Sublease will be canceled. Upon
cancellation, all deposits previously paid by Open TV to Netscape in connection
with this Sublease will be returned to Open TV, this Sublease will be terminated
and Netscape will have no liability to Open TV because of this delay or
cancellation.
4. Rent.
(a) Commencing on the Commencement Date and continuing throughout the
term of this Sublease, Open TV shall pay monthly rent ("Rent") to Netscape in
the following amounts:
Period Amount
------ ------
May 15, 1998 through May 14, 1999 $81,578.25
May 15, 1999 through May 14, 2000 $85,203.95
May 15, 2000 through February 28, 2001 $88,829.65
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<PAGE>
(b) Rent shall be payable to Netscape in lawful money of the United
States, in advance, without prior notice, demand, or offset, on or before the
first day of each calendar month during the term hereof. All Rent shall be paid
to Netscape at the address specified for notice to Netscape in Section 17,
below. If the Commencement Date does not fall on the first day of a calendar
month, Rent for the first month shall be prorated on a daily basis based upon a
thirty-day calendar month.
(c) Upon execution of this Sublease, Open TV shall pay to Netscape
the sum of Eighty One Thousand Five Hundred Seventy Eight Dollars and Twenty
Five Cents ($81,578.25), constituting payment in advance of the first month's
Rent, together with the Security Deposit, as set forth in Section 5 below.
(d) In the event of any casualty or condemnation affecting the
Premises, Rent payable by Open TV shall be abated hereunder, but only if, and in
the same proportion that, Rent under the Prime Lease is abated; and except as
otherwise provided for herein, Open TV waives any right to terminate the
Sublease in connection with such casualty or condemnation except to the extent
the Prime Lease is also terminated as to the Premises or any portion thereof.
In the event that the Premises and the 415 East Middlefield Premises are both
effected by a casualty or by condemnation and Netscape is entitled, pursuant to
the Prime Lease and its lease of the 415 East Middlefield Premises to terminate
its leasehold interest in both properties, then Open TV, upon written notice
given to Netscape in accordance with the applicable provision of Paragraph 25 or
27 of the Prime Lease may elect to terminate this Sublease, on condition that
Open TV likewise terminate the 415 Sublease.
5. Security Deposit.
(a) Upon execution of this Sublease, Open TV shall deposit with
Netscape the sum of One Hundred Sixty Three Thousand One Hundred Fifty Six
Dollars and Fifty Cents ($163,156.50) as a security deposit ("Security
Deposit").
(b) If Open TV fails to pay Rent or other charges when due under this
Sublease, or fails to perform any of its other obligations hereunder, Netscape
may use or apply all or any portion of the Security Deposit for the payment of
any Rent or other amount then due hereunder and unpaid, for the payment of any
other sum for which Netscape may become obligated by reason of Open TV's default
or breach, or for any loss or damage sustained by Netscape as a result of Open
TV's default or breach. If Netscape so uses any portion of the Security
Deposit, Open TV shall restore the Security Deposit to the full amount
originally deposited within ten (10) days after Netscape's written demand.
Netscape shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. The Security Deposit, or so much thereof as
had not theretofore been applied by Netscape, shall be returned to Open TV
within thirty (30) days of the expiration or earlier termination of this
Sublease, provided Open TV has vacated the Premises.
6. Assignment and Subletting. Open TV may not assign, sublet, transfer,
pledge, hypothecate or otherwise encumber the Premises, in whole or in part, or
permit the use or occupancy of the Premises by anyone other than Open TV, unless
Open TV has obtained
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<PAGE>
Netscape's consent thereto (which shall not be unreasonably withheld) and the
consent of Prime Landlord. Regardless of Netscape's consent, no subletting or
assignment shall release Open TV of its obligations hereunder. Any rent or
other consideration payable to Open TV in excess of the Rent payable to Netscape
hereunder ("Bonus Rent") shall be divided equally between Netscape, Prime
Landlord, and Open TV after first reimbursing Open TV for brokerage fees or any
reasonable cost incurred to effectuate such sublease or assignment.
7. Condition of Premises. Open TV has used due diligence in inspecting
the Premises and agrees to accept and Premises in "as-is" condition and with all
faults as of the date of Open TV's execution of this Sublease, without any
representation or warranty of any kind or nature whatsoever, or any obligation
on the part of Netscape to modify, improve or otherwise prepare the Premises for
Open TV's occupancy, except as otherwise provided in Section 8 hereof. By entry
hereunder, Open TV accepts the Premises in their present condition and without
representation or warranty of any kind by Netscape, except as otherwise provided
for herein. Open TV hereby expressly waives the provisions of subsection 1
Section 1932 and Sections 1941 and 1942 of the California Civil Code and all
rights to make repairs at the expense of Netscape as provided in Section 1942 of
said Civil Code.
8. Condition of the Premises upon Commencement. Netscape agrees that
the building systems of the Premises, including all HVAC, electrical, and
plumbing systems, and the roof membrane will be in good operating condition and
repair as of the Commencement Date. Additionally, Netscape agrees to provide
the following at its sole cost and expense: (i) to have the Premises cleaned by
a professional cleaning service (including, as required, carpets shampooed and
floors polished and other typical services performed by a professional building
cleaning service); (ii) to cause to be installed two (2) pair of double doors
and one (1) single door as described in Exhibit A; and (iii) to complete the
interior improvements of the premises, including installation of carpeting,
light fixtures, window coverings, painting and installation of a dropped
ceiling.
9. Use. Open TV may use the Premises only for the purposes as allowed
in the Prime Lease, and no other purpose. Open TV shall promptly comply with all
applicable statutes, ordinances, rules, regulations, orders, restrictions of
record, and requirements in effect during the term of this Sublease governing,
affecting and regulating the Premises, including but not limited to the use
thereof. Open TV shall not use or permit the use of the Premises in a manner
that will create waste or a nuisance, interfere with or disturb other tenants in
the Building or violate the provisions of the Prime Lease.
10. Parking. Open TV shall have such parking rights as Netscape may
have in connection with the Premises pursuant to the Prime Lease.
11. Alterations. Subject to compliance with applicable provisions of the
Prime Lease, including obtaining the consent of the Prime Landlord, if required,
Open TV shall be entitled to make alterations, additions, improvements and
utility installations in or to the Premises without the prior consent of
Netscape, so long as each of the same (i) do not exceed the sum of $10,000 in
cost (or $20,000 aggregate in any annual period); (ii) are installed or
constructed by licensed contractors in compliance with all applicable laws,
codes and regulations; (iii) do not affect any structural or exterior portions
of the Building or adversely affect the Building electrical,
4
<PAGE>
plumbing or HVAC systems: and (iv) are removed by Open TV and the Premises
restored to its original condition, upon expiration or earlier termination of
this Sublease, if required by the Prime Landlord. Netscape shall not
unreasonably withhold its consent to any alterations proposed by Open TV.
12. Incorporation of Prime Lease
(a) All of the terms and provisions of the Prime Lease, except as
provided in subsection (b) below, are incorporated into and made a part of this
Sublease and the rights and obligations of the parties under the Prime Lease are
hereby imposed upon the parties hereto with respect to the Premises, Netscape
being substituted for the "Lessor" in the Prime Lease, and Open TV being
substituted for the "Lessee" in the Prime Lease. A copy of the Prime Lease is
attached hereto as Exhibit B. It is further understood that where reference is
made in the Prime Lease to the "Premises," the same shall mean the Premises as
defined herein; where reference is made to the "Commencement Date," the same
shall mean the Commencement Date as defined herein; and where reference is made
to the "Lease," the same shall mean this Sublease.
(b) The following Paragraphs of the Prime Lease are not incorporated
herein: The introductory Paragraph entitled Parties, Paragraphs 3, 4, 5, 6, the
first sentence of 7, 23, 25, 26, 27, 35, 36, 37, the first sentence of 39, 40,
41 and the Addendum as it relates to Paragraphs 25, 27, and 29.
(c) Open TV hereby assumes and agrees to perform for Netscape's
benefit, during the term of this Sublease, all of Netscape's obligations with
respect to the Premises under the Prime Lease, except as otherwise provided
herein. Open TV shall not commit or permit to be committed any act or omission
which violates any term or condition of the Prime Lease. Except as otherwise
provided herein, this Sublease shall be subject and subordinate to all of the
terms of the Prime Lease.
13. Insurance. Open TV shall be responsible for compliance with the
insurance provisions of the Prime Lease. Such insurance shall insure the
performance by Open TV of its indemnification obligations hereunder and shall
name Prime Landlord and Netscape as additional insureds. All insurance required
under this Sublease shall contain an endorsement requiring thirty (30) days
written notice from the insurance company to Open TV and Netscape before
cancellation or change in the coverage, insureds or amount of any policy. Open
TV shall provide Netscape with certificates of insurance evidencing such
coverage prior to the commencement of this Sublease.
14. Utilities. Open TV shall pay for all water, gas, heat, light, power,
telephone services and all other service supplied to the Premises.
15. Signage. Subject to the provisions of the Prime Lease, Open TV shall
have the right to facade signage, as well as the right to use any existing
monument sign subject to all city permits and regulations.
16. Satellite Antenna. Subject to the provisions of the Prime Lease, Open
TV shall have the option at its sole cost and expense to install and operate
satellite antenna disks and cables thereto on the roof of the building.
5
<PAGE>
17. Default. In addition to defaults contained in the Prime Lease,
failure of Open TV to make any payment of Rent when due hereunder or any default
by the subtenant under that certain Sublease between Netscape and Open TV for
the premises located at 415 East Middlefield Road shall constitute an event of
default hereunder.
18. Notices. The addresses specified in the Prime Lease for receipt of
notices to each of the parties are deleted and replaced with the following:
To Netscape at: Netscape Communications, Inc.
501 East Middlefield Road
Mountain View, California 94043
Attn: Director of Real Estate
With copy to: Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Toni P. Wise
To Open TV at: Open TV Inc.
3401 A Hillview Avenue
Palo Alto, CA 94304-1320
Attn.: Michael J. Praisner, CFO
After Commencement
Date: At the Premises
19. Netscape's Obligations
(a) To the extent that the provision of any services or the
performance of any maintenance or any other act respecting the Premises or
Building is the responsibility of Prime Landlord (collectively "Prime Landlord
Obligations"), upon Open TV's request, Netscape shall make reasonable efforts to
cause Prime Landlord to perform such Prime Landlord Obligations, provided,
however, that in no event shall Netscape be liable to Open TV for any liability,
loss or damage whatsoever in the event that Prime Landlord should fail to
perform the same, nor shall Open TV be entitled to withhold the payment of Rent
or terminate this Sublease. It is expressly understood that the services and
repairs which are incorporated herein by reference, including but not limited to
the maintenance of exterior walls, structural portions of the roof, foundations,
exterior walls and floors, will in fact be furnished by Prime Landlord and not
by Netscape, except to the extent otherwise provided in the Prime Lease. In
addition, Netscape shall not be liable for any maintenance, restoration
(following casualty or destruction) or repairs in or to the Building or
Premises, other than its obligation hereunder to use reasonable efforts to cause
Prime Landlord to perform its obligations under the Prime Lease. Netscape will
provide copies of all notices relating to the Premises between Netscape and the
Prime Landlord.
(b) Except as otherwise provided herein, Netscape shall have no other
obligations to Open TV with respect to the Premises or the performance of the
Prime Landlord Obligations.
6
<PAGE>
20. Early Termination of Sublease. For so long as Open TV is not in
default of its obligations hereunder or under the 415 Sublease, Netscape agrees
to maintain the Prime Lease in full force and effect during the entire term of
this Sublease. If, without the fault of Netscape, the Prime Lease should
terminate prior to the expiration of this Sublease, Netscape shall have no
liability to Open TV on account of such termination.
21. Consent of Prime Landlord and Netscape. If Open TV desires to take any
action which requires the consent or approval of Netscape pursuant to the terms
of this Sublease, prior to taking such action, including, without limitation,
making any alterations, then, notwithstanding anything to the contrary herein,
(a) Netscape shall have the same rights of approval or disapproval as Prime
Landlord has under the Prime Lease, and (b) Open TV shall not take any such
action until it obtains the consent of Netscape and Prime Landlord, as may be
required under this Sublease or the Prime Lease. Netscape agrees that it will
not unreasonably withhold its consent to any action proposed by Open TV;
provided, however, that it shall be conclusively deemed reasonable for Netscape
to withhold its consent to any matter as to which Prime Landlord has not
consented. This Sublease shall not be effective unless and until any required
written consent of the Prime Landlord shall have been obtained.
22. Indemnity.
(a) Except for Netscape's gross negligence or willful misconduct,
Open TV shall indemnify, defend, protect, and hold Netscape and Prime Landlord
harmless from and against all actions, claims, demands, costs liabilities,
losses, reasonable attorney's fees, damages, penalties, and expenses
(collectively "Claims") which may be brought or made against Netscape or which
Netscape may pay or incur to the extent caused by (i) a breach of this Sublease
by Open TV, (ii) any violation of law by Open TV or its employees, agents,
contractors or invitees (collectively, "Agents") relating to the use or
occupancy of the Premises, (iii) any act or omission by Open TV or its Agents
resulting in contamination of any part or all of the Premises by Hazardous
Materials, or (iv) the negligence or willful misconduct of Open TV or its
Agents.
(b) To the extent allowed by law, Open TV shall have the benefit of
the Prime Landlord's indemnity under section 36 of the Prime Lease. Nothing
contained in this paragraph shall be interpreted to include an indemnity from
Netscape.
23. Americans with Disabilities Act. Netscape shall use commercially
reasonable efforts to provide Open TV with the benefits of the Prime Landlord's
obligations under section 40 of the Prime Lease.
24. Brokers. Each party hereto represents and warrants that it has dealt
with no broker in connection with this Sublease and the transactions
contemplated herein, except Cornish & Carey Commercial/ONCOR International. Each
party shall indemnify, protest, defend and hold the other party harmless from
all costs and expenses (including reasonable attorneys' fees) arising from or
relating to a breach of the foregoing representation and warranty. Netscape
shall be solely responsible for payment of all brokers' fee's costs payable to
Cornish & Carey/ONCOR International.
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<PAGE>
25. Surrender of Premises. Upon the expiration or earlier termination of
this Sublease, Open TV shall surrender the Premises in the same condition as
they were in on the Commencement Date, except for ordinary wear and tear.
26. No Third Party Rights. The benefit of the provisions of this Sublease
is expressly limited to Netscape and Open TV and their respective permitted
successors and assigns. Under no circumstances will any third party be construed
to have any rights as a third party beneficiary with respect to any of said
provisions.
27. Counterparts. This Sublease may be signed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
28. Rights of First Offer. In the event that Netscape decides to sublease
its premises located at 455 East Middlefield Road to a nonaffiliated third
party, during the term of this Sublease, Netscape shall notify Open TV of such
availability and the terms and conditions on which Netscape will sublease the
space. Open TV shall have (5) business days in which to notify Netscape of Open
TV's decision to sublease the space under the terms and conditions contained in
Netscape's notice. In the event that Open TV does not give such notice to
Netscape, Open TV shall have no further right to sublease the space and Netscape
shall be free to sublease the space to any other person or entity on any terms
and conditions as Netscape in its good faith discretion deems appropriate. Any
such sublease shall be subject to the terms and conditions of any master lease
including but not limited to any required consents.
29. Network and Data Cabling. Netscape, at no cost to Open TV, shall
leave all existing network and data cabling in the Premises. The cabling will be
removed from existing workstations and tagged by Netscape.
30. Netscape Warranty. Netscape warrants that to the best of its
knowledge, the Prime Lease has not been amended or modified except as expressly
set forth in this Sublease; that Netscape is not in default or breach of any of
the provisions of the Prime Lease; and Netscape has not received any written
notice of any claim by Prime Landlord that Netscape is in default of any of the
provisions of the Prime Lease.
31. Entire Agreement. This Sublease sets forth all the agreements between
Netscape and Open TV concerning the Premises, and there are no other agreements
either oral or written other than as set forth in this Sublease.
32. Time of Essence. Time is of the essence in this Sublease.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first written above.
NETSCAPE COMMUNICATIONS, INC. OPEN TV INC.
By: /s/ xx By: /s/ xx
-------------------------------------- ---------------------------
Its: Director of Real Estate and Facilities Its: CEO
-------------------------------------- ---------------------------
8
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Exhibit A
Modifications
9
<PAGE>
Exhibit B
Prime Lease
10
<PAGE>
CONSENT OF PRIME LANDLORD
-------------------------
Middlefield Road Joint Venture, the Prime Landlord under the Prime Lease
("Prime Landlord") hereby consents to the Sublease attached hereto, and all of
the terms and conditions contained therein. Prime Landlord further agrees that
the indemnity contained in paragraph 36 of the Prime Lease shall also be for the
benefit of Open TV and that the term "Lessee" as used in paragraph 36 shall
include Open TV.
Middlefield Road Joint Venture,
a
--------------------------
By: /s/ xx
--------------------------
Its: Managing Partner
--------------------------
Date: April 3, 1998
--------------------------
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<PAGE>
AGREEMENT
(401 East Middlefield Road)
RE: That certain Sublease (the "Sublease") dated March 19, 1998 by and
between Netscape Communications Corporation, a Delaware corporation ("Netscape")
and Open T.V., Inc., a Delaware corporation ("Open TV"), for 401 East
Middlefield Road, Mountain View, California.
It is agreed as follows:
1. As per Addendum addition to paragraph 26 in the prime lease (the "Prime
Lease") dated April 10, 1997, by and between Middlefield Road Joint Venture
("Lessor"), and Actra Business Systems LLC, predecessor in interest to Netscape,
Netscape has agreed to pay to Lessor 50% of the difference between all rents
received by Netscape from Open TV which are in excess of the amount payable by
Netscape under the Prime Lease, after Netscape has been reimbursed in the amount
of $990,351 representing all reasonable costs incurred by Netscape to effectuate
the Sublease.
2. Pursuant to paragraph 6 of the Sublease, "[a]ny rent or other
consideration payable to Open TV in excess of the Rent payable to Netscape
[pursuant to the Sublease] (`Bonus Rent') shall be divided equally between
Netscape, Prime Landlord, and Open TV after first reimbursing Open TV for
brokerage fees or any reasonable cost incurred to effectuate such sublease or
assignment." In the event that Open TV elects to sublease the Premises, under no
circumstances will any amount received by Netscape as Bonus Rent under its
Sublease to Open TV be included in calculating amounts due to Middlefield Road
Joint Venture (Lessor) in accordance with paragraph 1 above and paragraph 26 of
the Prime Lease.
LESSOR SUBLESSOR
Middlefield Road Joint Venture Netscape Communications Corporation
By: /s/ xx By: /s/ xx
------------------------- ------------------------------
Date: 4/13/98 Date: 4/7/98
------------------------- ------------------------------
Director of Real Estate and Facilities
<PAGE>
SUBLEASE
415 EAST MIDDLEFIELD ROAD
THIS SUBLEASE ("Sublease"), dated March 19, 1998 for reference purposes
only, is entered into by and between NETSCAPE COMMUNICATIONS, INC., a Delaware
corporation ("Netscape") and OPEN TV, INC., a Delaware Corporation ("Open TV").
RECITALS
A. Netscape leases certain premises consisting of an industrial building
containing approximately 25,000 square feet, located at 415 East Middlefield
Road, Mountain View, California, from Renault & Handley ("Prime Landlord")
pursuant to that certain Lease dated December 12, 1995 (the "Prime Lease"), as
more particularly described therein (the "Premises"). Capitalized terms used but
not defined herein have the same meanings as they have in the Prime Lease.
B. Netscape desires to sublease the Premises to Open TV, and Open TV
desires to sublease the Premises from Netscape on the terms and provisions
hereof.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Netscape and Open TV covenant and agree as follows:
AGREEMENT
1. Premises. On and subject to the terms and conditions below, Netscape
hereby leases to Open TV, and Open TV hereby leases from Netscape, the Premises.
The Premises contain approximately 25,000 square feet.
2. Term.
(a) This Sublease shall commence on May 15, 1998 (the "Commencement
Date"), provided Netscape has theretofore obtained the consent of Prime
Landlord, and shall expire at 11:59 p.m. on February 27, 2001, unless sooner
terminated pursuant to any provision hereof.
(b) Pursuant and subject to the terms of the Prime Lease, Netscape
has an option to renew the Prime Lease for an additional five (5) year term.
Notwithstanding the termination date in subsection (a) above, Netscape agrees
that it will exercise its option to extend the Prime Lease, and the term of this
Sublease will be extended for an additional five (5) years upon satisfaction of
all of the following conditions:
(i) Open TV gives Netscape Irrevocable written notice of its
desire to have the option exercised not less that nine (9) months prior to
February 27, 2001 ("Notice of Exercise");
<PAGE>
(ii) As of the date of the Notice of Exercise, Open TV shall
not (with respect to this Sublease or to that certain Sublease of 401 East
Middlefield Road of even date herewith (the "401 Sublease") be in default,
shall not have been in material default within the twelve (12) months prior to
the Notice of Exercise, and there shall not be then in existence any material
event of default or any event which, with notice or the passage of time or both
would constitute a material event of default;
(iii) Open TV agrees to extent this Sublease for an additional
five year term, on the same terms as contained herein except that base rent
shall be adjusted to equal the adjusted base rental payable by Netscape under
the Prime Lease;
(iv) Open TV agrees to extend the 401 Sublease for an
additional five-year term, on the same terms as contained in the 401 Sublease,
except that base rent shall be adjusted to equal the base rent payable by
Netscape for the premises with is the subject of the 401 Sublease (the "401 East
Middlefield Premises"); and
(v) As of the date of extension of this Sublease and the 401
Sublease, there then exists no event of default or any event which, with notice
or the passage of time or both would constitute an event of default, hereunder
or under the 401 Sublease.
3. Possession. Possession of the Premises ("Possession") shall be
delivered to Open TV on the Commencement Date. If for any reason Netscape does
not deliver Possession to Open TV on the Commencement Date, Netscape will not be
subject to any liability for this failure, the termination date will not be
extended by the delay, and the validity of this Sublease will not be impaired.
Rent shall be abated until delivery of Possession. However, if Netscape has not
delivered Possession (and possession of the 401 East Middlefield Premises) to
Open TV within twenty-five (25) days after the Commencement Date, Open TV shall
have five (5) days to notify Netscape in writing of its intention to cancel this
Sublease and the 401 Sublease. Such notice will set forth an effective date for
the cancellation, which will be at least five (5) days after delivery of notice
to Netscape. If Netscape delivers Possession and possession of the 401 East
Middlefield Premises to Open TV on or before the effective date of such
cancellation, this Sublease will remain in full force. If Netscape fails to
deliver Possession and possession of the 401 East Middlefield Premises to Open
TV on or before such effective date, this Sublease will be canceled. Upon
cancellation, all deposits previously paid by Open TV to Netscape in connection
with this Sublease will be returned to Open TV, this Sublease will be terminated
and Netscape will have no liability to Open TV because of this delay or
cancellation.
4. Rent.
(a) Commencing on the Commencement Date and continuing throughout the
term of this Sublease, Open TV shall pay monthly rent ("Rent") to Netscape in
the following amounts:
Period Amount
------ ------
May 15, 1998 through May 14, 1999 56,250.00
May 15, 1999 through May 14, 2000 58,750.00
May 15, 2000 through February 28, 2001 61,250.00
2
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(b) Rent shall be payable to Netscape in lawful money of the United
States, in advance, without prior notice, demand, or offset, on or before the
first day of each calendar month during the term hereof. All Rent shall be paid
to Netscape at the address specified for notice to Netscape in Section 17,
below. If the Commencement Date does not fall on the first day of a calendar
month, Rent for the first month shall be prorated on a daily basis based upon a
thirty-day calendar month.
(c) Upon execution of this Sublease, Open TV shall pay to Netscape
the sum of Fifty Six Thousand Two Hundred Fifty Dollars ($56,250.00),
constituting payment in advance of the first month's Rent, together with the
Security Deposit, as set forth in Section 5 below.
(d) In the event of any casualty or condemnation affecting the
Premises, Rent payable by Open TV shall be abated hereunder, but only if, and in
the same proportion that, Rent under the Prime Lease is abated; and except as
otherwise provided for herein, Open TV waives any right to terminate the
Sublease in connection with such casualty or condemnation except to the extent
the Prime Lease is also terminated as to the Premises or any portion thereof. In
the event that the Premises and the 401 East Middlefield Premises are both
effected by a casualty or by condemnation and Netscape is entitled, pursuant to
the Prime Lease and its lease of the 401 East Middlefield Premises to terminate
its leasehold interest in both properties, then Open TV, upon written
noticegiven to Netscape in accordance with the applicable provisions of
Paragraphs 25 or 27 of the Prime Lease, may elect to terminate this Sublease, on
condition that Open TV likewise terminate the 401 Sublease.
5. Security Deposit.
(a) Upon execution of this Sublease, Open TV shall deposit with
Netscape the sum of One Hundred Twelve Thousand Five Hundred Dollars
($112,500.00) as a security deposit ("Security Deposit").
(b) If Open TV fails to pay Rent or other charges when due under this
Sublease, or fails to perform any of its other obligations hereunder, Netscape
may use or apply all or any portion of the Security Deposit for the payment of
any Rent or other amount then due hereunder and unpaid, for the payment of any
other sum for which Netscape may become obligated by reason of Open TV's default
or breach, or for any loss or damage sustained by Netscape as a result of Open
TV's default or breach. If Netscape so uses any portion of the Security Deposit,
Open TV shall restore the Security Deposit to the full amount originally
deposited within ten (10) days after Netscape's written demand. Netscape shall
not be required to keep the Security Deposit separate from its general accounts,
and shall have no obligation or liability for payment of interest on the
Security Deposit. The Security Deposit, or so much thereof as had not
theretofore been applied by Netscape, shall be returned to Open TV within thirty
(30) days of the expiration or earlier termination of this Sublease, provided
Open TV has vacated the Premises.
6. Assignment and Subletting. Open TV may not assign, sublet, transfer,
pledge, hypothecate or otherwise encumber the Premises, in whole or in part, or
permit the use or occupancy of the Premises by anyone other than Open TV, unless
Open TV has obtained Netscape's consent thereto (which shall not be unreasonably
withheld) and the consent of Prime
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Landlord. Regardless of Netscape's consent, no subletting or assignment shall
release Open TV of its obligations hereunder. Any rent or other consideration
payable to Open TV in excess of the Rent payable to Netscape hereunder ("Bonus
Rent") shall be divided equally between Netscape, Prime Landlord, and Open TV
after first reimbursing Open TV for brokerage fees or any reasonable cost
incurred to effectuate such sublease or assignment.
7. Condition of Premises. Open TV has used due diligence in inspecting
the Premises and agrees to accept the Premises in "as-is" condition and with all
faults as of the date of Open TV's execution of this Sublease, without any
representation or warranty of any kind or nature whatsoever, or any obligation
on the part of Netscape to modify, improve or otherwise prepare the Premises for
Open TV's occupancy, except as otherwise provided in Section 8 hereof. By entry
hereunder, Open TV accepts the Premises in their present condition and without
representation or warranty of any kind by Netscape, except as otherwise provided
for herein. Open TV hereby expressly waives the provisions of subsection 1 of
Section 1932 and Sections 1941 and 1942 of the California Civil Code and all
rights to make repairs at the expense of Netscape as provided in Section 1942 of
said Civil Code.
8. Condition of the Premises upon Commencement. Netscape agrees that
the building systems of the Premises, including all HVAC, electrical and
plumbing systems, and the roof membrane will be in good operating condition and
repair as of the Commencement Date. Additionally, Netscape agrees to provide the
following at its sole cost and expense: (i) to patch and touch-up interior walls
as necessary and to have the Premises cleaned by a professional cleaning service
(including as required, carpets shampooed and floors polished and other typical
services performed by a professional building cleaning service), and (ii) to
cause to be installed two (2) pair of double doors and one (1) single door as
described in Exhibit A.
9. Use. Open TV may use the Premises only for the purposes as allowed
in the Prime Lease, and no other purpose. Open TV shall promptly comply with all
applicable statutes, ordinances, rules, regulations, orders, restrictions of
record, and requirements in effect during the term of this Sublease governing,
affecting and regulating the Premises, including but not limited to the use
thereof. Open TV shall not use or permit the use of the Premises in a manner
that will create waste or a nuisance, interfere with or disturb other tenants in
the Building or violate the provisions of the Prime Lease.
10. Parking. Open TV shall have such parking rights as Netscape may
have in connection with the Premises pursuant to the Prime Lease.
11. Alterations. Subject to compliance with applicable provisions of the
Prime Lease, including obtaining the consent of the Prime Landlord, if required,
Open TV shall be entitled to make alterations, additions, improvements and
utility installations in or to the Premises without the prior consent of
Netscape, so long as each of the same (i) do not exceed the sum of $10,000 in
cost (or $20,000 aggregate in any annual period); (ii) are installed or
constructed by licensed contractors in compliance with all applicable laws,
codes and regulations; (iii) do not affect any structural or exterior portions
of the Building or adversely affect the Building electrical, plumbing or HVAC
systems; and (iv) are removed by Open TV and the Premises restored to its
original condition, upon expiration or earlier termination of this Sublease, if
required by the
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Prime Landlord. Netscape shall not unreasonably withhold consent to any
alterations proposed by Open TV.
12. Incorporation of Prime Lease.
(a) All of the terms and provisions of the Prime Lease, except as
provided in subsection (b) below, are incorporated into and made a part of this
Sublease and the rights and obligations of the parties under the Prime Lease are
hereby imposed upon the parties hereto with respect to the Premises, Netscape
being substituted for the "Lessor" in the Prime Lease, and Open TV being
substituted for the "Lessee" in the Prime Lease. A copy of the Prime Lease is
attached hereto as exhibit B. It is further understood that where reference is
made in the Prime Lease to the "Premises," the same shall mean the Premises as
defined herein; where reference is made to the "Commencement Date," the same
shall mean the Commencement Date as defined herein; and where reference is made
to the "Lease," the same shall mean this Sublease.
(b) The following Paragraphs of the Prime Lease are not incorporated
herein: The introductory Paragraph entitled Parties, Paragraphs 3, 4, 5, 6, 23,
25, 26, 27, 35, 36, 37, 38, 40, 41, and 42.
(c) Open TV hereby assumes and agrees to perform for Netscape's
benefit, during the term of this Sublease, all of Netscape's obligations with
respect to the Premises under the Prime Lease, except as otherwise provided
herein. Open TV shall not commit or permit to be committed any act or omission
which violates any term or condition of the Prime Lease. Except as otherwise
provided herein, this Sublease shall be subject and subordinate to all of the
terms of the Prime Lease.
13. Insurance. Open TV shall be responsible for compliance with the
insurance provisions of the Prime Lease. Such insurance shall insure the
performance by Open TV of its indemnification obligations hereunder and shall
name Prime Landlord and Netscape as additional insureds. All insurance required
under this Sublease shall contain an endorsement requiring thirty (30) days
written notice from the insurance company to Open TV and Netscape before
cancellation or change in the coverage, insureds or amount of any policy. Open
TV shall provide Netscape with certificates of insurance evidencing such
coverage prior to the commencement of this Sublease.
14. Utilities. Open TV shall pay for all water, gas, heat, light, power,
telephone services and all other service supplied to the Premises.
15. Signage. Subject to the provisions of the Prime Lease, Open TV shall
have the right to facade signage, as well as the right to use any existing
monument sign subject to all city permits and regulations.
16. Satellite Antenna. Subject to the provisions of the Prime Lease, Open
TV shall have the option at its sole cost and expense to install and operate
satellite antenna disks and cables thereto on the roof of the building.
17. Default. In addition to defaults contained in the Prime Lease,
failure of Open TV to make any payment of Rent when due hereunder or any default
by the subtenant under that
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certain Sublease between Netscape and Open TV for the premises located at 401
East Middlefield Road shall constitute an event of default hereunder.
18. Notices. The addresses specified in the Prime Lease for receipt of
notices to each of the parties are deleted and replaced with the following:
To Netscape at: Netscape Communications, Inc.
501 East Middlefield Road
Mountain View, California 94043
Attn: Director of Real Estate
With copy to: Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Toni P. Wise
To Open TV at: Open TV Inc.
3401 A Hillview Avenue
Palo Alto, CA 94304-1320
Attn: Michael J. Praisner, CFO
After Commencement
Date: At the Premises
20. Netscape's Obligations.
(a) To the extent that the provision of any services or the
performance of any maintenance or any other act respecting the Premises or
Building is the responsibility of Prime Landlord (collectively "Prime Landlord
Obligations"), upon Open TV's request, Netscape shall make reasonable efforts to
cause Prime Landlord to perform such Prime Landlord Obligations, provided,
however, that in no event shall Netscape be liable to Open TV for any liability,
loss or damage whatsoever in the event that Prime Landlord should fail to
perform the same, nor shall Open TV be entitled to withhold the payment of Rent
or terminate this Sublease. It is expressly understood that the services and
repairs which are incorporated herein by reference, including but not limited to
the maintenance of exterior walls, structural portions of the roof, foundations,
exterior walls and floors, will in fact be furnished by Prime Landlord and not
by Netscape, except to the extent otherwise provided in the Prime Lease. In
addition, Netscape shall not be liable for any maintenance, restoration
(following casualty or destruction) or repairs in or to the Building or
Premises, other than its obligation hereunder to use reasonable efforts to cause
Prime Landlord to perform its obligation under the Prime Lease. Netscape will
provide copies of all notices relating to the Premises between Netscape and the
Prime Landlord.
(b) Except as otherwise provided herein, Netscape shall have no other
obligations to Open TV with respect to the Premises or the performance of the
Prime Landlord Obligations.
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20. Early Termination of Sublease. For so long as Open TV is not in
default of its obligations hereunder or under the 401 Sublease, Netscape agrees
to maintain the Prime Lease in full force and effect during the entire term of
this Sublease. If, without the fault of Netscape, the Prime Lease should
terminate prior to the expiration of this Sublease, Netscape shall have no
liability to Open TV on account of such termination.
21. Consent of Prime Landlord and Netscape. If Open TV desires to take
any action which requires the consent or approval of Netscape pursuant to the
terms of this Sublease, prior to taking such action, including, without
limitation, making any alterations, then, notwithstanding anything to the
contrary herein, (a) Netscape shall have the same rights of approval or
disapproval as Prime Landlord has under the Prime Lease, and (b) Open TV shall
not take any such action until it obtain the consent of Netscape and Prime
Landlord, as may be required under this Sublease or the Prime Lease. Netscape
agrees that it will not unreasonably withhold its consent to any action proposed
by Open TV; provided, however, that it shall be conclusively deemed reasonable
for Netscape to withhold its consent to any matter as to which Prime Landlord
has not consented. This Sublease shall not be effective unless and until any
required written consent of the Prime Landlord shall have been obtained.
22. Indemnity.
(a) Except for Netscape's gross negligence or willful misconduct,
Open TV shall indemnify, defend, protect, and hold Netscape and Prime Landlord
harmless from and against all actions, claims, demands, costs liabilities,
losses, reasonable attorneys' fees, damages, penalties, and expenses
(collectively "Claims") which may be brought or made against Netscape or which
Netscape may pay or incur to the extent caused by (i) a breach of this Sublease
by Open TV, (ii) any violation of law by Open TV or its employees, agents,
contractors or invitees (collectively, "Agents") relating to the use or
occupancy of the Premises, (iii) any act or omission by Open TV or its Agents
resulting in contamination of any part or all of the Premises by Hazardous
Materials, or (iv) the negligence or willful misconduct of Open TV or its
Agents.
(b) To the extent allowed by law, Open TV shall have the benefit of
the Prime Landlord's indemnity under section 36 of the Prime Lease. Nothing
contained in this paragraph shall be interpreted to include an indemnity from
Netscape.
23. Americans with Disabilities Act. Netscape shall use commercially
reasonable efforts to provide Open TV with the benefits of the Prime Landlord's
obligations under section 40 of the Prime Lease.
24. Brokers. Each party hereto represents and warrants that it has dealt
with no broker in connection with this Sublease and the transactions
contemplated herein, except Cornish & Carey Commercial/ONCOR International.
Each party shall indemnify, protect, defend and hold the other party harmless
from all costs and expenses (including reasonable attorneys' fees) arising from
or relating to a breach of the foregoing representation and warranty. Netscape
shall be solely responsible for payment of any commissions payable to Cornish &
Carey/ONCOR International.
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25. Surrender of Premises. Upon the expiration or earlier termination of
this Sublease, Open TV shall surrender the Premises in the same condition as
they were in on the Commencement Date, except for ordinary wear and tear.
26. No Third Party Rights. The benefit of the provisions of this Sublease
is expressly limited to Netscape and Open TV and their respective permitted
successors and assigns. Under no circumstances will any third party be
construed to have any rights as a third party beneficiary with respect to any
of said provisions.
27. Counterparts. This Sublease may be signed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
28. Rights of First Offer. In the event that Netscape decides to sublease
its premises located at 455 East Middlefield Road to a nonaffiliated third
party, during the term of this Sublease, Netscape shall notify Open TV of such
availability and the terms and conditions on which Netscape will sublease the
space. Open TV shall have five (5) business days in which to notify Netscape of
Open TV's decision to sublease the space under the terms and conditions
contained in Netscape's notice. In the event that Open TV does not give such
notice to Netscape, Open TV shall have no further right to sublease the space
and Netscape shall be free to sublease the space to any other person or entity
on any terms and conditions as Netscape in its good faith discretion deems
appropriate. Any such sublease shall be subject to the terms and conditions of
any master lease including but not limited to any required consents.
29. Network and Data Cabling. Netscape, at no cost to Open TV, shall
leave all existing network and data cabling in the Premises. The cabling will be
removed from existing workstations and tagged by Netscape.
30. Netscape Warranty. Netscape warrants that to the best of its
knowledge, the Prime Lease has not been amended or modified except as expressly
set forth in this Sublease; that Netscape is not in default or breach of any of
the provisions of the Prime Lease; and Netscape has not received any written
notice of any claim by Prime Landlord that Netscape is in default of any of the
provisions of the Prime Lease.
31. Entire Agreement. This Sublease sets forth all the agreements between
Netscape and Open TV concerning the Premises, and there are no other agreements
either oral or written other than as set forth in this Sublease.
32. Time of Essence. Time is of the essence in this Sublease.
In Witness Whereof, the parties have executed this Sublease as of the date
first written above.
Netscape Communications, Inc. Open TV Inc.
By: /s/ xx By: /s/ xx
-------------------------------------- ---------------------------
Its: Director of Real Estate and Facilities Its: CEO
-------------------------------------- ---------------------------
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Exhibit A
Modifications
9
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Exhibit B
Prime Lease
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CONSENT OF PRIME LANDLORD
-------------------------
Renault & Handley Employees Investment Co., the Prime Landlord under the
Prime Lease hereby consents to the Sublease attached hereto, and all of the
terms and conditions contained therein. Prime Landlord further agrees that the
indemnity contained in paragraph 36 of the Prime Lease shall also be for the
benefit of Open TV and that the term "Lessee" as used in paragraph 36 shall
include Open TV.
Renault & Handley Employees Investment Co.,
a
-------------------------------------
By: /s/ xx
-------------------------------------
Its: Managing Partner
-------------------------------------
Date:
-------------------------------------
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AGREEMENT
(415 East Middlefield Road)
RE: That certain Sublease (the "Sublease") dated March 19, 1998 by and
between Netscape Communications Corporation, a Delaware corporation ("Netscape")
and Open T.V., Inc., a Delaware corporation ("Open TV"), for 415 East
Middlefield Road, Mountain View, California.
It is agreed as follows:
Pursuant to paragraph 6 of the Sublease, "[a]ny rent or other consideration
payable to Open TV in excess of the Rent payable to Netscape [pursuant to the
Sublease] (`Bonus Rent') shall be divided equally between Netscape, Prime
Landlord, and Open TV after first reimbursing Open TV for brokerage fees or any
reasonable cost incurred to effectuate such sublease or assignment." In the
event that Open TV elects to sublease the Premises, under no circumstances will
any amount received by Netscape as Bonus Rent under its Sublease to Open TV be
included in calculating amounts due to Middlefield Road Joint Venture (Lessor)
in accordance with paragraph 26 of the lease between Lessor and Netscape dated
December 12, 1995.
LESSOR SUBLESSOR
Middlefield Road Joint Venture Netscape Communications Corporation
By: /s/ xx By: /s/ xx
------------------------- -----------------------
Date: 4/13/98 Date: 4/7/98
------------------------- -----------------------
Director of Real Estate
and Facilities
<PAGE>
Exhibit 21.1
Subsidiaries of
OpenTV Corp.
------------
OpenTV, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement for OpenTV
Corp. on Form F-1 of our reports dated August 9, 1999 relating to the financial
statements and financial statement schedules of OpenTV, Inc., which appear in
such Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 22, 1999
