<PAGE>
As filed with the Securities and Exchange Commission on November 10, 1999
Registration No. 333-89609
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT No. 1
TO
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
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered(/1/) Per Share(/2/) Price(/1/) Fee(/3/)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Ordinary Shares, no par value.. 8,050,000 $16.00 $128,800,000 $35,807
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 1,050,000 Class A Ordinary Shares that may be purchased by the
Underwriters to cover over-allotments.
(2) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457(a) promulgated under the Securities
Act of 1933.
(3) $13,900 of which has been previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated November 10, 1999
PROSPECTUS
7,000,000 Shares
[LOGO]
opentv
Class A Ordinary Shares
-----------
This is OpenTV's initial public offering. The U.S. underwriters will offer
3,500,000 shares in the United States and Canada and the international managers
will offer 3,500,000 shares outside the United States and Canada.
We expect that the public offering price will be between $14.00 and $16.00
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 Official Segment of Amsterdam Exchanges N.V.'s stock
market 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 525,000 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 525,000
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........................................ 61
Principal Shareholders................................................... 66
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 72
United States Federal Income Tax Consequences............................ 74
British Virgin Islands Taxation.......................................... 77
Underwriting............................................................. 78
Legal Matters............................................................ 82
Experts.................................................................. 82
Available Information.................................................... 82
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 in OpenTV, Inc. as of
October 21, 1999 (82.5% after giving effect to the exercise of outstanding
employee stock options to purchase shares of common stock of OpenTV, Inc. and
the issuance of additional shares of common stock of OpenTV, Inc. to OpenTV
Corp. at the closing of these offerings). The information in this prospectus
has been adjusted to give effect to a one-for-five reverse stock split of our
ordinary shares that will be completed prior to consummation of these
offerings. 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 4.5 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. The convertible preference shares have an embedded
beneficial conversion feature which under EITF 98-5 will result in a preferred
stock dividend of $31.2 million in the quarter ending December 31, 1999. The
fair value attributable to the warrants to purchase our Class A Ordinary Shares
of $46.6 million will be recorded in operating results as a non-cash warrant
expense in the quarter ending December 31, 1999. In connection with the
investments, we entered into strategic agreements with America Online, Inc.,
News Corporation and Time Warner, Inc. We believe 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 1998. MIH Limited (through its
wholly-owned subsidiary, Myriad International Holdings BV) 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 to purchase shares of common stock of OpenTV, Inc. 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
will own 82.5%, 14.5% and 3.0%, respectively, of the common stock of OpenTV,
Inc. After giving effect to these offerings and the conversion of all of our
Series C-1 Convertible Preference Shares and Series C-2 Convertible Preference
Shares into our Class A Ordinary Shares at a rate of one Class A Ordinary Share
for five convertible preference shares, MIH Limited will own 70.8% 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................................ 3,500,000 shares
International Offering....................... 3,500,000 shares
----------------------
Total.................................... 7,000,000 shares
Ordinary Shares outstanding after the offerings:
Class A Ordinary Shares...................... 12,630,628 shares(/1/)
Class B Ordinary Shares...................... 30,631,746 shares(/2/)
----------------------
Total.................................... 43,262,374 shares
Use of Proceeds................................. We estimate that the net
proceeds from these
offerings (without
exercise of the over-
allotment options) will be
approximately $95.7
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 gives effect to the conversion of all of our
5
<PAGE>
Series C-1 Convertible Preference Shares and Series C-2 Convertible
Preference Shares into 5,630,628 Class A Ordinary Shares and assumes that
the over-allotment options are not exercised. If the over-allotment options
are exercised in full, we will issue and sell 1,050,000 additional Class A
Ordinary Shares. This number also excludes: (1) 5,141,104 Class A Ordinary
Shares with an average exercise price of $2.25 per share issuable upon
exercise of employee options to purchase shares outstanding as of October
21, 1999 (of which 1,417,828 shares are vested and exercisable or will vest
and become exercisable within 60 days and 1,994,065 shares that are
exercisable but not vested) and 38,471 shares issuable upon exercise of
options available for future grant under our employee share option plan, (2)
4,729,728 Class A Ordinary Shares with an exercise price of $5.55 per share
issuable upon exercise of warrants, (3) up to 669,623 Class A Ordinary
Shares that may be issued in exchange for shares of Class A Common Stock of
OpenTV, Inc. and (4) up to 783,500 Class A Ordinary Shares that may be
issued in exchange for shares of Class A Common Stock issued pursuant to the
exercise of employee stock options under the OpenTV, Inc. Amended and
Restated 1998 Stock Option/Stock Issuance Plan. See "Management--OpenTV,
Inc. 1998 Stock Option/Stock Issuance Plan--Shares Reserved/Termination",
"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 7,729,370 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% of the common stock of
OpenTV, Inc. as of October 21, 1999 (82.5% after giving effect to the exercise
of outstanding employee stock options to purchase shares of common stock of
OpenTV, Inc. and the issuance of additional shares of common stock of OpenTV,
Inc. to OpenTV Corp. at the closing of these offerings) 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 26,081
--------- ---------- ---------- ---------- ----------
Loss from operations...................... (4,130) (10,802) (14,195) (10,621) (8,524)
Other income (expense), net............... 172 113 (7) 1 40
--------- ---------- ---------- ---------- ----------
Net loss.................................. $ (3,958) $ (10,689) $ (14,202) $ (10,620) $ (8,484)
========= ========== ========== ========== ==========
Net loss per share, basic and diluted..... $ (0.43) $ (0.43) $ (0.43) $ (0.32) $ (0.23)
========= ========== ========== ========== ==========
Shares used in computing net loss per
share, basic and diluted................. 9,210,877 24,973,614 33,212,803 33,197,261 36,184,858
</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 $129,230
Working capital (deficit)........................ (1,325) 29,675 125,325
Total assets..................................... 18,312 49,312 144,962
Minority interest................................ -- 2,153 2,153
Redeemable common stock.......................... 10,200 -- --
Total stockholders' equity (deficit)............. (140) 38,907 134,557
</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
(convertible into 4,729,728 Class A Ordinary Shares) and warrants
to purchase 4,729,728 Class A Ordinary Shares to a new investor
group and 4,504,504 Series C-2 Convertible Preference Shares
(convertible into 900,900 Class A Ordinary 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 all of our Series C-1 Convertible Preference Shares and Series C-2
Convertible Preference Shares into 5,630,628 Class A Ordinary Shares and (2)
the sale of 7,000,000 Class A Ordinary Shares in these offerings at an assumed
initial public offering price of $15.00 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.
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 and
we may not ever be profitable
We have incurred significant net losses since inception and, at September
30, 1999, had an accumulated deficit of $37.3 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.
Our failure to gain broad market acceptance would result in our being unable to
successfully market and sell our products
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
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. 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.
The failure by network operators to select OpenTV as their interactive software
platform will result in our being unable to penetrate new markets
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.
The interactive television business is a highly competitive industry and
increased competition could reduce the value of an investment in our company
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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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.
Restrictions on the ability of our operating subsidiary to make distributions
to us could render us unable to meet our cash requirements
We are a holding company whose only asset as of October 21, 1999 is our
ownership of 78.5% of the common stock of OpenTV, Inc. (82.5% after giving
effect to the exercise of outstanding employee stock options to purchase shares
of common stock of OpenTV, Inc. and the issuance of additional shares of common
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stock of OpenTV, Inc. to OpenTV Corp. at the closing of these offerings), 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.
Our inability to properly manage our growth could adversely affect us
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 consummating or integrating acquisitions, and certain
consequences of those acquisitions that we do complete could adversely affect
our operating results
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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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.
Because much of our success and value lies in our ownership and use of
intellectual property, our failure to protect our property and develop new
proprietary technology may negatively affect us
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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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 and may result in our
acting in a manner inconsistent with your general interests
Immediately following the offerings and after giving effect to the
conversion of all of our Series C-1 Convertible Preference Shares and Series C-
2 Convertible Preference Shares into our Class A Ordinary Shares at a rate of
one Class A Ordinary Share for five convertible preference shares, MIH Limited
will indirectly own all of our outstanding Class B Ordinary Shares,
representing 96.0% 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 and, as a
result, certain decisions may be made by them that may be detrimental to your
interests
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
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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
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.
Because we are a British Virgin Islands company, you may not be able to enforce
judgments against us that are obtained in U.S. courts
We are incorporated in the British Virgin Islands. 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 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.
Because we are a British Virgin Islands company, you may have difficulty
protecting your interests in respect of decisions made by our board of
directors
Our corporate affairs are governed by our Memorandum and Articles and by
the International Business Companies Act of the British Virgin Islands.
Principles of law relating to such matters as the validity of
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corporate procedures, the fiduciary duties of management and the rights of our
shareholders may differ from those that would apply if we were incorporated in
the United States or another jurisdiction. The rights of shareholders under BVI
law are not as clearly established as are the rights of shareholders in many
other jurisdictions. Thus, you may have more difficulty protecting your
interests in the face of actions by our board of directors or our principal
shareholders than you would have as shareholders of a corporation incorporated
in another jurisdiction.
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.
You will pay a price for our Class A Ordinary Shares that was not established
in a competitive market, and the price that prevails in the market may
therefore be lower than the price paid by you
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.
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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 dilution of
approximately $12.48 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 $15.00 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 either the holders of two-thirds of the
combined votes of all of our ordinary shares entitled to vote at a
meeting or two-thirds of our board of directors 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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USE OF PROCEEDS
We expect to receive net proceeds of approximately $95.7 million from
these offerings ($110.3 million 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 $15.00 per share (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 (convertible into 4,729,728 Class A Ordinary
Shares), 4,504,504 Series C-2 Convertible Preference Shares (convertible into
900,900 Class A Ordinary Shares) and warrants to purchase 4,729,728 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 all of our Series C-1
Convertible Preference Shares and Series C-2 Convertible Preference Shares into
5,630,628 Class A Ordinary Shares and (2) the sale of 7,000,000 Class A
Ordinary Shares in these offerings at an assumed initial public offering price
of $15.00 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 $ 2,153
======== ========= =========
Long-term debt................................ $ -- $ -- $
Redeemable common stock, par value $0.001;
717,520 issued and outstanding, actual; no
shares issued and outstanding, pro forma and
as adjusted ................................. 10,200 -- --
-------- --------- ---------
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...................... -- 26,000 --
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;
12,630,628 shares issued and outstanding,
pro forma as adjusted...................... -- -- 126,650
Class B Ordinary Shares, no par value;
200,000,000 shares authorized; no shares
issued and outstanding, actual; 30,631,746
shares issued and outstanding, pro forma
and pro forma as adjusted.................. -- 59,855 59,855
Warrants.................................... -- 46,588 46,588
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; 38,233,825
shares issued and outstanding, actual; no
shares issued and outstanding, pro forma
and pro forma as adjusted.................. 38 -- --
Additional paid-in capital.................. 51,770 31,250 31,250
Receivable from stockholders................ (11) (11) (11)
Deferred compensation....................... (14,575) (14,575) (14,575)
Accumulated other comprehensive income...... (29) (29) (29)
Accumulated deficit......................... (37,333) (115,171) (115,171)
-------- --------- ---------
Total shareholders' equity.................. (140) 38,907 134,557
-------- --------- ---------
Total capitalization........................ $ 10,060 $ 38,907 $ 134,557
======== ========= =========
</TABLE>
19
<PAGE>
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 Series C-1 Convertible Preference Shares
(convertible into 4,729,728 Class A Ordinary Shares), 4,504,504 Series C-2
Convertible Preference Shares (convertible into 900,900 Class A Ordinary
Shares) and warrants to purchase 4,729,728 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 5,630,628 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 $34.2 million, or $0.77 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 $15.00 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 $129.9 million, or $2.52 per share. This represents an immediate
increase in net tangible book value of $1.75 per share to the existing
shareholders and an immediate dilution of $12.48 per share to new investors.
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $15.00
Net tangible book value as of September 30, 1999................ $0.77
Increase attributable to net proceeds of these offerings to
OpenTV......................................................... 1.75
-----
Pro forma net tangible book value after these offerings........... 2.52
------
Dilution to new investors......................................... $12.48
======
</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 Series C-1 Convertible Preference Shares (convertible into 4,729,728
Class A Ordinary Shares), 4,504,504 Series C-2 Convertible Preference Shares
(convertible into 900,900 Class A Ordinary Shares) and warrants to purchase
4,729,728 Class A Ordinary Shares for aggregate net proceeds of $31.0 million
and the conversion of all of our Series C-1 Convertible Preference Shares and
Series C-2 Convertible Preference Shares into 5,630,628 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 $15.00 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... 44,581,971 86% $ 76,911,000 42% $ 1.73
New investors........... 7,000,000 14 105,000,000 58 15.00
---------- --- ------------ ---
Total ................ 51,581,971 100% $181,911,000 100%
========== === ============ ===
</TABLE>
The foregoing tables assume:
. no exercise of the underwriters' over-allotment options
. no exercise of the 5,141,104 outstanding options to purchase our
ordinary shares as of October 21, 1999
. no exercise of the outstanding warrants to purchase 4,729,728
Class A 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 (convertible into 4,729,728 Class A Ordinary
Shares), 4,504,504 Series C-2 Convertible Preference Shares (convertible into
900,900 Class A Ordinary Shares) and warrants to purchase 4,729,728 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;
717,520 issued and outstanding,
historical; no shares issued and
outstanding, pro forma.................... 10,200 (10,200)(a) --
-------- -------- ---------
10,200 (8,047) 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 ........ -- 26,000 (b) 26,000
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;
30,631,746 shares issued and outstanding,
pro forma................................ -- 59,855 (a) 59,855
Warrants.................................. -- 46,588 (b) 46,588
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; 38,233,825
shares issued and outstanding, actual; no
shares issued and outstanding, pro
forma.................................... 38 (38)(a) --
Additional paid-in capital................ 51,770 (51,770)(a) 31,250
31,250(b)
Receivable from stockholders.............. (11) -- (11)
Deferred compensation..................... (14,575) -- (14,575)
Accumulated other comprehensive income.... (29) -- (29)
Accumulated deficit....................... (37,333) (77,838)(b) (115,171)
-------- -------- ---------
Total shareholders' equity................ (140) 39,047 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..... 2,320 -- 2,320
---------- ----------- ----------
Total operating expenses... 26,081 -- 26,081
---------- ----------- ----------
Loss from operations........ (8,524) -- (8,524)
Other income (expense), net.... 40 -- 40
Minority interest.............. -- 1,816 (c) 1,816
---------- ----------- ----------
Net loss................... $ (8,484) $ 1,816 $ (6,668)
========== =========== ==========
Net loss per share, basic and
diluted....................... $ (0.23) $ (0.26)
========== ==========
Shares used in computing net
loss per share, basic
and diluted................... 36,184,858 (10,343,137)(d) 25,841,721
</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 4,729,728 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. At the closing of these
offerings, all of the Series C-1 Convertible Preference Shares and Series C-2
Convertible Preference Shares will convert into 5,630,628 Class A Ordinary
Shares. The convertible preference shares have an embedded beneficial
conversion feature which under EITF 98-5 will result in a preferred stock
dividend of $31.2 million in the quarter ending December 31, 1999. The
beneficial conversion feature is a one time preferred stock dividend recorded
on the sale of the convertible preference shares and is reflected in the
unaudited pro forma combined balance sheet as an increase in additional paid-in
capital and accumulated deficit. OpenTV Corp. valued the warrants issued to the
new investors using the Black-Scholes option pricing model. The fair value of
$46.6 million represents a non-cash warrant operating expense that will be
recognized in the quarter ending December 31, 1999. This is a one time charge
and, accordingly, was not reflected in the pro forma combined statement of
operations. However, it is reflected in the unaudited combined balance sheet as
an increase in warrants and accumulated deficit.
(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 of
OpenTV, Inc. as of October 21, 1999 (82.5% after giving effect to the exercise
of outstanding employee stock options to purchase shares of common stock of
OpenTV, Inc. and the issuance of additional shares of common stock of OpenTV,
Inc. to OpenTV Corp. at the closing of these offerings) 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 -- 2,320
--------- ---------- ---------- ---------- ----------
Total operating
expenses............ 5,148 17,761 23,663 16,737 26,081
--------- ---------- ---------- ---------- ----------
Loss from operations.... (4,130) (10,802) (14,195) (10,621) (8,524)
Other income (expense),
net.................... 172 113 (7) 1 (40)
--------- ---------- ---------- ---------- ----------
Net loss................ $ (3,958) $ (10,689) $ (14,202) $ (10,620) $ (8,484)
========= ========== ========== ========== ==========
Net loss per share,
basic and diluted...... $ (0.43) $ (0.43) $ (0.43) $ (0.32) $ (0.23)
========= ========== ========== ========== ==========
Shares used in computing
net loss per share,
basic and diluted...... 9,210,877 24,973,614 33,212,803 33,197,261 36,184,858
</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 (deficit).............. 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 10,200
Total stockholders' equity (deficit)... 4,677 (158) (4,783) (140)
</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% of the common
stock of OpenTV, Inc. as of October 21, 1999 (82.5% after giving effect to the
exercise of outstanding employee stock options to purchase shares of common
stock of OpenTV, Inc. and the issuance of additional shares of common stock of
OpenTV, Inc. to OpenTV Corp. at the closing of these offerings) 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 4.5 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), revenues from product licenses are recognized when delivery has
occurred, collection of the receivable is probable, the fee is fixed or
determinable and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement.
26
<PAGE>
We receive services and other revenues from the following sources:
. annual maintenance and support fees
. 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 $37.3 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......... -- 2,320 0 13
-------- ------- ---- ---
Total operating
expenses........... 16,737 26,081 274 148
-------- ------- ---- ---
Loss from operations.... (10,621) (8,524) (174) (48)
Other income (expense),
net.................... 1 40 -- 0
-------- ------- ---- ---
Net loss................ $(10,620) $(8,484) (174)% (48)%
======== ======= ==== ===
</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 56% from $16.7 million for the
nine month period ended September 30, 1998 to $26.1 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 $16.9 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 $2.3 million of deferred compensation during the nine month period
ended September 30, 1999. Accretion of $10.0 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 $37.3 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. The convertible
preference shares have an embedded beneficial conversion feature which under
EITF 98-5 will result in a preferred stock dividend of $31.2 million in the
quarter ending December 31, 1999. The fair value attributable to the warrants
to purchase our Class A Ordinary Shares of $46.6 million will be recorded in
operating results as a non-cash warrant expense in the quarter ending December
31, 1999.
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.
33
<PAGE>
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.
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
34
<PAGE>
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 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 4.5 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 13
Set-top box
manufacturers
shipping............... 3 4 4 9 13 13
Set-top boxes deployed
(000's)................ 252 687 1,121 1,925 3,501 4,523
</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
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
39
<PAGE>
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.
. 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.
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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 4,729,728 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, all of our Series C-1 Convertible
Preference Shares and Series C-2 Convertible Preference Shares will convert
into 5,630,628 Class A Ordinary Shares.
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.
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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 and market OpenTV set-top box software to News Corporation's
participating affiliated satellite television platforms around the world. News
Corporation's affiliated satellite television platforms 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, FOXTEL
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 platforms and will help
us grow in markets where News Corporation is expanding and deploying its
digital interactive services.
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.
. 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.
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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.
. 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.
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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 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.
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<PAGE>
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.
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.
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<PAGE>
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.
. 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.
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<PAGE>
Sales and Marketing
We sell our software products through our direct sales organization,
which consisted of 22 people on September 30, 1999. Our sales force is
organized geographically with offices in Mountain View, California; London,
England; 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.
We focus our marketing efforts 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 giving effect to these offerings and the conversion of
all of our Series C-1 Convertible Preference Shares and Series C-2 Convertible
Preference Shares into 5,630,628 Class A Ordinary Shares, MIH Limited will
indirectly own all of our Class B Ordinary Shares (representing 96.0% 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 (through its wholly-owned subsidiary, Myriad
International Holdings BV) first became our shareholder in July 1997.
Sun Microsystems. After giving effect to transactions subsequent to the
reorganization, as of October 21, 1999, Sun Microsystems will indirectly own
19.5% of the common stock of our operating subsidiary, OpenTV, Inc. (14.5%
after giving effect to the exercise of outstanding employee stock options to
purchase shares of common stock of OpenTV, Inc. and the issuance of additional
shares of common stock of OpenTV, Inc. to OpenTV Corp. at the closing of these
offerings). After giving effect to these offerings and the conversion of all of
our Series C-1 Convertible Preference Shares and Series C-2 Convertible
Preference Shares into 5,630,628 Class A Ordinary Shares, Sun Microsystems will
own 7.1% 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".
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
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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--The interactive television business is a
highly competitive industry and increased competition could reduce the value of
an investment in our company".
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--Because
much of our success and value lies in our ownership and use of intellectual
property, our failure to protect our property and develop new proprietary
technology may negatively affect us".
Employees
As of September 30, 1999, we employed approximately 187 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
London, England, 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, and we do not believe that an adverse outcome in this
suit would have a material adverse effect on our business or financial results.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information as of November 1, 1999
with respect to our executive officers and directors. Except for Jan Steenkamp,
Randall S. Livingston, Mark Meagher and James F. Brown, 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, Technology Partners
Clay Conrad................ 48 Vice President, Affiliate Services
Debbie Coutant............. 43 Vice President, Products Group
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
Craig L. Enenstein......... 31 Director(/2/)
Michael E. Lehman.......... 49 Director
Stephen G. Oldfield........ 44 Director(/1/)
William Raduchel........... 53 Director(/2/)
Allan M. Rosenzweig........ 43 Director(/1/)(/2/)
Peter W. Smith............. 66 Director
</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 a Director of OpenTV Corp. since October 1999
and as President and Chief Executive Officer of OpenTV Corp. since November
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<PAGE>
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 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
a Director of OpenTV Corp. since October 1999 and as Executive Vice President,
Office of the CEO, and Chief Financial Officer of OpenTV Corp. since November
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.
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<PAGE>
James F. Brown has served as Senior Vice President, Strategic Development
and General Counsel of OpenTV, Inc. since June 1999 and as Secretary of OpenTV,
Inc. since August 1999. Mr. Brown has served as Senior Vice President,
Strategic Development, General Counsel and Secretary of OpenTV Corp. since
November 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 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, Technology Partners since
November 1999. He joined us as Vice President of Product Development in
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.
Debbie Coutant has served as Vice President, Products Group since
November 1999. Prior to joining us, Ms. Coutant acted as a consultant to a
number of Internet companies, including E*Trade Group and enCommerce Inc. She
also served as General Manager and Chief Executive Officer of Taligent, Inc., a
subsidiary of IBM Corp. and a leader in object oriented design, delivering
frameworks and tools in both C++ and Java. Prior to joining Taligent, Ms.
Coutant managed development teams at Apple Computer and Hewlett Packard. She
holds a U.S. patent in the area of compiler technology and optimization, and
graduated from the University of Arizona with a Masters in Computer Science.
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.
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<PAGE>
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 November 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.
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.
Craig L. Enenstein has served as a Director of OpenTV Corp. since
November 1999. Mr. Enenstein is also Vice President of Business Development and
Strategy for Liberty Digital, Inc., and is responsible for leading Liberty
Digital's interactive infrastructure and Internet investment activities as well
as developing its business strategy. Prior to joining Liberty Digital, Mr.
Enenstein was employed by Knowledge Universe, LLC, an education corporation led
by Michael Milken, Lowell Milken and Larry Ellison, which invests in companies
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<PAGE>
focused on education products and services and education Internet companies.
Prior to joining Knowledge Universe, Mr. Enenstein served as a strategy
consultant for Bain & Co. and LEK Consulting. Mr. Enenstein holds an M.B.A. in
finance from the Wharton School of Business, an M.A. in international studies
from the Lauder Institute at the University of Pennsylvania and a B.A. from the
University of California at Berkeley.
Michael E. Lehman has served as a Director since November 1999. Since
joining Sun Microsystems in 1987, Mr. Lehman has served as Director of Finance
and Administration of Sun Microsystem's Hong Kong subsidiaries, Corporate
Controller, Chief Financial Officer and, since 1998, Vice President of
Corporate Resources and Chief Financial Officer. Prior to joining Sun
Microsystems, Mr. Lehman was a senior manager for Price Waterhouse. Mr. Lehman
received his Bachelor's degree in Business from the University of Wisconsin,
and serves on the Dean's Advisory Board of the Graduate School of Business at
the University of Wisconsin, Madison.
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.
Peter W. Smith has served as a Director since November 1999. Mr. Smith is
President of News Technology, an affiliate of News Corporation, which he joined
in 1994 after a ten year association with other News Corporation affiliates as
a consultant and an employee. Mr. Smith directed the construction of one of the
world's first automated television stations in Australia and the original BSkyB
technical facilities in London and more recently headed the establishment of
the broadcast facilities for News Corporation's digital broadcasting service to
Latin America. Mr. Smith has also played an active role in the development of
the DVB digital television standard and in other broadcasting-related matters
with the European Union. His present responsibilities include granting
technology advice to assist News Corporation's strategic planning and
developing new products and initiatives for its digital satellite broadcasting
ventures. Mr. Smith holds a Bachelor of Science degree and a Bachelor of
Engineering degree with first class honors from the University of Sydney.
The business address of our Directors and executive officers is our
registered office: Abbot Building, Mount Street, Tortola, Road Town, British
Virgin Islands.
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
53
<PAGE>
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. Enenstein, Raduchel and
Rosenzweig. 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/) 570,000 --
President and Chief
Executive Officer
Vincent Dureau.......... 164,283 25,500 -- 260,000 3,000(/3/)
Chief Technology
Officer
Mitchell Berman......... 182,914 12,500 -- 200,000 3,000(/3/)
Senior Vice President,
Worldwide Marketing
Michael Catalano........ 172,470 17,169 -- 180,000 --
Vice President,
Technology Partners
Deborah Kanarek(/4/).... 156,121 29,240 -- 130,000 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.
(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.
54
<PAGE>
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.
<TABLE>
<CAPTION>
Option Shares Purchase Price Expiration Date
------------- -------------- ---------------
<S> <C> <C>
1,140,000 $1.05 January 2008
595,000 1.05 July 2008
750,000 1.05 February 2009
170,000 2.10 May 2009
80,000 2.90 July 2009
270,000 6.00 August 2009
400,000 6.00 September 2009
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning options to purchase
shares granted to our named executive officers during the year ended December
31, 1998. No stock appreciation rights were granted during this period.
<TABLE>
<CAPTION>
Potential Realizable Value
% of Total at Assumed Annual
Number of Options Rates of Stock Price
Shares Granted to Appreciation for
Underlying Directors and Exercise Option Term(2)
Options Employees in Last Price Expiration ---------------------------
Name Granted Fiscal Year(1) ($ per share) Date 5%($) 10%($)
---- ---------- ----------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jan Steenkamp........... 570,000 12.71% $1.05 7/27/2008 $ 376,393 $ 953,855
Vincent Dureau.......... 260,000 5.8 1.05 1/27/2008 171,688 435,092
Mitchell Berman......... 200,000 4.46 1.05 1/27/2008 132,068 334,685
Michael Catalano........ 180,000 4.01 1.05 1/27/2008 118,861 301,217
Deborah Kanarek......... 50,000 1.12 1.05 1/27/2008 33,017 83,671
50,000 1.12 1.05 3/3/2008 33,017 83,671
30,000 0.67 1.05 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 options granted to employees, directors
and consultants of OpenTV under its 1998 Stock Option/Stock Issuance Plan
to purchase an aggregate of 4,483,348 shares 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.
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.
55
<PAGE>
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 Randall S. 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 involuntarily dismissed for a reason
other than cause or voluntarily resigns due to certain changes in his duties,
compensation or place of employment.
1999 Share Option/Share Issuance Plan
Adoption. Our board of directors adopted our 1999 Share Option/Share
Issuance Plan (the "1999 Plan") in October 1999 and amended the 1999 Plan in
November 1999. Our shareholder approved the amended plan in November 1999.
Share Reserve. We have reserved 7,200,000 Class A Ordinary Shares for
issuance under the 1999 Plan. If options or shares awarded under the 1999 Plan
are forfeited or cancelled, 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 1999 Plan. The committee has complete discretion to make all
decisions relating to the interpretation, operation and amendment of the 1999
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 award eligibility
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Plan:
. employees
. members of our board of directors who are not employees
. consultants
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")
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<PAGE>
. the Share 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 "Share Issuance Program").
Option Grant Program. Options to purchase our Class A Ordinary Shares may
be either incentive stock options ("incentive options") qualifying for
favorable tax treatment under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or options which do not so qualify ("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 previously owned 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 be designed to meet all the requirements
of Code Section 422. Incentive options are not transferable, except by will or
the laws of descent and distribution. The exercise price and other terms of
non-statutory options granted under the 1999 Plan will be determined by the
committee. The committee may provide that non-statutory options will be
transferable.
Share Issuance Program. Under the Share 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 Share Issuance Program will be determined by
the committee. The committee may, in its discretion, subject any shares issued
under the Share 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 1999 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/Assumed. Effective as of October 23, 1999, options (the
"Assumed Options") to purchase 5,141,104 shares of Class A Common Stock of
OpenTV, Inc. under its 1998 Plan (see "OpenTV, Inc. 1998 Stock Option/Stock
Issuance Plan" below) were assigned to and assumed by OpenTV Corp. and the
Assumed Options now represent the right to purchase an identical number of
Class A Ordinary Shares of OpenTV Corp. Class A Ordinary Shares purchased
pursuant to the exercise of Assumed Options will reduce and will not be in
addition to the total number of shares (7,200,000) available for issuance under
the 1999 Plan. No other options have been issued under the 1999 Plan. See
"OpenTV, Inc. 1998 Stock Option/Stock Issuance Plan--Shares
Reserved/Termination" for a description of the impact of the assignment and
assumption on the 1998 Plan. Certain options issued under the 1998 Plan will
not be assigned to or assumed by OpenTV Corp. At such time as the shares of
Class A Common Stock of OpenTV, Inc. issuable pursuant to such options become
transferable, the holders thereof will be entitled to exchange such shares for
Class A Ordinary Shares of OpenTV Corp. The Class A Ordinary Shares issued
pursuant to such exchange will not be issued under the 1999 Plan and will not
count against the total number of shares available for issuance thereunder.
First Refusal Right. We have a right of first refusal in the event of any
proposed disposition of our Class A Ordinary Shares issued under the 1999 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.
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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.
Amendments and Termination. The board of directors may amend the plan at
any time. If the board of directors amends the 1999 plan, shareholder approval
will only be sought if required by applicable law. The 1999 plan will terminate
upon the earliest of (i) October 21, 2009, (ii) the date on which all shares
available for issuance under the 1999 plan have been issued as vested shares,
or (iii) the termination of all outstanding options in connection with certain
corporate transactions.
OpenTV, Inc. 1998 Stock Option/Stock Issuance Plan
In General. The OpenTV, Inc. board of directors adopted, and its
stockholders approved, the OpenTV, Inc. 1998 Stock Option/Stock Issuance Plan
(the "1998 Plan") on January 26, 1998. The OpenTV, Inc. board of directors
amended and restated the 1998 Plan on February 11, 1999 and August 13, 1999.
The terms of the 1998 Plan are generally identical to those of the 1999 Plan,
except that the 1998 Plan is administered by the compensation committee of the
OpenTV, Inc. board of directors and options and awards issued under the 1998
Plan entitle the holders to acquire shares of Class A Common Stock of OpenTV,
Inc. Most of the options issued under the 1998 Plan have been assigned to and
assumed by OpenTV Corp. The Assumed Options no longer represent rights to
purchase stock of OpenTV, Inc. and the shares subject thereto are no longer
available for issuance under the 1998 Plan. See "--Awards Granted/Assumed"
above.
Shares Reserved/Termination. After the assignment and assumption, options
to purchase 783,500 shares of Class A Common Stock of OpenTV, Inc. remain
outstanding and an identical number of shares are reserved for issuance under
the 1998 Plan. These options are held by certain foreign employees of OpenTV,
Inc. and cannot be assigned or assumed without adverse tax consequences to the
holders and OpenTV, Inc. The 1998 Plan will remain in existence for the sole
purpose of governing these remaining options, until such time as such options
have been exercised and the shares thereunder become transferable by the
holders. Options or shares awarded under the 1998 Plan that are forfeited or
cancelled will no longer be available for issuance under the 1998 Plan. All new
options granted to employees of OpenTV, Inc. and OpenTV Corp. will be granted
under the 1999 Plan.
1999 Employee Stock Purchase Plan
Our board adopted the 1999 Employee Stock Purchase Plan in October 1999
and our shareholder approved the plan in November 1999.
Share Reserve. We have reserved 120,000 shares of our Class A Ordinary
Shares for issuance pursuant to purchase rights granted under the purchase
plan. The first offering under the purchase plan will begin on the effective
date of these offerings. For the first offering, the board has granted purchase
rights to the full-time employees of OpenTV, Inc.
On December 31 of each year for the next ten years, beginning in 1999,
the number of shares in the reserve automatically will be increased by the
lower of:
. 5% of our outstanding shares on a fully-diluted basis;
. 500,000 shares; or
. a smaller number of shares as determined by the board.
Eligibility. The purchase plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. The purchase
plan provides a means by which employees may purchase our shares through
payroll deductions. The purchase plan is implemented by offerings of purchase
rights to
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eligible employees. Generally, all full-time employees who have been employed
for at least ten days may participate in the purchase plan. However, no
employee may participate in the purchase plan if immediately after we grant the
employee a purchase right, the employee has voting power over, or the value of,
5% or more of the outstanding capital stock of OpenTV Corp. or an affiliate of
OpenTV Corp.
Administration. The board is responsible for administering the purchase
plan, unless such responsibilities are delegated to a committee of the board.
The board has the authority to construe, interpret and amend the purchase plan.
Under the purchase plan, the board may specify offerings of up to 27 months in
length. The first offering will begin on the effective date of these offerings.
Unless the board otherwise determines, ordinary shares are purchased for
accounts of participating employees at a price per share equal to the lower of:
. 85% of the fair market value of a share on the first day of the
offering; or
. 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of these
offerings, we will offer shares registered on a Form S-8 registration
statement. The fair market value of the shares on the first date of this
offering will be the price per share at which our shares are first sold to the
public as specified in the final prospectus with respect to these offerings.
Otherwise, fair market value generally means the closing sales price (rounded
up where necessary to the nearest whole cent) for such shares (or closing bid,
if no sales were reported) as quoted on the Nasdaq National Market on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of;
. 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
. 85% of the fair market value of a share on the purchase date.
Participating employees may authorize payroll deductions of up to 15% of
their base compensation for the purchase of shares under the purchase plan.
Employees may end their participation in the offering at any time up to ten
days before a purchase date. Participation ends automatically on termination of
employment with us and our affiliates.
Other Provisions. Our board may grant eligible employees purchase rights
under this plan only if the purchase rights together with any other purchase
rights granted under other employee stock purchase plans established by us or
our affiliates do not permit the employee's rights to purchase our shares to
accrue at a rate which exceeds $25,000 of the fair market value of our shares
for each calendar year in which the purchase rights are outstanding.
Transactions not involving our receipt of consideration, such as a merger,
consolidation, reorganization, stock dividend or stock split, may change the
class and number of shares subject to the purchase plan and to outstanding
options. In that event, our board will appropriately adjust the purchase plan
as to the class and the maximum number of shares subject to the purchase plan.
It will also adjust outstanding rights as to class, number of shares and
purchase limits of such outstanding rights.
Upon a change in control of OpenTV, our board may provide that the
successor corporation will assume or substitute for outstanding purchase
rights. Alternatively, our board may shorten the offering period and provide
that our shares will be purchased for the participants immediately before the
change in control.
Shares Issued. We have not issued any shares under the purchase plan.
Termination. The purchase plan will terminate when the share reserve is
exhausted unless the board terminates it sooner.
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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.
Loans/Guarantees
We have made loans to certain of our employees to fund their exercise of
the Reserved Shares. These loans are secured by the stock of OpenTV, Inc. that
is purchased by these employees upon their exercise of such options.
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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"), which 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"), which 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 indirectly 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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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, OpenTV Corp. 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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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 330,000
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 reclassification, OpenTV, Inc. offered to sell up
to 2,086,700 shares of Class B Common Stock at a purchase price of $2.90 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 MIH Limited
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 affiliate transactions that are not on arms' length
terms and that provides for aggregate compensation or
consideration of more than $500,000 in any fiscal year
. 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 the
employee stock option plan and employee stock purchase plan in
excess of 4.4 million
. issue equity securities at a per share price that is less than
$5.55 per share
. 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 (1) the conversion of
all of our Series C-1 Convertible Preference Shares and Series C-2 Convertible
Preference Shares into 5,630,628 Class A Ordinary Shares and (2) the sale of
7,000,000 Class A Ordinary Shares in these offerings, certain information with
respect to the beneficial ownership of each class of our voting securities by
(1) each person who is known 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.
<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>
MIH Limited(/1/)........ -- --% 30,631,746 100.0% 96.0%
Sun Microsystems,
Inc.(/2/)............... 900,900 7.1 7,594,796(/3/) 19.9 19.4
Directors and officers
as a group (17
persons)(/4/)........... 697,833(/5/) 5.2 -- -- *
</TABLE>
- --------
* Less than 1%.
(1) MIH Limited holds its shares through its wholly-owned subsidiary, OTV
Holdings Limited.
(2) Sun Microsystems, Inc. holds its shares through its wholly-owned
subsidiary, Sun TSI Subsidiary, Inc.
(3) Represents 7,594,596 shares of Class B Common Stock of OpenTV, Inc. that
may be exchanged into Class B Ordinary Shares of OpenTV Corp. on a one-
for-one basis.
(4) Directors and officers also hold 137,142 shares of Class A Common Stock
and 21,144 shares of Class B Common Stock of OpenTV, Inc. We intend to
facilitate the disposition of these shares either by purchasing such
shares directly or by providing such holders the ability to exchange their
shares in OpenTV, Inc. for OpenTV Corp. Class A Ordinary Shares. This
amount excludes 1,126,126, 1,126,126, 8,495,696 and 30,631,746 ordinary
shares owned by News Corporation, Liberty Digital, Sun Microsystems and
MIH Limited, respectively.
(5) Represents options to purchase 697,833 Class A Ordinary Shares that are
currently vested and exercisable (or will become vested and exercisable
within 60 days of October 21, 1999). These shares are shown as being held
by the directors and officers for the purposes of this table only.
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DESCRIPTION OF CAPITAL STOCK
General
Set forth below is a description of the material terms of our capital
stock. This summary is subject to the provisions of our Memorandum and Articles
of Association which are included as exhibits to the Registration Statement of
which this prospectus 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 Official Segment of Amsterdam Exchanges N.V.'s stock
market ("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 New ASAS
Trading of our Class A Ordinary Shares on the Amsterdam Stock Exchange
will take place through the improved Amsterdam Security Account System ("New
ASAS") in ASAS rights OpenTV ("ASAS Rights OpenTV").
Under New ASAS, the legal owner of Class A Ordinary Shares is Nominee
Amsterdam Stock Exchange N.V. ("ASAS Nominee"), a wholly-owned subsidiary of
the Amsterdam Stock Exchange. The Class A Ordinary Shares owned by ASAS Nominee
are deposited in its account with the Bank of New York. For each Class A
Ordinary Share so deposited, ASAS Nominee creates an ASAS Right OpenTV which is
deposited with the Netherlands securities settlement system, Nederlands
Centraal Instituut voor Giraal Effectenverkeer B.V. ("NECIGEF"). The ASAS
Rights OpenTV traded on the Amsterdam Stock Exchange are cleared by its
securities clearing division, AEX-Effectenclearing, and settled through
NECIGEF.
Prices of the ASAS Rights OpenTV on the Amsterdam Stock Exchange will be
quoted in U.S. dollars, in order to allow the prices thereof to be as closely
aligned as possible with those of our Class A Ordinary Shares quoted on the
Nasdaq National Market.
Payments by us in respect of our Class A Ordinary Shares in New ASAS are
made through that system. Shareholder notices are not sent directly to
investors holding ASAS Rights OpenTV, but will instead 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 New ASAS. Investors should consult with
their professional advisors if they require more information or if they have
any questions about New 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. These shares
are convertible into Class A Ordinary Shares at a rate of one Class A Ordinary
Share for every five Series C-1 Convertible Preference Shares. 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. These shares
are convertible into Class A Ordinary Shares at a rate of one Class A Ordinary
Share for every five Series C-2 Convertible Preference Shares. 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 4,729,728
of our Class A Ordinary Shares at an exercise price of $5.55 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 giving effect to these offerings and the conversion of
all of our Series C-1 Convertible Preference Shares and Series C-2 Convertible
Preference Shares into 5,630,628 Class A Ordinary Shares, our Class B Ordinary
Shares will represent 96.0% of the voting power of all our ordinary shares even
though they represent 70.0% 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 and after giving effect to the
conversion of all of our Series C-1 Convertible Preference Shares and Series C-
2 Convertible Preference Shares into 5,630,628 Class A Ordinary Shares, we will
have 12,630,628 Class A Ordinary Shares outstanding (13,680,628 Class A
Ordinary Shares if the underwriters' over-allotment options are exercised in
full) and 30,631,746 Class B Ordinary Shares outstanding. Of these, the
7,000,000 Class A Ordinary Shares sold by us in these offerings
(8,050,000 Class A Ordinary Shares if the underwriters' over-allotment options
are exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless held by one of our "affiliates"
(as that term is defined under the Securities Act and the regulations
promulgated thereunder). The remaining 5,630,628 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 4,639,638 Unregistered Shares held by our non-affiliates. These
shares will be 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 900,900 Unregistered Shares held by Sun, one of our affiliates.
Sun also holds 7,594,790 shares of the Class B Common Stock of OpenTV, Inc.,
which may be exchanged into a total of 7,594,790 of our Class B Ordinary
Shares. These shares will be 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 it
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)
. 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:
. MIH Limited may sell 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
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. under certain conditions, MIH Limited 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 Microsystems. We intend to
facilitate the disposition of the 804,197 shares of common stock of OpenTV,
Inc. and 783,500 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 1,453,123 Class A Ordinary
Shares and 134,574 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 as defined in Section 7701(a)(30) of the
Internal Revenue Code.
If you are not a U.S. holder, you are a "Non-U.S. holder" and the
discussion below titled "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
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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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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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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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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 3,500,000 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 ...................................................... 3,500,000
=========
</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, MeesPierson N.V. and Thomas Weisel Partners LLC
are acting as lead managers. Subject to the terms and conditions set forth in
the international purchase agreement, and concurrently with the sale of
3,500,000 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 3,500,000 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.
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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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
525,000 additional Class A Ordinary Shares at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
U.S. underwriters may exercise this option solely to cover over-allotments, if
any, made on the sale of our Class A Ordinary Shares offered hereby. To the
extent that the U.S. underwriters exercise this option, each U.S. underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional Class A Ordinary Shares proportionate to such U.S. underwriter's
initial amount reflected in the foregoing table.
We also have granted an option to the international managers, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate
of 525,000 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,
79
<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.
80
<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.
81
<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 web site is
http://www.sec.gov.
82
<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-6
Consolidated Balance Sheets................................................ F-7
Consolidated Statements of Operations and Comprehensive Loss............... F-8
Consolidated Statements of Stockholders' Equity (Deficit).................. F-9
Consolidated Statements of Cash Flows...................................... F-10
Notes to Consolidated Financial Statements................................. F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
OpenTV Corp.:
The one-for-five reverse stock split described in Note 2 to the balance
sheet has not been completed as of November 2, 1999. When the one-for-five
reverse stock split has been completed, we will be in a position to furnish the
following report:
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 audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 29, 1999
- --------------------------------------------------------------------------------
F-2
<PAGE>
OPENTV CORP.
BALANCE SHEET
September 30, 1999
(Amounts in U.S. dollars)
<TABLE>
<S> <C>
ASSETS
------
Total assets......................................................... $ --
=======
SHAREHOLDER'S 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,
30,631,746 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 shareholder's 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 30,631,746 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 30,631,746
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. OpenTV Corp. will
consolidate OpenTV, Inc.'s results and record a minority interest for the
portion not owned.
Employee Incentive Plans
In November 1999, the Board of Directors and shareholder of OpenTV Corp.,
adopted the 1999 Share Option/Share Issuance Plan (the "Plan") and reserved
7,200,000 Class A Ordinary Shares for issuance under the 1999 Plan. Options can
be granted at not less than 100% of the fair value of a share as determined by
the Board of Directors on the date of grant. Options granted to employees
generally vest 25% after 12 months of continuous service and 1/48 over the next
36 months. The terms of the options is 10 years from the date of grant.
Unexercised options generally expire three months after termination of
employment. Options issued under the OpenTV, Inc. 1998 Plan covering 5,141,104
shares of Class A Common Stock of OpenTV, Inc. were assigned to and assumed by
OpenTV Corp. to purchase Class A Ordinary Shares under the 1999 Plan in
November 1999.
The Board of Directors and shareholder of OpenTV Corp. also adopted the
1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 120,000
Class A Ordinary Shares have been reserved for issuance under the Purchase
Plan, subject to annual increases. The Purchase Plan allows for eligible
employees to purchase a limited number of OpenTV Corp.'s Class A Ordinary
Shares at 85% of the fair market value during certain plan-defined periods.
Stock Split
OpenTV Corp. will complete a one-for-five reverse stock split of its
ordinary shares prior to consummation of these offerings. All share information
has been adjusted to reflect this stock split.
Strategic Financing
On October 23, 1999, OpenTV Corp. sold 23,648,646 Series C-1 Convertible
Preference Shares and warrants to purchase 4,729,728 Class A Ordinary Shares to
five new investors and 4,504,504 Series C-2 Convertible Preference Shares to an
existing investor for aggregate net proceeds of $31.0 million. These
convertible preference shares will automatically convert into 5,630,628 Class A
Ordinary Shares upon consummation of these offerings. The convertible
preference shares have an embedded beneficial conversion feature which under
EITF 98-5 will result in a preferred stock dividend of $31,249,996 in the
quarter ending
F-4
<PAGE>
OPENTV CORP.
NOTES TO BALANCE SHEET (continued)
December 31, 1999. OpenTV Corp. valued the warrants issued to the new investors
using the Black-Scholes option pricing model. The fair value of $46.6 million
represents a non-cash warrant operating expense given as an inducement to the
investors which will be recognized in the quarter ending December 31, 1999.
Concurrent with the financing, OpenTV Corp. entered into strategic
agreements with three of the six investors: America Online, Inc. ("AOL"), News
Corporation and Time Warner, Inc. These strategic agreements represent non-
monetary transactions between the parties. There is no objective basis for
assigning fair value to the services being exchanged and in accordance with APB
29 no value has been assigned.
Exchange Agreement
On October 23, 1999, OpenTV Corp. entered into an Exchange Agreement with
Sun Microsystems, Inc. ("Sun") that permits Sun to exchange all or a portion of
its shares of Class B Common Stock of OpenTV, Inc. for OpenTV Corp. Class B
Ordinary Shares. The rate of exchange, which is subject to customary
antidilution adjustments, is one-for-one.
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
OpenTV, Inc. and Subsidiary (Predecessor to OpenTV Corp.):
The one-for-five reverse stock split described in Note 10 to the
consolidated financial statements has not been completed as of November 2,
1999. When the one-for-five reverse stock split has been completed, we will be
in a position to furnish the following report:
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-6
<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, 111,581 and 717,520 shares issued and
outstanding in 1997, 1998 and 1999,
respectively................................ -- 117 10,200
-------- -------- --------
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; 33,183,659,
33,183,659 and no shares issued and
outstanding in 1997, 1998 and 1999,
respectively.............................. 33 33 --
Class B Common Stock, par value $0.001;
225,000,000 shares authorized; no shares
issued and outstanding in 1997 and 1998
and 38,233,823 shares issued and
outstanding in 1999....................... -- -- 38
Additional paid-in capital................. 24,082 24,131 51,770
Receivable from stockholders............... (9,700) -- (11)
Deferred compensation...................... -- (36) (14,575)
Accumulated other comprehensive income
(loss).................................... 74 (62) (29)
Accumulated deficit........................ (14,647) (28,849) (37,333)
-------- -------- --------
Total stockholders' equity (deficit)..... (158) (4,783) (140)
-------- -------- --------
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-7
<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) Year Ended December For the Nine Months
to 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 -- 2,320
--------- ---------- ---------- ---------- ----------
Total operating
expenses........... 5,148 17,761 23,663 16,737 26,081
--------- ---------- ---------- ---------- ----------
Loss from
operations.......... (4,130) (10,802) (14,195) (10,621) (8,524)
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) $(8,484)
Other comprehensive
income (loss):
Foreign currency
translation.......... 20 54 (136) (129) 33
--------- ---------- ---------- ---------- ----------
Comprehensive loss... $(3,938) $(10,635) $(14,338) $(10,749) $(8,451)
========= ========== ========== ========== ==========
Net loss per share,
basic and diluted...... $ (0.43) $ (0.43) $ (0.43) $ (0.32) $ (0.23)
========= ========== ========== ========== ==========
Shares used in computing
net loss per share,
basic and diluted...... 9,210,877 24,973,614 33,212,803 33,197,261 36,184,858
</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 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... 18,421,754 $ 18 -- $-- $ 8,597 $ -- $ -- $ -- $ -- $ 8,615
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 20 -- 20
Net loss........ -- -- -- -- -- -- -- -- (3,958) (3,958)
------------ ----- ---------- --- ------- ------- -------- ----- -------- --------
Balances,
December 31,
1996........... 18,421,754 18 -- -- 8,597 -- -- 20 (3,958) 4,677
Issuance of
common stock... 14,761,924 15 -- -- 15,485 (9,700) -- -- -- 5,800
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 54 -- 54
Net loss........ -- -- -- -- -- -- -- -- (10,689) (10,689)
------------ ----- ---------- --- ------- ------- -------- ----- -------- --------
Balances,
December 31,
1997........... 33,183,658 33 -- -- 24,082 (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........... 33,183,658 33 -- -- 24,131 -- (36) (62) (28,849) (4,783)
Conversion of
notes payable
to Class A
Common Stock 2,973,917 3 -- -- 7,130 -- -- -- -- 7,133
Conversion of
Class A Common
Stock to
Class B Common
Stock.......... (36,157,575) (36) 36,157,575 36 -- -- -- -- -- --
Conversion of
related party
payable to
Class B Common
Stock.......... -- -- 862,069 1 2,499 -- -- -- -- 2,500
Issuance of
Class B Common
Stock.......... -- -- 1,214,179 1 3,520 (11) 3,510
Deferred
compensation
arising from
options
issued......... -- -- -- -- 16,859 -- (16,859) -- -- --
Capital
contribution
from
stockholder
(Note 8)....... -- -- -- -- 7,640 -- -- -- -- 7,640
Accretion on
redeemable
common stock .. -- -- -- -- (10,009) -- -- -- -- (10,009)
Amortization of
deferred
compensation... -- -- -- -- -- -- 2,320 -- -- 2,320
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 33 -- 33
Net loss........ -- -- -- -- -- -- -- -- (8,484) (8,484)
------------ ----- ---------- --- ------- ------- -------- ----- -------- --------
Balances,
September 30,
1999
(unaudited).... -- $ -- 38,233,823 $38 $51,770 $ (11) $(14,575) $ (29) $(37,333) $ (140)
============ ===== ========== === ======= ======= ======== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<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) $(8,484)
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 -- 2,320
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 $17,305
======== =======
Conversion of notes
payable and accrued
interest to common stock
......................... $ 7,133
=======
Intangible assets
contributed by
stockholder.............. $ 7,640
=======
Accretion on redeemable
common stock............. $10,009
=======
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-10
<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-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)
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-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)
For contracts with multiple obligations (e.g., maintenance and other
services), revenue from product licenses are recognized when delivery has
occurred, collection of the receivable is probable, the fee is fixed or
determinable and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement. 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-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)
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 1,153,800, 3,012,700, 3,507,495,
3,637,666 and 6,013,993 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-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)
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-15
<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-16
<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 3,600,000 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, 5,800,000 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 22,187 shares of
Class A Common Stock were subject to repurchase at September 30, 1999. There
were no shares of common stock subject to repurchase at September 30, 1998 and
December 31, 1998.
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 February 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-17
<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................... 3,600,000
Options granted......... (1,153,800) 1,153,800 $3.58 $ 4,125 $3.58
---------- ---------- -------
Balances, December 31,
1996................... 2,446,200 1,153,800 4,125 $3.58
Options granted......... (1,858,900) 1,858,900 $3.58 6,645 $3.58 $3.58
---------- ---------- -------
Balances, December 31,
1997................... 587,300 3,012,700 10,770 $3.58
Options cancelled under
1996 Plan.............. (587,300) (3,012,700) $3.58 (10,770) $3.58
Options reserved at
inception of 1998
Plan................... 5,800,000 -- --
Options granted......... (4,483,348) 4,483,348 $ 1.05 4,708 $1.05 $1.05
Options exercised....... -- (111,580) $ 1.05 (117) $1.05
Options cancelled....... 864,273 (864,273) $ 1.05 (908) $1.05
---------- ---------- -------
Balances, December 31,
1998................... 2,180,925 3,507,495 3,683 $1.05
Additional options
reserved............... 960,000 -- --
Options granted......... (3,443,200) 3,443,200 $ 1.05--$ 6.00 10,168 $2.95 $3.75
Options exercised....... -- (605,940) $ 1.05 (636) $1.05
Options cancelled....... 330,754 (330,754) $ 1.05--$ 6.00 (352) $1.06
---------- ---------- -------
Balances, September 30,
1999 (unaudited)....... 28,479 6,014,001 $12,863 $2.14
========== ========== =======
</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>
$ 1.05 3,507,495 9.20 $1.05 3,507,495 $1.05
</TABLE>
There were no options exercisable at December 31, 1996 and there were
427,133 options exercisable at a weighted average exercise price of $3.58 at
December 31, 1997.
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)
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 $12,058, 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 $1,111,
respectively. In addition, OpenTV recorded accretion of $10,009 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 $4,801 related to these options. Such deferred
compensation will be amortized over the vesting period relating to these
options. OpenTV recorded amortization of $1,209 for the nine months ended
September 30, 1999.
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 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-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)
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
MIH 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 --
MIH Limited......................................... -- 304 532
------ ------ -----
$1,036 $ 337 $ 532
====== ====== =====
Convertible notes payable to shareholders
MIH 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 2,973,917 shares of common stock
at $2.40 per share.
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)
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, MIH 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 16,084,852 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-22
<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 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
2,086,700 shares of Class B Common Stock at a purchase price of $2.90 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
2,076,248 shares of Class B Common Stock. A total of 36,284,868 shares of Class
A Common Stock were reclassed to Class B Common Stock.
OpenTV will complete a one-for-five reverse stock split prior to
consummation of these offerings. All share information has been adjusted to
reflect this stock split.
F-23
<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.
7,000,000 Shares
[LOGO]
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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated November 10, 1999
PROSPECTUS
7,000,000 Shares
[LOGO OF OPENTV]
Class A Ordinary Shares
-----------
This is OpenTV's initial public offering. The international managers will
offer 3,500,000 shares outside the United States and Canada and the U.S.
underwriters will offer 3,500,000 shares in the United States and Canada.
We expect that the public offering price will be between $14.00 and $16.00
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 Official Segment of Amsterdam Exchanges N.V.'s stock market
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 525,000
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
525,000 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.
-----------
Global Coordinator and Book Runner
Merrill Lynch International
MeesPierson N.V.
Thomas Weisel Partners LLC
Listing Agent
-----------
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.......................................... $ 36,000*
NASD filing fee............................................... $ 5,500*
Nasdaq National Market listing fee............................ $ 75,000*
Amsterdam Stock Exchange listing fee.......................... $ 5,000*
Printing, mailing and engraving expenses...................... $ 300,000*
Legal fees and expenses....................................... $1,000,000*
Accounting fees and expenses.................................. $ 375,000*
Transfer agent and registrar fees............................. $ 7,000*
Miscellaneous expenses........................................ $ 196,500*
----------
Total....................................................... $2,000,000*
==========
</TABLE>
--------
* Estimated for purposes of determining the net proceeds of these
offerings.
A copy of this Prospectus, including the Financial Statements, and the
Memorandum and Articles are available for inspection at the offices of
MeesPierson N.V., Rokin 55, 1012 KK, Amsterdam, The Netherlands, tel: +31(0) 20
527 2467, fax: +31 (0)20 527 1928.
The issuance of Class A Ordinary Shares being offered by us in these
offerings was authorized by resolution of our Board of Directors on October 22,
1999.
Other than as disclosed herein, there has been no material adverse change
in our financial condition or results of operations since September 30, 1999.
We, having made all reasonable enquiries, confirm that, to the best of
our knowledge and belief as of the date hereof, the information contained in
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.
86
<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.
78
<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.
79
<PAGE>
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, MeesPierson
N.V. and Thomas Weisel Partners LLC 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 3,500,000 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....................................
MeesPierson N.V................................................
Thomas Weisel Partners LLC.....................................
---------
Total..................................................... 3,500,000
=========
</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 3,500,000 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
3,500,000 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.
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.
80
<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
525,000 additional Class A Ordinary Shares at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
international managers may exercise this option solely to cover over-
allotments, if any, made on the sale of 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
525,000 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,
81
<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,
82
<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
83
<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.
84
<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 PricewaterhouseCoopers N.V., 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.
85
<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.
7,000,000 Shares
[LOGO]
OPENTV
Class A Ordinary Shares
-----------------
P R O S P E C T U S
-----------------
Merrill Lynch International
MeesPierson N.V.
Thomas Weisel Partners LLC
, 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............................................ $ 36,000*
NASD filing fee................................................. $ 5,500*
Nasdaq National Market listing fee.............................. $ 75,000*
Amsterdam Stock Exchange listing fee............................ $ 5,000*
Printing, mailing and engraving expenses........................ $ 300,000*
Legal fees and expenses......................................... $1,000,000*
Accounting fees and expenses.................................... $ 375,000*
Transfer agent and registrar fees............................... $ 7,000*
Miscellaneous expenses.......................................... $ 196,500*
----------
Total......................................................... $2,000,000*
==========
</TABLE>
--------
* Estimated for purposes of determining the net proceeds of these
offerings.
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 30,631,746 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 -- 900,900
General Instrument Corp. .................. 2,252,252 -- 450,450
Liberty Digital, Inc. ..................... 5,630,630 -- 1,126,126
News Corporation........................... 5,630,630 -- 1,126,126
Time Warner, Inc. ......................... 5,630,630 -- 1,126,126
</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 Corporation,
LDIG OTV, Inc., News America Incorporated and TWI-OTV Holdings Inc.,
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 Corporation, LDIG OTV, Inc., News America
Incorporated, TWI-OTV Holdings Inc., OTV Holdings Limited, Sun TSI
Subsidiary, Inc. and MIH (BVI) LTD., 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 5.1).
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.
++ Previously filed.
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 tenth day of November, 1999.
OPENTV CORP.
/s/ Jan Steenkamp
By _________________________________
Jan Steenkamp
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on this tenth day of November, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
Chairman of the
* Board November 10,
- ------------------------------------- 1999
Jacobus D.T Stofberg
Chief Executive
/s/ Jan Steenkamp Officer and November 10,
- ------------------------------------- Director (principal 1999
Jan Steenkamp executive officer)
Chief Financial
* Officer and November 10,
- ------------------------------------- Director (principal 1999
Randall S. Livingston financial and
accounting officer)
U.S. Authorized
* Representative November 10,
- ------------------------------------- 1999
James F. Brown
Director
* November 10,
- ------------------------------------- 1999
Jacobus P. Bekker
Director
* November 10,
- ------------------------------------- 1999
Stephen G. Oldfield
Director
* November 10,
- ------------------------------------- 1999
William Raduchel
Director
* November 10,
- ------------------------------------- 1999
Allan M. Rosenzweig
/s/ Jan Steenkamp
*By_____________________________
Jan Steenkamp
Attorney in Fact
</TABLE>
II-4
<PAGE>
SIGNATURES
We, the undersigned 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 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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Craig L. Enenstein Director November 10,
___________________________________________ 1999
Craig L. Enenstein
/s/ Michael E. Lehman Director November 10,
___________________________________________ 1999
Michael E. Lehman
/s/ Peter W. Smith Director November 10,
___________________________________________ 1999
Peter W. Smith
</TABLE>
II-5
<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.):
The one-for-five reverse stock split described in Note 10 to the
consolidated financial statements of OpenTV, Inc. has not been completed as of
November 2, 1999. When the one-for-five reverse stock split has been completed,
we will be in a position to furnish the following report:
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) to December 31, 1996 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 Corporation,
LDIG OTV, Inc., News America Incorporated and TWI-OTV Holdings Inc.,
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 Corporation, LDIG OTV, Inc., News America
Incorporated, OTV Holdings Limited, Sun TSI Subsidiary, Inc. and MIH
(BVI) Ltd., 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 5.1).
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.
++ Previously filed.
<PAGE>
EXHIBIT 4.1
[GRAPHIC] [GRAPHIC]
Number Shares
OTV
[LOGO]opentv(R)
INCORPORATED UNDER THE LAWS OF THE BRITISH VIRGIN ISLANDS
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP G67543 10 1
THIS CERTIFIES that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, WITH NO PAR VALUE, OF
==============================OpenTv Corporation================================
transferable on the books of the Corporation in person or by a duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ [SIGNATURE ILLEGIBLE] (SEAL) /s/ [SIGNATURE ILLEGIBLE]
CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF EXECUTIVE
AND SECRETARY OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY NOV 2, 1999 fm
3604 ATLANTIC AVENUE
SUITE 12 064074fc
LONG BEACH, CA 90807
(562) 948-2222
(FAX) (562) 426-7450 12 MX Proof (initial) NEW
---------
<PAGE>
OpenTv Corporation
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the [ILLEGIBLE]
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT CUSTODIAN
-------------------- ---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
----------------------------
(State)
UNIF TRF MIN ACT CUSTODIAN (until age )
-------------------- -------
(Cust)
under Uniform Transfers
--------------------
(Minor)
to Minors Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
---------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- ---------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ------------------------------------------------------------------- Shares
of the common stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------------
X
------------------------------
X ------------------------------
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
NOTICE: THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER
Signature(s) Guaranteed
By
--------------------------------
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
AMERICAN BANK NOTE COMPANY NOV 2, 1999 fm
3604 ATLANTIC AVENUE
SUITE 12 064074bk
LONG BEACH, CA 90807
(562) 948-2222
(FAX) (562) 426-7450 Proof (initial) NEW
---------
<PAGE>
EXHIBIT 5.1
(H W R) Harney Westwood & Riegels
Barristers, Solicitors, Notaries, Patent and Trade Mark Agents
Craigmuir Chambers, P.O. Box 71
Road Town, Tortola, British Virgin Islands
Telephone: (284) 494-2233
Fax General: (284) 494-3547 . (284) 494-4885 . (284) 494-6314
Fax Incorporations: (284) 494-6291 . Fax Litigation: (284) 494-3398
e-mail: [email protected] . web-site: www.hwr.org
Writer's Direct Line:
Your Ref:
25 October 1999 Our Ref: 12905-002-JST-olv2
OpenTV Corp.
P.O. Box 3186
Road Town, Tortola
British Virgin Islands
Dear Sirs
OpenTV Corp.
We have been asked as counsel to Open TV Corp., a British Virgin Islands company
(the "Company"), to provide this legal opinion in connection with the
registration under the United States Securities Act of 1933, as amended (the
"Securities Act"), of the unissued Class A Ordinary Shares in the Company (the
"Shares") to be offered by the Company to members of the general public through
certain underwriters. This opinion is given in accordance with the terms of the
Legal Matters section of the Registration Statement (as defined below).
1. For the purpose of this opinion we have reviewed the following documents:
(a) the Registration Statement on Form F-1 provided to us (the
"Registration Statement") filed by the Company with the United
States Securities and Exchange Commission for the purpose of
registering the Shares;
(b) (i) the Memorandum and Articles of Association and
certificate of incorporation of the Company;
(ii) the directors' written resolutions dated 17 October 1999
authorising the issuance of the Shares and amendments to
the Company's Memorandum and Articles of Association;
and
(iv) a Registered Agent's Certificate dated 14th October 1999
issued by Havelet Trust Company (BVI) Limited, the
Registered Agent of the Company in the British Virgin
Islands.
<PAGE>
(c) the public records of the Company as at 25 October 1999 on file
with, and available for inspection at, the Companies Registry in
the British Virgin Islands.
We have also made such other enquiries and reviewed such matters of law and
examined the originals, photocopies, certified or otherwise identified to our
satisfaction, of such other documents, records, agreements and certificates as
we have considered relevant for the purposes of giving the opinion expressed
below.
2. This legal opinion is confined to and given on the basis of the laws of
the British Virgin Islands at the date hereof and as currently applied
by the courts of the British Virgin Islands. We have not investigated
and we do not express or imply nor are we qualified to express or imply
any opinion on the laws of any other jurisdiction.
3. Based on the foregoing, we are of the opinion that:-
(a) the Company is a company limited by shares, duly incorporated,
validly existing, and in good standing as a separate legal
entity under the laws and regulations of the British Virgin
Islands;
(b) subject to the filing at the Companies Registry, Road Town,
Tortola of the Directors' Resolutions, the Company has full
statutory authority, corporate power and legal right to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement; and
(c) subject to the filing at the Companies Registry, Road Town,
Tortola of the Directors' Resolutions, the Shares to be offered
and sold by the Company have been legally authorised and, when
sold pursuant to the terms described in the Registration
Statement, and paid for at least to the extent of their par
value, will be legally issued, fully paid and non-assessable.
In connection with the above opinion, we hereby consent:-
(a) to the use of our name in the Registration Statement, the
prospectus constituting a part thereof and all amendments
thereto under the captions "Risk Factors - United States
judgments may not be fully enforceable against us" and "Legal
Matters"; and
(b) to the filing of this opinion as an exhibit to the Registration
Statement.
This opinion is addressed to you and may be relied upon by you and your counsel.
This opinion is limited to the matters detailed herein and is not to be read as
an opinion with respect to any other matter.
Yours faithfully
/s/ Harney Westwood & Riegels
HARNEY WESTWOOD & RIEGELS
2
<PAGE>
EXHIBIT 10.11
================================================================================
OPENTV CORP.
C-1 CONVERTIBLE PREFERENCE SHARES
AND WARRANT PURCHASE AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Agreement to Sell and Purchase.............................. 1
2. Closing, Delivery and Payment............................... 1
2.1 Closing................................................ 1
2.2 Delivery............................................... 2
3. Representations and Warranties of the Company............... 2
3.1 Organization, Good Standing and Qualification.......... 2
3.2 Capitalization......................................... 3
3.3 Authorization; Binding Obligations..................... 4
3.4 Financial Statements................................... 4
3.5 Liabilities............................................ 5
3.6 Agreements; Action..................................... 5
3.7 Obligations to Related Parties......................... 5
3.8 Changes................................................ 5
3.9 Title to Tangible Assets; Liens, etc................... 6
3.10 Patents and Trademarks................................. 7
3.11 Compliance with Other Instruments...................... 7
3.12 Litigation............................................. 7
3.13 Tax Returns and Payments............................... 8
3.14 Employees.............................................. 8
3.15 Registration Rights.................................... 8
3.16 Compliance with Laws; Permits.......................... 8
3.17 Offering Valid......................................... 9
3.18 Insurance.............................................. 9
3.19 Employment Benefit Plans-ERISA......................... 9
3.20 Interested Party Transactions.......................... 9
3.21 Environmental Matters.................................. 9
3.22 Full Disclosure........................................ 10
3.23 Taxes.................................................. 10
3.24 Reorganization......................................... 10
4. Representations and Warranties of the Purchasers............ 11
4.1 Organization, Good Standing and Qualification.......... 11
4.2 Requisite Power and Authority.......................... 11
4.3 Authorization; Binding Obligations..................... 11
4.4 Compliance with Laws................................... 11
4.5 Investment Representations............................. 11
4.3 Transfer Restrictions.................................. 12
5. Conditions to Closing....................................... 13
5.1 Conditions to Purchasers' Obligations at the Closing... 13
5.2 Conditions to Obligations of the Company............... 14
-i-
<PAGE>
OPENTV CORP.
C-1 CONVERTIBLE PREFERENCE SHARES AND
WARRANT PURCHASE AGREEMENT
This C-1 Convertible Preference Shares and Warrant Purchase Agreement (the
"Agreement") is entered into as of October 23, 1999, by and among OpenTV Corp.,
---------
a British Virgin Islands corporation (the "Company"), each of those persons and
-------
entities, severally and not jointly, whose names are set forth on the Schedule
of Purchasers attached hereto as Exhibit A (which persons and entities are
---------
hereinafter collectively referred to as "Purchasers" and each individually as a
----------
"Purchaser") and, for purposes of Sections 3.1(b), 3.2(b) and 3.3(b) only,
---------
OpenTV, Inc., Delaware corporation ("OpenTV").
------
Recitals
Whereas, the Company has authorized the sale and issuance of an aggregate
of up to 23,648,646 shares of its C-1 Convertible Preference Shares (the
"Preference Shares");
- ------------------
Whereas, the Company has authorized the sale and issuance of warrants (the
"Warrants"), in the form attached hereto as Exhibit B, to purchase an aggregate
-------- ---------
of up to 23,648,646 shares (the "Warrant Shares") of the Company's A Ordinary
--------------
Shares ("A Ordinary Shares");
-----------------
Whereas, Purchasers desire to purchase the Preference Shares and the
Warrants on the terms and conditions set forth herein; and
Whereas, the Company desires to issue and sell the Preference Shares and
the Warrants to Purchasers on the terms and conditions set forth herein;
Now, Therefore, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto hereby agree as follows:
1. Agreement to Sell and Purchase. Subject to the terms and conditions
hereof, at the Closing (as hereinafter defined) the Company hereby agrees to
issue and sell to each Purchaser, severally and not jointly, and each Purchaser
agrees to purchase from the Company, severally and not jointly, the number of
Preference Shares set forth opposite such Purchaser's name on Exhibit A, at a
---------
purchase price of $1.11(U.S. dollars) per share and the Warrants to purchase the
Warrant Shares set forth opposite such Purchaser's name on Exhibit A, at a
---------
purchase price of $0.0001 per Warrant Share. The Preference Shares shall have
the rights, preferences, privileges and restrictions set forth in the Memorandum
of Association of the Company in the form attached hereto as Exhibit C (the
---------
"Memorandum") and amended by the Amendment to such Memorandum in the form
- -----------
attached hereto as Exhibit K (the "Amendment").
---------
<PAGE>
2. Closing, Delivery and Payment; Certain Post-Closing Obligations.
2.1 Closing. The closing of the sale and purchase of the Preference
Shares and the Warrants under this Agreement (the "Closing") shall take place at
-------
10:00 a.m., Pacific Daylight Time, on the date hereof at the offices of Paul,
Hastings, Janofsky & Walker LLP, 555 South Flower Street, 23rd Floor, Los
Angeles, California 90071, or such other time or place as the Company and
Purchasers may mutually agree (such date is hereinafter referred to as the
"Closing Date").
- -------------
2.2 Delivery. At the Closing, subject to the terms and conditions hereof,
the Company will deliver to the Purchasers Warrants representing the number of
Warrant Shares and certificates representing the number of Preference Shares in
each case to be purchased at the Closing by each Purchaser, against payment in
United States dollars of the purchase price therefor by wire transfer, in
immediately available funds, to an account designated by the Company.
2.3 Certain Covenants of the Company. For the benefit of each Purchaser
for so long as such Purchaser owns 50% of its Original Issued Amount (as defined
in the Investors' Rights Agreement (as defined herein)), the Company covenants
as follows:
(a) To the extent that the actions set forth in the Step Summary (as
defined herein) are not completed at or before the Closing, the Company hereby
covenants, on behalf of itself and its controlled affiliates, to each of the
Purchasers that the OpenTV Companies (as defined herein) shall, as promptly as
practicable after the Closing, complete the restructuring of the business and
assets of OpenTV as set forth in the Step Summary (including, without
limitation, Item 7 thereof). No element of, or actions to be taken by the
OpenTV Companies or their respective stockholders in connection with the
Reorganization subsequent to Closing, including without limitation the
restructuring of the business and assets of OpenTV described in the Step Summary
(including Item 7 thereof) and any other matters to be undertaken in connection
therewith, shall give rise to any (i) tax liability, (ii) other liability, (iii)
loss of intellectual property rights to which the OpenTV Companies are presently
entitled or (iv) right to terminate, reduce or suspend payment under or
otherwise limit any of the rights of an OpenTV Company under any existing
contracts, agreements or other arrangements to which such OpenTV Company is
presently a party, which would have a material adverse effect on the business,
financial condition or operations of any of the OpenTV Companies. The Company
shall complete the activities described in the Step Summary (including those
actions described in Item 7 thereof) in accordance with the principles of
Section 482 of the U.S. Internal Revenue Code of 1986, as amended.
(b) The Company shall conduct the business of the OpenTV Companies in
such a manner as will ensure that the Company will not be deemed to constitute a
passive foreign investment company within the meaning of Section 1297 of the
U.S. Internal Revenue Code of 1986, as amended. Each of the Purchasers hereby
acknowledges and agrees that the Company shall not be liable for any tax or
addition to tax incurred by a Purchaser due to such Purchaser's failure to make
a QEF election.
-2-
<PAGE>
(c) The Company shall not (i) transfer any shares of stock or other
capital securities of OpenTV to any person or entity, other than to a wholly
owned subsidiary of the Company, or (ii) permit OpenTV to issue (including,
without limitation, by way of dividends or distributions on its stock or capital
securities) any shares of stock or other capital securities to any person or
entity other than the Company, except pursuant to the Exchange Agreement (as
defined herein) and except the exercise of outstanding options of OpenTV as
listed on Exhibit G.
3. Representations and Warranties of the Company.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit D, the Company and, for purpose of Sections 3.1(b), 3.2(b) and 3.3(b)
- ---------
only, OpenTV hereby represent and warrant to each Purchaser as follows (for
purposes of this Section 3, references to the "OpenTV Companies" shall mean
----------------
collectively the Company and its subsidiaries):
3.1 Organization, Good Standing and Qualification.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the British Virgin Islands. The Company has
all requisite corporate power and authority to own and operate its properties
and assets, to execute and deliver this Agreement, the Investors' Rights
Agreement in the form attached hereto as Exhibit E (the "Investors' Rights
--------- -----------------
Agreement"), the Exchange Agreement in the form attached as Exhibit F (the
- --------- ---------
"Exchange Agreement") and the Warrants (collectively, the Investors' Rights
- -------------------
Agreement, the Exchange Agreement and the Warrants, the "Related Agreements"),
------------------
to issue and sell the Preference Shares and the Warrants hereunder, to issue A
Ordinary Shares of the Company upon conversion of the Preference Shares (the
"Conversion Shares"), to issue and sell the Warrant Shares, and to carry out the
- ------------------
provisions of this Agreement, each of the Related Agreements and the Memorandum
and to carry on its business as presently conducted. The Company is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the OpenTV Companies or their businesses, taken as a whole. The Company has
no subsidiaries other than OpenTV and those subsidiaries of OpenTV listed on
Exhibit D.
- ---------
(b) OpenTV is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. OpenTV has all requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as presently conducted. OpenTV is duly qualified and
is authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
makes such qualification necessary, except for those jurisdictions in which
failure to do so would not have a material adverse effect on the OpenTV
Companies or their businesses, taken as a whole.
3.2 Capitalization. Immediately prior to the Closing:
-3-
<PAGE>
(a) The Company will be authorized to issue (i) 500,000,000 shares
of A Ordinary Shares, (A) none of which are issued and outstanding, (B)
26,000,000 shares of which are reserved for issuance upon the exercise of stock
options presently granted or to be granted under the Company's stock option plan
adopted by the Company's Board of Directors and (C) 7,265,615 shares reserved
for exchange of outstanding Class A Common Stock of OpenTV not owned by the
Company; (ii) 200,000,000 shares of B Ordinary Shares, (A)153,158,733 shares of
which are issued and outstanding, (B) 37,973,980 shares of which are reserved
for issuance pursuant to the Exchange Agreement and (C) 672,870 shares of which
are reserved for exchange of other outstanding Class B Common Stock of OpenTV
not owned by the Company and (iii) 500,000,000 shares of C Preference Shares, of
which 23,648,646 shares have been designated as C-1 Convertible Preference
Shares and 4,504,504 shares of which have been designated as C-2 Convertible
Preference Shares, none of which are issued and outstanding. The Company has no
authority to issue any other capital stock. All issued and outstanding shares
of the Company's A Ordinary Shares and B Ordinary Shares (A) have been duly
authorized and validly issued to the persons listed on Exhibit G hereto, (B) are
---------
fully paid and nonassessable, and (C) were issued in compliance with all
applicable state and federal laws concerning the offer, sale and issuance of
securities. The ratio of the voting power held by each A Ordinary Share of the
Company to the voting power held by each B Ordinary Share of the Company is 1 to
10 votes, and the A Ordinary Shares and the B Ordinary Shares of the Company
vote together as a single class on all matters presented to the stockholders of
the Company for their vote. The rights, preferences, privileges and
restrictions of the Preference Shares are as stated in the Memorandum, as
amended by the Amendment. The Conversion Shares have been duly and validly
reserved for issuance upon conversion of the Preference Shares. The Warrant
Shares have been duly and validly reserved for issuance upon exercise of the
Warrants. Other than as set forth on Exhibit G and except as may be granted
---------
pursuant to the Related Agreements, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal),
securities convertible into or exchangeable for capital stock, or agreements of
any kind for the purchase, subscription or acquisition from the Company of any
capital stock of the Company. When issued in compliance with the provisions of
this Agreement, the Memorandum, and the Warrants, as applicable, the Preference
Shares, the Conversion Shares and the Warrant Shares will be validly issued,
fully paid and nonassessable, and will be free of all liens or encumbrances;
provided, however, that the Preference Shares, the Conversion Shares and the
- -------- -------
Warrant Shares may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or the Related Agreements or as
otherwise required by such laws at the time a transfer is proposed.
(b) The authorized capital stock of OpenTV consists of (i) 275,000,000
shares of its Class A Common Stock, 3,348,115 of which are issued and
outstanding, and 3,917,500 of which are reserved for issuance upon the exercise
of stock options presently granted under OpenTV's stock option plan adopted by
the OpenTV's Board of Directors; (ii) 225,000,000 shares of its Class B Common
Stock, 191,805,583 of which are issued and outstanding and 38,646,850 shares of
which are owned of record by SSI and other individual shareholders and
153,158,733 shares of which are owned of record by the Company; and (iii)
25,000,000 shares of Preferred Stock, no shares of which are outstanding.
OpenTV has no other authorized capital stock. All issued and outstanding shares
of OpenTV's Class A Common Stock and Class B Common Stock (A) have been
-4-
<PAGE>
duly authorized and validly issued, (B) are fully paid and nonassessable, and
(C) were issued in compliance with all applicable state and federal laws
concerning the offer, sale and issuance of securities. Each share of OpenTV's
Class A Common Stock and Class B Common Stock exchanged for A Ordinary Shares
and B Ordinary Shares of the Company, as applicable, was exchanged in compliance
with all applicable state and federal laws concerning the offer, sale and
issuance of securities, and each A Ordinary Share and B Ordinary Share of the
Company issued in such exchange was duly authorized and validly issued and is
fully paid and nonassessable. Other than as set forth on Exhibit G, there are no
---------
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), securities convertible into or exchangeable for
capital stock, or agreements of any kind for the purchase, subscription or
acquisition from OpenTV of any capital stock of OpenTV. Other than Class A
Common Stock held by employees, all shares of Class A Common Stock and Class B
Common Stock owned by a person or entity other than the Company are subject to
restrictions on transfer and may only be transferred by exchanging such stock on
a 1 for 1 basis, subject to adjustment on no more favorable terms than those set
forth in the Exchange Agreement, for shares of the corresponding class of
Ordinary Shares of the Company to be set forth in agreements to be entered into
between OpenTV and the applicable person or entity.
3.3 Authorization; Binding Obligations.
(a) All corporate action on the part of the Company necessary for the
authorization of the execution and delivery of this Agreement and the Related
Agreements, the performance of all obligations of the Company hereunder and
thereunder at the Closing and the authorization, sale, issuance and delivery of
the Preference Shares pursuant hereto, the Conversion Shares pursuant to the
Memorandum, the Warrants and the Warrant Shares pursuant thereto has been taken.
The Agreement and the Related Agreements have been duly executed and delivered
by the OpenTV Companies parties thereto and are valid and binding obligations of
the OpenTV Companies parties thereto enforceable against the OpenTV Companies
parties thereto in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies; and
(iii) to the extent that the enforceability of the indemnification provisions in
Section 7 of the Investors' Rights Agreement may be limited by principles of
public policy. The sale of the Warrants and the Warrant Shares issued upon
exercise of the Warrants, and the Preference Shares and the subsequent
conversion of the Preference Shares into Conversion Shares, are not and will not
be subject to any preemptive rights, rights of first refusal, rights of first
offer or other similar rights granted by the Company that have not been properly
waived or complied with.
(b) All corporate action on the part of OpenTV necessary for the
authorization of the execution and delivery of the Related Agreements to which
OpenTV is a party, the performance by OpenTV of all obligations of OpenTV under
the Related Agreements to which OpenTV is a party at the Closing has been taken.
The Related Agreements to which OpenTV is a party have been duly executed and
delivered by it and are valid and binding obligations of OpenTV enforceable
against OpenTV in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of
-5-
<PAGE>
creditors' rights; and (ii) general principles of equity that restrict the
availability of equitable remedies.
3.4 Financial Statements. The Company has delivered to each Purchaser (a)
the unaudited balance sheet as at June 30, 1999 and unaudited statements of
income, cash flow and stockholders' equity for the six-month period ending on
June 30, 1999 of OpenTV and its subsidiaries, and (b) the audited balance sheet
as at December 31, 1998 (the "Statement Date") and audited statements of income,
--------------
cash flow and stockholders' equity for the period then ended of OpenTV and its
subsidiaries, together with the related opinion of PriceWaterhouseCoopers,
independent certified public accountants, (collectively, the financial
statements described in clauses (a) and (b) above, the "Financial Statements"),
--------------------
copies of which are attached hereto as Exhibit H. The Financial Statements,
---------
together with the notes thereto, are in accordance with the books and records of
OpenTV and its subsidiaries, have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except as disclosed therein, and present
fairly the financial condition of OpenTV and its subsidiaries as of the
Statement Date and other dates therein specified and the results of its
operations for the periods therein specified; provided, however, that the
-------- -------
unaudited interim financial statements are subject to normal recurring year-end
audit adjustments, and do not contain all footnotes required under generally
accepted accounting principles.
3.5 Liabilities. The OpenTV Companies have no material obligations or
liabilities (contingent or otherwise) not disclosed in the Financial Statements,
except current liabilities incurred, and obligations entered into, in the
ordinary course of business subsequent to the Statement Date which neither have,
nor are reasonably expected to have, either in any individual case or in the
aggregate, a material adverse effect on the business, financial condition or
operations of the OpenTV Companies, taken as a whole.
3.6 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of the
Company's A Ordinary Shares listed on Exhibit D to this Agreement, true and
---------
complete copies of which have been made available to the Purchasers prior to the
execution and delivery of this Agreement by the Purchasers, there are no
agreements between the OpenTV Companies and any of their officers or directors.
(b) There are no agreements, understandings, instruments, contracts,
judgments, orders, writs or decrees to which the OpenTV Companies are a party
which may involve (i) obligations of, or payments to, an OpenTV Company in any
year in excess of $200,000, individually or in the aggregate (other than
obligations of, or payments to, the OpenTV Companies arising from purchase or
sale agreements entered into in the ordinary course of business or other than as
covered by clause (ii) hereof), or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the OpenTV Companies (other
than licenses arising from the purchase of or license to or from the OpenTV
Companies of "off the shelf," "shrink wrap" or other standard products), or
(iii) provisions restricting or affecting the development, manufacture or
distribution of the OpenTV Companies' products or services.
-6-
<PAGE>
3.7 Obligations to Related Parties. There are no agreements, arrangements
or understandings between the Company and the officers, directors or employees
of the OpenTV Companies other than (a) for payment of salary for services
rendered in accordance with employment agreements listed on Exhibit D or
---------
employment arrangements described on Exhibit D, (b) reimbursement for reasonable
---------
expenses incurred on behalf of the OpenTV Companies and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under the Company's stock option plan approved by
the Board of Directors of the Company). Except as may be disclosed in the
Financial Statements, none of the OpenTV Companies is a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.
3.8 Changes. Since the Statement Date, there has not been:
(a) Any change in the financial condition, operations or business of
the OpenTV Companies from that reflected in the Financial Statements, other than
changes in the ordinary course of business, none of which individually or in the
aggregate has had or is reasonably expected to have a material adverse effect on
such financial condition, operations or business of the OpenTV Companies, taken
as a whole;
(b) Any resignation or termination of any key officers of the OpenTV
Companies;
(c) Any material change in the consolidated contingent obligations of
the OpenTV Companies, taken as a whole by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any cancellation, compromise or waiver by the OpenTV Companies of
a right or of a debt owed to it which is material to the OpenTV Companies, taken
as a whole;
(e) Any direct or indirect loans made by the OpenTV Companies to any
stockholder, employee, officer or director of the OpenTV Companies other than
ordinary and reasonable advances for travel expenses currently outstanding;
(f) Any change in any compensation arrangement with any employee,
officer or director which is material to the OpenTV Companies, taken as a whole;
(g) Any declaration or payment of any dividend or other distribution
of the assets of the OpenTV Companies or any purchase or redemption of any of
its outstanding capital stock other than repurchases from employees or former
employees in connection with the cessation of their employment under stock
option agreements;
(h) Any sale, transfer or lease of the tangible assets of the OpenTV
Companies, except in the ordinary course of business consistent with past
practice in an aggregate amount not exceeding $100,000, or any written proposal
by the OpenTV Companies to make any such sale, transfer or lease;
-7-
<PAGE>
(i) Any physical damage, destruction or loss (whether or not covered
by insurance) which individually or in the aggregate has had or is reasonably
expected to have a material adverse effect on the business, financial condition
or operations of the OpenTV Companies, taken as a whole;
(j) Any mortgage, pledge or lien (excluding involuntary or tax liens
which arise as a matter of law and not by reason of any failure by the OpenTV
Companies to pay taxes when due), incurred with respect to any of the assets of
the OpenTV Companies;
(k) Any other event or condition of any character that, either
individually or in the aggregate, would have a material adverse effect on the
business, financial condition or operations of the OpenTV Companies, taken as a
whole.
3.9 Title to Tangible Assets; Liens, etc. The OpenTV Companies have good
and marketable title to their tangible assets, including the tangible assets
reflected in the most recent balance sheet included in the Financial Statements,
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
(i) those resulting from taxes which have not yet become delinquent, (ii) liens
and encumbrances (x) which do not materially detract from the value of the
property subject thereto or materially impair the operations of the OpenTV
Companies, taken as a whole, or (y) which are involuntary and in connection with
which the secured party has not sought to enforce any rights thereunder, and
(iii) those that have otherwise arisen in the ordinary course of business
consistent with past practice. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned or leased by the OpenTV Companies are in
good operating condition and repair except to the extent that the failure to be
in such condition would not have a material adverse effect on the OpenTV
Companies or their businesses, taken as a whole.
3.10 Patents and Trademarks. To the knowledge of the Company, the OpenTV
Companies own or possess sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information and other
proprietary rights and processes necessary for their businesses as now
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor are the OpenTV Companies bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes of any other person or entity other than
such licenses or agreements arising in the ordinary course of business or from
the purchase of "off the shelf", "shrink wrap" or standard products. The OpenTV
Companies are not obligated under any liability whatsoever to make any payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright, trade
secret, information or other proprietary right, with respect to the use thereof,
or in connection with the conduct of their businesses. The OpenTV Companies
have not received any communications alleging that the OpenTV Companies have
violated or, by conducting their businesses as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity. The Company is not
aware that any of its employees is obligated under any contract or other
agreement that would interfere with their duties to the OpenTV Companies. The
-8-
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Company does not believe it is necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the OpenTV Companies, except for inventions, trade secrets or
proprietary information that have been assigned to the OpenTV Companies.
The OpenTV Companies have taken all actions (including, but not
limited to, filing patent applications or otherwise seeking intellectual
property protection for their inventions and other intellectual property rights)
which are necessary, in the exercise of their reasonable business judgment, to
protect the intellectual property rights of the OpenTV Companies in those
jurisdictions (including the U.S.) from which the OpenTV Companies derive or
expect to derive material revenue or in which the business conducted or expected
to be conducted is material to the OpenTV Companies.
3.11 Compliance with Other Instruments. None of the OpenTV Companies is in
violation or default of (a) any term of its respective Memorandum or Articles of
Association or Certificate of Incorporation or Bylaws, as applicable, or (b) any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or of any judgment, decree, order, writ applicable
to it which would materially and adversely affect the financial condition,
operations or business of the OpenTV Companies, taken as a whole. The execution,
delivery, and performance of and compliance with this Agreement and each of the
Related Agreements, and the issuance and sale of the Preference Shares and the
Warrants pursuant hereto, the Conversion Shares pursuant to the Memorandum and
the Warrants Shares upon exercise of the Warrants will not result in any
material violation or material default under the Memorandum or Articles of
Association or the Warrants, or be in material conflict with or constitute a
material default under any of the contracts or agreements set forth in clause
(b) above, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the OpenTV Companies.
3.12 Litigation. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, threatened against the OpenTV Companies
that questions the validity of this Agreement or any Related Agreement, the
Memorandum or the Articles of Association, or the right of the Company or OpenTV
to enter into this Agreement or any Related Agreement, or to consummate the
transactions contemplated hereby or thereby, or which would result in any
material adverse change in the financial condition, operations or business of
the OpenTV Companies, taken as a whole. The OpenTV Companies are not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
3.13 Tax Returns and Payments. The OpenTV Companies have timely filed all
tax returns (federal, state and local) required to be filed by them. All taxes
shown to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the OpenTV Companies on
or before the Closing have been paid prior to the time they become delinquent.
The Company has not been advised (i) that any of the OpenTV Companies' returns,
federal, state or other, have been or are being audited as of the date hereof,
or (ii) of any deficiency in assessment or proposed judgment to their federal,
state or other taxes. The Company has no knowledge
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of any liability of any tax to be imposed upon the OpenTV Companies' properties
or assets as of the date of this Agreement that is not adequately provided for.
The OpenTV Companies have not executed any waiver of any statute of limitations
on the assessment or calculation of any tax or governmental charge. The OpenTV
Companies have withheld or collected from each payment made to each of their
employees the amount of all taxes required to be withheld or collected
therefrom.
3.14 Employees. None of the OpenTV Companies has a collective bargaining
agreement with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to the
OpenTV Companies. No employee has any agreement or contract regarding such
employee's employment other than standard letters regarding employment. The
OpenTV Companies are not a party to any currently effective employment contract,
deferred compensation arrangement, bonus plan, incentive plan, profit sharing
plan, retirement agreement or other employee compensation plan or agreement. No
employee of the OpenTV Companies has been granted the right to continued
employment by the OpenTV Companies or to any material compensation following
termination of employment with the OpenTV Companies. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the OpenTV Companies.
3.15 Registration Rights. Except as required pursuant to the Investors'
Rights Agreement with respect to the Company's A Ordinary Shares, or as
contemplated in the Step Summary, none of the OpenTV Companies is presently
under any obligation, and has not granted any rights, to register (as defined in
Section 1 of the Investors' Rights Agreement) any of its presently outstanding
securities or any of its securities that may hereafter be issued.
3.16 Compliance with Laws; Permits. The OpenTV Companies are not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of their businesses or the ownership of their properties
which violation would materially and adversely affect the financial condition,
operations or business of the OpenTV Companies, taken as a whole. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained by any of the OpenTV Companies and no registrations or
declarations are required to be filed by any of the OpenTV Companies in
connection with the execution and delivery of this Agreement and the Related
Agreements and the offer, sale or issuance of the Preference Shares, the
Conversion Shares, the Warrants and the Warrant Shares or the exchange of shares
of OpenTV for shares of the Company, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The OpenTV Companies have all
franchises, permits, licenses and any similar authority necessary for the
conduct of their businesses as now being conducted by them, the lack of which
would materially and adversely affect the financial condition, operations or
business of the OpenTV Companies, taken as a whole.
3.17 Offering Valid. Assuming due payment for the Preference Shares and
the Warrants and the accuracy of the representations and warranties of the
Purchasers contained in Section 4.5 hereof, the offer, sale and issuance of the
Preference Shares, Conversion Shares, the Warrants and the Warrant Shares will
be exempt from the
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registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
--------------
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws, and no
registration, permit or qualification requirements under the laws of the British
Virgin Islands are applicable to the offer, sale and issuance by the Company of
the Preference Shares, the Conversion Shares, the Warrants and the Warrant
Shares in accordance herewith.
3.18 Insurance. The OpenTV Companies maintain one or more policies of
insurance issued by insurers of recognized responsibility, insuring the OpenTV
Companies and their properties and business against such losses and risks, and
in such amounts, as are customary in the case of companies of established
reputation engaged in the same or similar business and similarly situated. The
Company has no reason to believe that the OpenTV Companies' will be unable to
renew existing insurance coverage as and when the same shall expire upon terms
at least as favorable to those presently in effect, other than possible
increases in premiums that do not result from any act or omission of the OpenTV
Companies.
3.19 Employment Benefit Plans-ERISA. The OpenTV Companies do not maintain
or make contributions to any pension, profit sharing or other employee
retirement benefit plan ("Plans"). The OpenTV Companies have no material
-----
liability with respect to any such Plans (including, without limitation, any
unfunded liability or any accumulated funding deficiency) or any material
liability to the Pension Benefit Guaranty Corporation or under Title IV of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
-----
respect to a multi-employer pension benefit plan, nor would the OpenTV Companies
have any such liability if any such plan were terminated or if the OpenTV
Companies withdrew, in whole or in part, from any multi-employer plan. To the
Company's knowledge, the OpenTV Companies' ERISA Plans are in compliance in all
material respects with ERISA, the Internal Revenue Code and other applicable
legal requirements. The OpenTV Companies have filed all material reports
required to be filed by them with the Internal Revenue Service under ERISA and
the Internal Revenue Code.
3.20 Interested Party Transactions. To the Company's knowledge, no
stockholder of the Company or any of its affiliates has, either directly or
indirectly, an interest in any person which (a) furnishes or sells services or
products which are furnished or sold by the OpenTV Companies, or (b) purchases
from or sells or furnishes to the OpenTV Companies any goods or services.
3.21 Environmental Matters. To the Company's knowledge, neither the OpenTV
Companies nor any other person has released, stored, generated, used, treated,
deposited or disposed of on any real property owned or leased by the OpenTV
Companies any hazardous material, hazardous substance or toxic substance as
defined in applicable environmental laws, rules and regulations ("Hazardous
---------
Materials"). No notice, citation, summons or order has been received by the
- ---------
Company with respect to (a) any alleged violation by the OpenTV Companies of any
environmental statute, ordinance, rule, regulation or order of any governmental
entity, or (b) any alleged failure by the OpenTV Companies to have any
environmental permit, certificate, license, approval, registration
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or authorization required in connection with its business, and, to the Company's
knowledge, no such violation or failure has been threatened.
3.22 Full Disclosure. This Agreement, the Exhibits hereto and the Related
Agreements and the Registration Statement on Form F-1 of the Company filed with
the Securities and Exchange Commission on August 27, 1999, as amended by that
certain Amendment No. 1 filed with the Securities and Exchange Commission on
October 7, 1999 (as amended, the "Registration Statement"), do not contain any
----------------------
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which made, not misleading as of such date.
3.23 Taxes. There are no taxes, stamp taxes, withholdings, levies,
registration taxes, or similar duties or charges now due under the laws of the
British Virgin Islands in connection with the Company's execution, delivery,
performance, issuance, enforcement or admission into evidence in the British
Virgin Islands of this Agreement, the Related Agreements, the Preference Shares
or the Warrants, in connection with any payment to be made pursuant hereto or
thereto or in connection with the admissibility in evidence thereof. No
exchange or transfer permits are necessary to be obtained by the Company under
the laws of the British Virgin Islands for the payment of any amounts to be paid
pursuant to the Related Agreements, the Preference Shares or the Warrants.
3.24 Reorganization.
(a) Exhibit D contains a true and complete summary (the "Step
--------- ----
Summary") that specifies each action contemplated to be taken by the Company and
OpenTV prior to the Closing and each action to be taken by either of them
following the Closing in connection with the Reorganization (as defined below).
As of the Closing Date, (i) the Company shall own, of record and beneficially,
78.5% of the outstanding capital stock of OpenTV (which shares will constitute
79.6% of the voting power of the capital stock of OpenTV) and, to the Company's
knowledge, no other person will have record or beneficial ownership of or right
to acquire OpenTV's outstanding capital stock except as set forth in the Step
Summary, (ii) the Company shall have entered into the Exchange Agreement with
Sun TSI Subsidiary, Inc., a Delaware corporation ("SSI"), (iii) the Company,
---
SSI, OTV Holdings Limited, Sun Microsystems, Inc. and OpenTV shall have entered
into an amendment and restatement of that certain Amended and Restated
Stockholders' Agreement dated March 18, 1999, a true and complete copy of which
shall have been provided to the Purchasers and (iv) MIH, MIH Limited, Sun
Microsystems, Inc., SSI and OpenTV shall have entered into a Termination
Agreement with respect to the obligations of MIH and MIH Limited under that
certain Amended and Restated Stockholders' Agreement dated March 18, 1999 (the
foregoing transactions are collectively referred to as the "Reorganization").
--------------
(b) As of the Closing Date, after giving effect to the purchase by SSI
of 4,504,504 C-2 Convertible Preference Shares and to the purchase of the
Preference Shares by the Purchasers (but without giving effect to the exercise
of any Warrants or any other convertible securities outstanding as of the
Closing Date), OTV Holdings Limited controls 84.5% of the total voting power of
the Company.
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(c) None of the transactions undertaken or to be undertaken in
connection with the Reorganization have had or is reasonably expected to (i)
have any material adverse effect upon the financial condition, operations or
business (including, without limitation, the obligations of OpenTV under and the
obligations of other persons to OpenTV under any existing agreements or
contracts to which OpenTV is a party) of the OpenTV Companies, taken as a whole,
(ii) have any material adverse effect upon the financial accounting or tax
accounting status of the OpenTV Companies, taken as a whole, or (iii) cause any
representation or warranty made in this Agreement or any of the Related
Agreements by the Company or OpenTV to be untrue as of the date made or become
untrue at the Closing Date if such representation or warranty is to be given by
the Company or OpenTV as of the Closing Date.
3.25 C-2 Convertible Preference Shares. Concurrent with the sale of
the Preference Shares to the Purchasers, subject to expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Company is issuing and selling 4,504,504 C-2
-------
Convertible Preference Shares to SSI pursuant to that certain C-2 Preference
Share Purchase Agreement (the "SSI Purchase Agreement"), dated of even date
----------------------
herewith between SSI and the Company, a copy of which has been made available to
the Purchasers.
4. Representations and Warranties of the Purchasers.
Each Purchaser hereby represents and warrants to the Company, severally and
not jointly, as follows:
4.1 Organization, Good Standing and Qualification. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization. Purchaser has all requisite corporate power
and authority to execute and deliver this Agreement and each of the Related
Agreements to which it is a party, to purchase the Warrants and the Warrant
Shares and the Preference Shares and the Conversion Shares hereunder, and to
carry out the provisions of this Agreement and each of the Related Agreements to
which it is a party.
4.2 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements to which it is a party and to carry out its
obligations thereunder. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing.
4.3 Authorization; Binding Obligations. All corporate action on the part
of Purchaser necessary for the authorization of this Agreement and the Related
Agreements to which it is a party, the performance of all obligations of
Purchaser hereunder and thereunder at the Closing has been taken. The Agreement
and the Related Agreements to which it is a party have been duly executed and
delivered and are valid and binding obligations of Purchaser enforceable against
Purchaser in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; (ii) general principles
of equity that restrict the availability of equitable remedies; and (iii) to the
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extent that the enforceability of the indemnification provisions in Section 7 of
the Investors' Rights Agreement may be limited by principles of public policy.
4.4 Compliance with Laws. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed by Purchaser in connection with the
execution and delivery of this Agreement and the Related Agreements to which it
is a party and the purchase of the Preference Shares, the Conversion Shares, the
Warrants and the Warrant Shares, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner.
4.5 Investment Representations. Purchaser understands that neither
the Preference Shares, the Conversion Shares, the Warrants nor the Warrant
Shares have been registered under the Securities Act. Purchaser also
understands that the Preference Shares and the Warrants are being offered and
sold and the Conversion Shares and Warrant Shares will be offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations and warranties contained in this
Agreement. Purchaser hereby represents and warrants as follows:
(a) Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Preference Shares (or the Conversion
Shares), the Warrants (or the Warrant Shares) are registered pursuant to the
Securities Act, or an exemption from registration is available.
(b) Acquisition for Own Account. Purchaser is acquiring the
Preference Shares (and the Conversion Shares) and the Warrants (and the Warrant
Shares) for Purchaser's own account for investment only, and Purchaser has no
present intention to distribute, sell or dispose of any of the securities being
acquired by it hereunder.
(c) Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(d) Company Information. Purchaser has had an opportunity to discuss
the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has received all information it
considers necessary or appropriate for deciding whether to invest in the
Company.
(e) Rule 144. Purchaser acknowledges and agrees that the Preference
Shares and the Warrants, and, upon issuance, the Conversion Shares and the
Warrant Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser has been advised or is aware of the provisions of Rule144 promulgated
under the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions.
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<PAGE>
(f) Residence. The office or offices of the Purchaser in which its
investment decision with respect to the Company was made is located at the
address of the Purchaser set forth on Exhibit A.
(g) No Public Market. Purchaser understands that no public market
now exists for any of the securities issued by the Company and that the Company
has made no assurances that a public market will ever exist for the Company's
securities.
4.6 Transfer Restrictions. Purchaser acknowledges and agrees that the
Preference Shares and the Warrants and, upon issuance, the Conversion Shares and
the Warrant Shares are subject to restrictions on transfer as set forth in the
Investors' Rights Agreement.
5. Conditions to Closing.
5.1 Conditions to Purchasers' Obligations at the Closing. Purchasers'
obligations to purchase the Preference Shares and the Warrants at the Closing
are subject to the satisfaction, at or prior to the Closing, of the following
conditions (provided that, to the extent the satisfaction of any of such
conditions is within the control of a Purchaser, that Purchaser shall use its
commercially reasonable efforts to cause such condition to be satisfied as
promptly as possible):
(a) Representations and Warranties True. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date with the same force and effect as
if they had been made as of the Closing Date.
(b) Performance of Obligations. The OpenTV Companies shall have
performed and complied with all agreements and conditions hereinunder required
to be performed or complied with by the OpenTV Companies on or before the
Closing.
(c) Legal Investment. On the Closing Date, the sale and issuance of
the Preference Shares and the Warrants and the proposed issuance of the
Conversion Shares and the Warrant Shares shall be legally permitted by all laws
and regulations to which Purchasers and the Company are subject.
(d) Consents, Permits, and Waivers. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation by the Company of the transactions contemplated by the Agreement
and the Related Agreements (except for such as may be properly obtained
subsequent to the Closing).
(e) Filing of Memorandum. The Memorandum of Association and the
Amendment shall have been duly adopted by the Company and filed with the
Registrar of Companies of the British Virgin Islands.
(f) Corporate Documents. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company as
Purchasers shall reasonably request.
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<PAGE>
(g) Reservation of Conversion Shares and Warrant Shares. The
Conversion Shares issuable upon conversion of the Preference Shares shall have
been duly authorized and reserved for issuance upon such conversion, and the
Warrant Shares issuable upon exercise of the Warrants shall have been duly
authorized and reserved for issuance upon such exercise.
(h) Compliance Certificate. The Company shall have delivered to
Purchasers a Compliance Certificate, executed by an authorized representative of
the Company, dated the date of the Closing, to the effect that the conditions
specified in subsections (a), (b), (c), (d), (e) (except for the filing required
by such subsection, which the Company shall effect promptly after the Closing),
(g), (o), (p) and (q) of this Section 5.1 have been satisfied.
(i) Investors' Rights Agreement. The Investors' Rights Agreement in
the form attached hereto as Exhibit E shall have been executed and delivered by
---------
the parties thereto.
(j) Exchange Agreement. Each of the parties thereto shall have
executed and delivered the Exchange Agreement in the form attached as Exhibit F
---------
hereto, and a copy thereof shall have been provided to each Purchaser.
(k) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers and their special counsel,
and the Purchasers and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
(l) Legal Opinion. Purchasers shall have received an opinion of
Paul, Hastings, Janofsky & Walker LLP with respect to certain matters of United
States Federal and California state law, of James Brown, General Counsel of
OpenTV with respect to certain matters of United States, Federal and California
state law, of Cravath, Swaine and Moore with respect to certain matters of
United States Federal and applicable state law and of Harney, Westwood & Riegels
with respect to matters of the law of the British Virgin Islands, substantially
in the form of Exhibit I-1, Exhibit I-2, Exhibit I-3 and Exhibit I-4, hereto,
----------- ----------- ----------- -----------
respectively.
(m) Reorganization. The steps relating to the Reorganization prior
to the Closing Date set forth in the Step Summary shall have been completed to
the Purchaser's reasonable satisfaction.
(n) F-1 Registration Statement. Purchasers shall have received a
copy of the Registration Statement in form and substance reasonably satisfactory
to the Purchaser.
(o) Stockholders' Agreement. The Company, SSI, OTV Holdings Limited,
Sun Microsystems, Inc. and OpenTV shall have amended and restated that certain
Amended and Restated Stockholders Agreement dated March 18, 1999, and the
Purchasers shall have been provided with a copy of such agreement.
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<PAGE>
(p) SSI Purchase Agreement. SSI and the Company shall have executed
the SSI Purchase Agreement containing as its sole condition to close (other than
the payment of the purchase price and the delivery of stock certificates as
provided therein) the expiration or early termination of the waiting period
under the HSR Act. The Purchasers shall have been furnished with such evidence
of the execution of the SSI Purchase Agreement as the Purchasers reasonably
requested, including, without limitation, a signed copy of the SSI Purchase
Agreement.
(q) Shareholders' Agreement. OTV Holdings Limited, SSI and the
Company shall have entered into a Shareholders' Agreement in the form attached
as Exhibit J, and a copy thereof shall have been provided to each Purchaser.
---------
5.2 Conditions to Obligations of the Company. The Company's obligation to
issue and sell the Preference Shares and the Warrants is subject to the
satisfaction, on or prior to the Closing, of the following conditions (provided
that, to the extent the satisfaction of any of such conditions is within the
control of the Company, the Company shall use its commercially reasonable
efforts to cause such condition to be satisfied as promptly as possible):
(a) Representations and Warranties True. The representations and
warranties made by each Purchaser in Section 4 hereof shall be true and correct
in all material respects at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) Performance of Obligations. Purchasers shall have performed and
complied with all agreements and conditions herein required to be performed or
complied with by Purchasers on or before the Closing.
(c) Investors' Rights Agreement. An Investors' Rights Agreement
substantially in the form attached hereto as Exhibit E shall have been executed
---------
and delivered by the Purchasers.
(d) Consents, Permits, and Waivers. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
(e) Operating Agreements. Each Purchaser shall have entered into an
operating agreement with respect to the business of OpenTV with OpenTV on terms
and conditions acceptable to the Company.
(f) Stockholders Agreement. The Company, SSI, OTV Holdings Limited,
Sun Microsystems, Inc. and OpenTV shall have amended and restated that certain
Amended and Restated Stockholders Agreement dated March 18, 1999.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all respects by
the internal substantive laws, and not the laws of conflicts, of the State of
California.
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6.2 Successors and Permitted Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors and permitted
assigns and shall inure to the benefit of and be enforceable by each such
person. Neither this Agreement nor any right or obligation hereunder shall be
assignable or delegable except with the prior written consent of all parties
hereto.
6.3 Entire Agreement. This Agreement, the Exhibits and Schedules hereto,
the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and supercede all prior agreements,
commitments and contracts with respect to the subject matter hereof. No party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
6.4 Severability. In case any provision of the Agreement shall be
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.5 Amendment. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by all the parties hereto.
6.6 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, any Related
Agreement or the Memorandum (as amended by the Amendment), shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any party's part of any breach, default or noncompliance under this Agreement,
any Related Agreement or under the Memorandum (as amended by the Amendment), or
any waiver on such party's part of any provisions or conditions of the
Agreement, the Related Agreements, or the Memorandum (as amended by the
Amendment) must be in writing and shall be effective only to the extent
specifically set forth in such writing.
6.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(iii) three (3) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at 401 East Middlefield Road, Mountain View, California 94043 and to
each Purchaser at its address set forth on Exhibit A attached hereto or at such
other address as the Company or a Purchaser may designate by advance written
notice to the other parties hereto.
-18-
<PAGE>
6.8 Expenses. Each party hereto shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement and the Related Agreements.
6.9 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants.
6.10 Headings. The headings of the sections and subsections of the
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.12 Pronouns. All pronouns contained herein and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the parties hereto may require.
6.13 No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of the Agreement. In the event an ambiguity or
question of intent or interpretation arises, the Agreement shall be construed as
if drafted jointly by the parties hereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of the Agreement.
6.14 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.14 being untrue.
6.15 Consent to Exclusive Jurisdiction. EACH PARTY HERETO HEREBY CONSENTS
TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF SANTA CLARA, STATE OF CALIFORNIA, AND IRREVOCABLY AGREES THAT ALL
ACTIONS OR PROCEEDINGS RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE RELATED
AGREEMENTS, THE PREFERENCE SHARES, THE WARRANTS, THE CONVERSION SHARES OR THE
WARRANT SHARES SHALL BE TRIED AND LITIGATED ONLY IN SUCH COURTS. EACH PARTY
HERETO HEREBY WAIVES TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, AND AGREES
NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH ACTION,
SUIT, OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF THE ABOVE-NAMED COURTS, THAT IT IS IMMUNE FROM EXTRATERRITORIAL
-19-
<PAGE>
INJUNCTIVE RELIEF OR OTHER INJUNCTIVE RELIEF, THAT ITS PROPERTY IS EXEMPT OR
IMMUNE FROM ATTACHMENT OR EXECUTION, THAT ANY SUCH ACTION, SUIT, OR PROCEEDING
MAY NOT BE BROUGHT OR MAINTAINED IN ONE OF THE ABOVE-NAMED COURTS, THAT ANY SUCH
ACTION, SUIT OR PROCEEDING BROUGHT OR MAINTAINED IN ONE OF THE ABOVE-NAMED
COURTS SHOULD BE DISMISSED ON THE GROUNDS OF FORUM NON CONVENIENS, SHOULD BE
--------------------
TRANSFERRED TO ANY COURT OTHER THAN ONE OF THE ABOVE-NAMED COURTS, OR THAT THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY ANY OF THE
ABOVE-NAMED COURTS. EACH OF THE PARTIES HERETO HEREBY CONSENTS TO SERVICE OF
PROCESS IN ANY SUCH ACTION, SUIT, OR PROCEEDING IN ANY MANNER PERMITTED BY THE
LAWS OF THE STATE OF CALIFORNIA, AGREES THAT SERVICE OF PROCESS BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE PERSONS AND AT THE ADDRESSES
SET FORTH IN SECTION 6.7 ABOVE, IS REASONABLY CALCULATED TO GIVE ACTUAL NOTICE,
-----------
AND WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE,
IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY CLAIM THAT SUCH SERVICE OF PROCESS
DOES NOT CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS.
6.16 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE RELATED AGREEMENTS, THE PREFERENCE SHARES, THE WARRANTS, THE
CONVERSION SHARES OR THE WARRANT SHARES, OR THE SUBJECT MATTER HEREOF OR
THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THIS SECTION 6.16 HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND
THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO
HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR
MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY
THE COURT.
6.17 Survival of Representations and Agreements. All representations and
warranties made by any party hereto contained in this Agreement or in any
certificate, document or instrument delivered pursuant to this Agreement shall
survive the Closing, the consummation of the transactions contemplated hereby
and any investigation made at
-20-
<PAGE>
any time by or on behalf of any of the parties hereto and shall continue in full
force and effect until the first anniversary of the Closing, other than the
representations and warranties contained in Sections 3.1, 3.2 and 3.3 which
shall survive indefinitely.
6.18 Specific Performance. The parties hereto acknowledge and agree that a
breach or threatened breach by any party of its covenants or obligations
contained in this Agreement will result in irreparable and continuing damage to
the other parties to this Agreement for which they have no adequate remedy at
law and that any party may, in addition to the other remedies that may be
available to it, commence proceedings in equity for specific performance and/or
an injunction preliminarily or permanently enjoining any other party from
breaching or threatening any such breach of any such covenant or agreement. No
bond or other security shall be necessary with respect to such relief.
[SIGNATURE PAGE FOLLOWS]
-21-
<PAGE>
In Witness Whereof, each party hereto has caused this C-1 Convertible
Preference Shares and Warrant Purchase Agreement to be executed by its duly
authorized representative as of the date set forth in the first paragraph
hereof.
COMPANY: PURCHASERS:
OPENTV CORP. AMERICA ONLINE, INC.
By:__________________ By:______________________
Name:_______________ Name:____________________
Title:________________ Title:_____________________
GENERAL INSTRUMENT CORPORATION
By:______________________
Name:____________________
Title:_____________________
LDIG OTV, INC.
By:______________________
Name:____________________
Title:_____________________
NEWS AMERICA INCORPORATED
By:______________________
Name:____________________
Title:_____________________
TWI-OTV HOLDINGS INC.
By:______________________
Name:____________________
Title:_____________________
[SIGNATURE PAGE TO C-1 CONVERTIBLE PREFERENCE SHARES AND
WARRANT PURCHASE AGREEMENT]
-22-
<PAGE>
For purposes of Section 3.1(b), 3.2(b)
and 3.3(b) only,
OPENTV, INC.
By:__________________________
Name:________________________
Title:________________________
-23-
<PAGE>
Exhibit A
C-1 CONVERTIBLE PREFERENCE SHARES AND
WARRANT PURCHASE AGREEMENT
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS
----------------------
Share Warrant Total Purchase
----- ------- --------------
Name and Address Shares Warrant Shares Purchase Price Purchase Price Price
- ------------------------------------------- ---------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
LDIG OTV, Inc. 5,630,630 5,630,630 $ 6,249,999.30 $ 563.06 $ 6,250,562.36
9197 South Peoria
Englewood, Colorado 80112
Attn.: General Counsel/Legal Department
General Instrument Corporation 2,252,252 2,252,252 $ 2,499,999.72 $ 225.23 $ 2,500,224.95
101 Tournament Drive
Horsham, Pennsylvania 19044
Attn.: General Counsel/Legal Department
America Online, Inc. 4,504,504 4,504,504 $ 4,999,999.44 $ 450.45 $ 5,000,449.89
22000 AOL Way
Dulles, Virginia 20166
Attn.: General Counsel/Legal Department
News America Incorporated 5,630,630 5,630,630 $ 6,249,999.30 $ 563.06 $ 6,250,562.36
1211 Avenue of the Americas
New York, New York 10036
Attn.: General Counsel/Legal Department
TWI-OTV Holdings Inc. 5,630,630 5,630,630 $ 6,249,999.30 $ 563.06 $ 6,250,562.36
75 Rockefeller Plaza
New York, New York 10019
Attn.: General Counsel/Legal Department
Totals: 23,648,646 23,648,646 $26,249,997.06 $2,364.86 $26,252,361.92
</TABLE>
<PAGE>
Exhibit B
WARRANTS
<PAGE>
Exhibit C
MEMORANDUM OF ASSOCIATION OF THE COMPANY
<PAGE>
Exhibit D
SCHEDULE OF EXCEPTIONS
<PAGE>
Exhibit E
INVESTORS' RIGHTS AGREEMENT
<PAGE>
Exhibit F
EXCHANGE AGREEMENT
<PAGE>
Exhibit G
LIST OF SHAREHOLDERS
<PAGE>
Exhibit H
FINANCIAL STATEMENTS
<PAGE>
Exhibit I-1
LEGAL OPINION
<PAGE>
Exhibit I-2
LEGAL OPINION
<PAGE>
Exhibit I-3
LEGAL OPINION
<PAGE>
Exhibit J
SHAREHOLDERS' AGREEMENT
<PAGE>
Exhibit K
AMENDMENT TO MEMORANDUM OF ASSOCIATION
<PAGE>
EXHIBIT 10.12
EXCHANGE AGREEMENT
------------------
THIS EXCHANGE AGREEMENT (this "Agreement") is entered into as of
---------
October 23, 1999 by and among OpenTV Corp., a British Virgin Islands corporation
(the "Company"), OpenTV, Inc., a Delaware corporation ("OpenTV"), and Sun TSI
------- ------
Subsidiary, Inc., a Delaware corporation ("SSI").
---
RECITALS
--------
A. Myriad International Holdings BV, a company organized under the
laws of the Netherlands ("MIH"), has transferred its equity interest in OpenTV,
---
to the Company in exchange for which OTV Holdings Limited, a subsidiary of MIH
("OTVH"), has received B Ordinary Shares of the Company.
----
B. SSI shall have the right, pursuant to this Agreement, to exchange
all of its shares of Class B Common Stock of OpenTV for shares of the B Ordinary
Shares of the Company.
C. The parties desire to enter into this Agreement subject to the
terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
1. Right to Exchange Securities. SSI shall have the irrevocable,
----------------------------
perpetual right (the "Exchange Right"), subject to the terms and conditions of
--------------
this Agreement, to exchange each share of Class B Common Stock of OpenTV (the
"OpenTV Shares") for B Ordinary Shares of the Company (the "Exchange
- -------------- --------
Securities") as set forth herein. Each OpenTV Share shall be exchangeable into
the number of Exchange Securities which results from dividing the Initial
Exchange Price (as defined below) of the OpenTV Shares in effect at the time of
the exchange by the BVI Exchange Price (as defined below) in effect at the time
of the exchange. The Initial Exchange Price shall be U.S. one dollar and eleven
cents (U.S.$1.11). The BVI Exchange Price shall be U.S. one dollar and eleven
cents (U.S.$1.11). The Initial Exchange Price and the BVI Exchange Price shall
be subject to adjustment, from time to time, as set forth in paragraph 3 of this
Agreement.
<PAGE>
2. Mechanics of Exchange.
---------------------
(a) SSI may exercise the Exchange Right set forth in paragraph 1 above
by delivering a written notice (the "Exchange Notice") to the Company which sets
---------------
forth the number of shares of OpenTV which SSI has elected to exchange. Each
Exchange Notice shall be irrevocable, and upon receipt of an Exchange Notice and
satisfaction of the conditions to such exchange, the Company and SSI shall be
obligated to effect the exchange of securities contemplated thereby.
(b) As promptly as practicable following receipt by the Company of an
Exchange Notice, each of the Company and SSI shall, and shall cause each of its
respective subsidiaries and the officers, directors and employees of such
subsidiaries to, (i) make any and all required applications or filings with, and
seek any required consents, approvals or waivers from, any governmental or
regulatory agencies, including, but not limited to under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended and the rules and regulations
thereunder (the "HSR Act") and applicable securities laws, (ii) use all
-------
reasonable efforts to obtain any and all such consents, approvals or waivers and
the termination of any applicable waiting period under the HSR Act, in each
case, which are reasonably necessary in connection with the exercise of each
Exchange Right, and (iii) use reasonable efforts to cooperate with, and express
its support for, such other party's efforts to obtain any such consents,
approvals and waivers. Upon receipt of such consents, approvals or waivers or
the expiration or termination of such waiting period, as the case may be, the
Company or SSI, as the case may be, shall notify the other of such receipt,
expiration or termination. Upon the receipt of all such required consents,
approvals or waivers and the termination of any applicable waiting period under
the HSR Act, SSI shall surrender certificates representing the OpenTV Shares
specified in the applicable Exchange Notice in exchange for the appropriate
stock certificate(s) pursuant to paragraph 2(c) hereof.
(c) At such time as all required consents, approvals, waivers and
terminations described in paragraph 2(b) have been obtained or waived, SSI shall
surrender its certificate or certificates for the Exchange Securities to be
exchanged, with appropriate stock powers attached, duly endorsed, at the office
of the Company or any transfer agent for the Exchange Securities, together with
a written notice to the Company that SSI is exchanging all or a specified number
of shares of OpenTV, represented by such certificate or certificates. Promptly
thereafter, the Company shall issue and deliver to SSI, a certificate or
certificates representing the Exchange Securities to be issued, conveyed and
delivered to SSI pursuant to paragraph 1 dated the applicable Exchange Date (as
defined below). Certificates representing the B Ordinary Shares of the Company
to be issued hereunder may include appropriate legends based on federal and
state securities laws or as required by that certain Investors' Rights Agreement
dated as of the date hereof, among the Company, SSI and others.
2
<PAGE>
(d) Each exchange of OpenTV Shares for Exchange Securities shall be
deemed to have been effected at the close of business on the date (the "Exchange
--------
Date") of receipt by the Company or any such transfer agent of the Exchange
- ----
Notice referred to in paragraph 2(a) above, subject to all applicable conditions
to such exchange having been satisfied.
(e) SSI shall be treated for all purposes as the record holder or
holders of Exchange Securities as of the close of business on the Exchange Date;
provided, however, that no surrender of OpenTV Shares on any date when the stock
transfer books of the Company are closed for any purpose shall be effective to
constitute the person entitled to receive the Exchange Securities deliverable
upon such exchange as the record holder(s) of such shares of the Exchange
Securities on such date, but such surrender shall be effective (assuming all
other requirements for the valid exchange of such shares have been satisfied) to
constitute such person as the record holder of such shares of the Exchange
Securities for all purposes as of the opening of business on the next succeeding
day on which such stock transfer books are open. Without limiting the first
sentence of this paragraph 2(e), as of the close of business on an Exchange
Date, the rights and obligations of SSI as the holder of the applicable OpenTV
Shares shall cease (other than with respect to such holder's right to receive
the Exchange Securities, with respect to required consents, approvals, waivers
and terminations as described herein and its obligation to deliver the
applicable certificate(s) for OpenTV Shares as provided herein).
(f) If SSI holds OpenTV Shares at the close of business on a record
date for any payment of declared dividends on such shares and the Company has
not received an Exchange Notice with respect to such OpenTV Shares on or before
such record date, SSI shall be entitled to receive the dividend payable on such
shares on the corresponding dividend payment date notwithstanding receipt by the
Company of an Exchange Notice for such OpenTV Shares following such record date
and prior to the corresponding dividend payment date.
(g) If the OpenTV Shares represented by a certificate surrendered for
exchange are exchanged in part only, then simultaneously with any such exchange,
OpenTV shall issue and deliver to SSI, without charge therefor, a new
certificate or certificates representing in the aggregate the number of
unexchanged shares.
3. Exchange Price Adjustments. The Initial Exchange Price and the
--------------------------
BVI Exchange Price shall be subject to adjustment from time to time as provided
below in this paragraph 3.
(a) Adjustment for Stock Splits and Combinations. If OpenTV at any
--------------------------------------------
time or from time to time after the date hereof effects a subdivision of the
OpenTV Shares, the Initial Exchange Price then in effect immediately before that
subdivision shall be proportionately decreased. If the Company at any time or
from time to time after the
3
<PAGE>
date hereof effects a subdivision of the outstanding Exchange Securities, the
BVI Exchange Price then in effect immediately before that subdivision shall be
proportionately decreased. If OpenTV at any time or from time to time after the
date hereof combines the outstanding OpenTV Shares into a smaller number of
shares, the Initial Exchange Price then in effect before the combination shall
be proportionately increased. If the Company at any time or from time to time
after the date hereof combines the outstanding Exchange Securities into a
smaller number of Shares, the BVI Exchange Price then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this subparagraph (a) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions. If the
--------------------------------------------------
Company at any time or from time to time after the date hereof makes, or fixes a
record date for the determination of holders of Exchange Securities entitled to
receive, a dividend or other distribution payable in additional shares of
Exchange Securities, then and in each such event the BVI Exchange Price then in
effect shall be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the BVI Exchange Price then in effect by a fraction (1) the
numerator of which is the total number of Exchange Securities issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which shall be the
total number of Exchange Securities issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date plus the
number of Exchange Securities issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the BVI Exchange Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the BVI Exchange Price
shall be adjusted pursuant to this paragraph 3(b) as of the time of actual
payment of such dividends or distributions.
(c) Adjustments for Other Dividends and Distributions. In the event
-------------------------------------------------
the Company at any time or from time to time after the date hereof makes, or
fixes a record date for the determination of holders of Exchange Securities
entitled to receive, a dividend or other distribution payable in shares of the
Company other than Exchange Securities, then and in each such event provision
shall be made so that SSI shall receive upon exchange of the OpenTV Shares, in
addition to the number of shares of Exchange Securities receivable thereupon,
the amount of securities of the Company which SSI would have received had the
OpenTV Shares owned by SSI been exchanged for Exchange Securities on the date of
such event and had SSI thereafter, during the period from the date of such event
to and including the date of exercise of the Exchange Right, retained such
securities receivable by SSI as aforesaid during such period, subject to all
other adjustments called for during such period under this paragraph 3(c) with
respect to the rights of SSI as a holder of the OpenTV Shares.
4
<PAGE>
(d) Adjustment for Reclassification, Exchange and Substitution. In
----------------------------------------------------------
the event that at any time or from time to time after the date hereof, Exchange
Securities issuable upon the exchange of the OpenTV Shares is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this paragraph 3),
then and in any such event SSI shall have the right thereafter to convert such
shares into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change, by
holders of the maximum number of Exchange Securities into which such OpenTV
Shares could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) Reorganizations, Mergers, Consolidations or Sales of Assets. If
-----------------------------------------------------------
at any time or from time to time after the date hereof there is a capital
reorganization of the Exchange Securities (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this paragraph 3) or a merger or consolidation of the Company with
or into another corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
SSI shall thereafter be entitled to receive upon exchange of the OpenTV Shares
the number of shares of stock or other securities or property to which a holder
of the number of Exchange Securities deliverable upon exchange would have been
entitled on such capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this paragraph 3 with respect to the rights of SSI as a holder of
the OpenTV Shares after the reorganization, merger, consolidation or sale to the
end that the provisions of this paragraph 3 (including adjustment of the BVI
Exchange Price then in effect and the number of Exchange Securities receivable
upon exchange of the OpenTV Shares) shall be applicable after that event and be
as nearly equivalent as may be practicable.
4. Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Initial Exchange Price or BVI Exchange Price, as the case
may be, or the number of Exchange Securities or other securities issuable upon
exchange of the OpenTV Shares, the Company, at its expense, shall cause the
Chief Financial Officer of the Company to compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to SSI. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (1) the BVI
Exchange Price, (2) the number of additional B Ordinary Shares of the Company to
be received by SSI upon the exercise of its Exchange Right and (3) the type and
amount, if any, of other property which at the time would be received upon
exchange of the OpenTV Shares.
5
<PAGE>
5. Notices of Record Date. In the event of (i) any taking by the
----------------------
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all of the assets of the Company to any
other person or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, the Company shall mail to SSI at least ten (10) days prior to
the record date specified therein (or such shorter time as may be determined in
good faith by the Board to be practicable under the circumstances, which shall
be not less than 3 Business Days), a notice (the "Notice") specifying (1) the
------
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (3) the date, if any, that is to be fixed, as to when the holders of record
of Exchange Securities (or other securities) shall be entitled to exchange their
Exchange Securities (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up. The Notice shall include all
material details relating to such dividend, distribution, reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up of the Company, including, without limitation, the type, amount and
the fair market value of any property or assets proposed to be distributed to
SSI as a holder of the OpenTV Shares in connection therewith.
6. Representations and Warranties of the Company. Except as set
---------------------------------------------
forth on the Schedule of Exceptions attached hereto as Exhibit A, the Company
---------
hereby represents and warrants to SSI as follows:
(a) Good Standing and Qualification. The Company is validly existing
-------------------------------
as a corporation in good standing under the laws of the British Virgin Islands
and has all requisite corporate power and authority to execute and deliver this
Agreement, to issue and sell the Exchange Securities hereunder, and to carry out
the provisions of this Agreement.
(b) Capitalization. Immediately prior to the date hereof, the Company
--------------
will be authorized to issue (i) 500,000,000 A Ordinary Shares, none of which are
issued and outstanding; (ii) 200,000,000 B Ordinary Shares, 153,158,733 shares
of which are issued and outstanding, (iii) 500,000,000 preference shares, (A)
24,000,000 shares of which have been designated as C-1 Convertible Preference
Shares and (B) 5,000,000 shares of which have been designated as C-2 Convertible
Preference Shares, none of which are issued and outstanding. Other than as set
forth on Exhibit A, there are no outstanding options, warrants, rights
---------
(including conversion or preemptive rights and rights of first refusal),
securities convertible into or exchangeable for capital stock, or
6
<PAGE>
agreements of any kind for the purchase, subscription or acquisition from the
Company of any capital stock of the Company.
(c) Authorization; Binding Obligations. All corporate action on the
----------------------------------
part of the Company necessary for the authorization of the execution and
delivery of this Agreement and the performance of all obligations of the Company
hereunder has been taken. The Agreement, when executed and delivered, will
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and (ii) general
principles of equity that restrict the availability of equitable remedies. The
issuance and sale of the Exchange Securities are not and will not be subject to
any preemptive rights, rights of first refusal, rights of first offer or other
similar rights granted by the Company that have not been properly waived or
complied with.
(d) Consents. No governmental orders, permissions, consents,
--------
approvals or authorizations are required to be obtained by the Company and no
registrations or declarations are required to be filed by the Company in
connection with the execution and delivery of this Agreement and the offer, sale
or issuance of the Exchange Securities, except as contemplated in Section 2(b)
and such as will be duly and validly obtained or filed.
(e) Compliance with Laws and Other Instruments. The execution,
------------------------------------------
delivery and performance by the Company of this Agreement (a) will not require
from the board of directors or stockholders of the Company any consent or
approval that has not been validly and lawfully obtained, (b) will not cause the
Company to violate or contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government, domestic or foreign, (iii) any order,
writ, judgment, injunction, decree, determination or award, or (iv) any
provision of the Memorandum or Articles of the Company, or (c) will not result
in a violation or conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under, any indenture, credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
agreement, lease or instrument to which the Company is a party or by which the
Company or any of its properties or assets are bound which would have a material
adverse effect on the Company.
(f) Offering Valid. Assuming the accuracy of the representations and
--------------
warranties of SSI contained in paragraph 7 hereof, the offer, sale and issuance
of the Exchange Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), will have been
--------------
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws, and no registration, permit or qualification requirements
under the laws of the British Virgin
7
<PAGE>
Islands are applicable to the offer, sale and issuance by the Company of the
Exchange Securities in accordance herewith.
7. Representations and Warranties of SSI. As of each Exchange
-------------------------------------
Date, SSI shall be deemed to have made the following representations and
warranties to the Company:
(a) Good Standing and Qualification. SSI has all requisite corporate
-------------------------------
power and authority to execute and deliver this Agreement and to carry out the
provisions of this Agreement.
(b) Authorization; Binding Obligations. All corporate action on the
----------------------------------
part of SSI necessary for the authorization of the execution and delivery of
this Agreement and the performance of all obligations of SSI hereunder has been
taken. The Agreement, when executed and delivered, will constitute the valid
and binding obligations of SSI enforceable against SSI in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and (ii) general principles of equity that
restrict the availability of equitable remedies.
(c) Consents. No governmental orders, permissions, consents, approvals
--------
or authorizations are required to be obtained by SSI and no registrations or
declarations are required to be filed by SSI in connection with the execution
and delivery of this Agreement, except as contemplated in Section 2(b) and such
as will be duly and validly obtained or filed.
(d) Ownership and Validity of OpenTV Shares. SSI owns beneficially
---------------------------------------
and of record all of the OpenTV Shares, free of any liens, claims, charges,
security interests, pledges, voting or stockholder agreements (other than those
to which MIH or OTVH is a party), encumbrances or equities (other than any of
the foregoing arising under this Agreement or any Federal or state securities
laws).
(e) Compliance with Laws and Other Instruments. The execution,
------------------------------------------
delivery and performance by SSI of this Agreement (a) will not require from the
board of directors or stockholders of SSI any consent or approval that has not
been validly and lawfully obtained, (b) will not cause SSI to violate or
contravene (i) any provision of law, (ii) any rule or regulation of any agency
or government, domestic or foreign, (iii) any order, writ, judgment, injunction,
decree, determination or award, or (iv) any provision of the certificate of
incorporation or bylaws of SSI, or (c) will not result in a violation or
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under, any indenture, credit agreement, note
agreement, deed of trust, mortgage, security agreement or other agreement, lease
or instrument to which SSI is a party or by which SSI or any of its properties
or assets are bound which would have a material adverse effect on SSI.
8
<PAGE>
(f) Investment Representations. SSI understands that none of the
--------------------------
Exchange Securities have been registered under the Securities Act of 1933, as
amended (the "Securities Act"). SSI also understands that the Exchange
--------------
Securities will be offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon SSI's representations and
warranties contained in this Agreement. SSI hereby represents and warrants as
follows:
(i) SSI Bears Economic Risk. SSI has substantial experience in
-----------------------
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. SSI must bear the economic risk of this investment indefinitely
unless the Exchange Securities (or the shares issuable upon conversion thereof)
are registered pursuant to the Securities Act, or an exemption from registration
is available.
(ii) Acquisition for Own Account. SSI is acquiring the Exchange
---------------------------
Securities for SSI's own account for investment only, and not with a view
towards, or for resale in connection with, their distribution.
(iii) Accredited Investor. SSI represents that it is an
-------------------
accredited investor within the meaning of Regulation D under the Securities Act.
(iv) Company Information. SSI has had an opportunity to
-------------------
discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity to
review the Company's operations and facilities and is satisfied with the results
thereof. SSI has received all information it considers necessary or appropriate
for deciding whether to invest in the Company.
(v) Rule 144. SSI acknowledges and agrees that the Exchange
--------
Securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
SSI has been advised or is aware of the provisions of Rule 144 promulgated under
the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions.
(vi) Residence. The office or offices of SSI in which its
---------
investment decision with respect to the Company was made is located at 901 San
Antonio Road, Palo Alto, California 94303.
(vii) No Public Market. SSI understands that no public market
----------------
now exists for any of the securities issued by the Company and that the Company
has made no assurances that a public market will ever exist for the Company's
securities.
9
<PAGE>
8. Reservation of B Ordinary Shares. The Company shall at all times
--------------------------------
reserve and keep available for issue upon the exchange of OpenTV Shares for
Exchange Securities such number of its authorized but unissued B Ordinary Shares
as will be sufficient to permit the exchange in full of OpenTV Shares held by
SSI.
9. Antidilution. The Company, OpenTV, and SSI agree that it is their
------------
intention that following the date of this Agreement, SSI shall maintain the same
equity interest vis-a-vis OpenTV as it would have had if SSI had exchanged all
of its shares of Class B Common Stock of OpenTV for B Ordinary Shares of the
Company at an Exchange Rate of one Class B Common Stock for one B Ordinary
Share, subject to adjustment as provided in Section 3 hereof. In furtherance of
the foregoing, each time that the Company issues additional A Ordinary Shares or
B Ordinary Shares (other than on conversion of B Ordinary Shares), OpenTV shall
sell and the Company shall 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, respectively. Each such sale by OpenTV and purchase by the Company
shall occur substantially concurrently with the issuance of A Ordinary Shares or
B Ordinary Shares by the Company. SSI agrees that it shall not object to any
such transaction. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section if it has the effect of altering any of SSI's
contractual rights or otherwise adversely affecting SSI, including, without
limitation, by eliminating or altering SSI's rights to approve any BVI or
Delaware Fundamental Business Decisions under the Amended and Restated
Stockholders Agreement, dated of even date herewith, to which the Company, SSI
and OpenTV (among others) are parties, except merely by diluting SSI's
percentage equity interest in OpenTV.
10. Miscellaneous.
-------------
(a) Amendments. No amendment of any provision of this Agreement shall
----------
be valid unless the same shall be in writing and signed by the other party
hereto.
(b) Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character on any party's part of any breach, default or noncompliance under this
Agreement, or any waiver on such party's part of any provisions or conditions of
the Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing.
10
<PAGE>
(c) Notices.
-------
(i) All notices and other communications required or permitted
under this Agreement shall be given in writing and shall be delivered to the
relevant party or sent by registered air mail or facsimile to the address of
that party or that party's facsimile number specified in subparagraph 10(c)(ii).
Unless otherwise specified herein, each notice or other communication shall be
deemed effective or having been given (i) on the date received, if personally
delivered, (ii) the earlier of actual receipt or eight (8) business days after
being sent, if sent by registered air mail, or (iii) one (1) business day after
being sent, if sent by telecopier with confirmation of transmission.
(ii) All notices and other communications shall be addressed as
follows:
if to SSI: Sun TSI Subsidiary, Inc.
c/o Sun Microsystems, Inc.
901 San Antonio Road
Mail Stop PAL1-521
Palo Alto, California 94303
Attention: Laura Fennell, Esq.
Telecopy No.: (650) 336-0359
With a copy to:
Fenwick & West LLP
Two Palo Alto Square, Suite 700
Palo Alto, California 94306
Attention: David W. Healy, Esq.
Telecopy No.: (650) 494-1417
if to the Company: OpenTV Corp.
c/o OpenTV, Inc.
401 East Middlefield Road
Mountain View, California 94043
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street, 23rd Floor
Los Angeles, California 90071
Attention: Siobhan McBreen Burke
Telecopy No.: (213) 627-0705
11
<PAGE>
or such other address or telecopy number of a party, as that party shall have
notified in writing to all other parties in accordance with subparagraph
10(b)(i).
(d) Severability. Should any one or more of the provisions of this
------------
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
(e) Parties in Interest. Except as otherwise expressly provided
-------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and permitted assigns
and shall inure to the benefit of and be enforceable by each such person.
Neither this Agreement nor any right or obligation hereunder shall be assignable
or delegable by SSI except with the prior written consent of the other party
hereto; provided, however, that SSI may assign its rights and obligations under
this Agreement to any corporation, limited liability company, trust,
association, company or partnership in which SSI or its parent, Sun
Microsystems, Inc., a Delaware corporation ("Sun"), has a direct or indirect
---
ownership interest in capital or profits exceeding fifty percent (50%) or in
which SSI or Sun has the right to exercise over fifty percent (50%) of the
voting rights with respect to the selection of the board of directors or other
governing body, provided that all of the following conditions are satisfied: (i)
the transferor shall remain a party to this Agreement and hereby agrees to
guarantee the performance by the assignee or transferee of its obligations
pursuant to the provisions of this Agreement; (ii) the assignee or transferee
shall agree in writing with the Company to observe, perform and be bound by the
terms and conditions of this Agreement as if references herein to the transferor
were references to the transferee; and (iii) if the assignee or transferee
ceases to be an affiliate of SSI or Sun meeting the qualifications set forth
above, then SSI shall cause the assignee or transferee to transfer in accordance
herewith to SSI or another affiliate of SSI or Sun meeting the qualifications
set forth above, all its OpenTV Shares prior to the date of such cessation.
This Agreement shall be not assignable or delegable by the Company except with
the prior written consent of the other parties hereto; provided, however, that
-------- -------
the Company may assign its rights and delegate its obligations under this
Agreement to any successor in interest of the Company, whether by merger,
reorganization, sale of assets or otherwise so long as such successor expressly
assumes the obligations hereof.
(f) Expenses. All costs and expenses (including, without limitation,
--------
all legal fees and expenses and fees and expenses of any brokers, finders or
similar agents) incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring the same.
12
<PAGE>
(g) Headings. The headings of the Sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(h) Choice of Law.
-------------
(i) It is the intention of the parties that the internal
substantive laws, and not the laws of conflicts, of the State of California
should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
(ii) EACH PARTY HERETO HEREBY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF SANTA
CLARA, STATE OF CALIFORNIA, AND IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS RELATING TO OR ARISING OUT OF THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN SUCH COURTS. EACH PARTY HERETO HEREBY WAIVES TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT, OR PROCEEDING, ANY CLAIM THAT IT
IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT IT
IS IMMUNE FROM EXTRATERRITORIAL INJUNCTIVE RELIEF OR OTHER INJUNCTIVE RELIEF,
THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT ANY
SUCH ACTION, SUIT, OR PROCEEDING MAY NOT BE BROUGHT OR MAINTAINED IN ONE OF THE
ABOVE-NAMED COURTS, THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT OR
MAINTAINED IN ONE OF THE ABOVE-NAMED COURTS SHOULD BE DISMISSED ON THE GROUNDS
OF FORUM NON CONVENIENS, SHOULD BE TRANSFERRED TO ANY COURT OTHER THAN ONE OF
--------------------
THE ABOVE-NAMED COURTS, OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY
NOT BE ENFORCED IN OR BY ANY OF THE ABOVE-NAMED COURTS. EACH OF THE PARTIES
HERETO HEREBY CONSENTS TO SERVICE OF PROCESS IN ANY SUCH ACTION, SUIT, OR
PROCEEDING IN ANY MANNER PERMITTED BY THE LAWS OF THE STATE OF CALIFORNIA,
AGREES THAT SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE PERSONS AND AT THE ADDRESSES SET FORTH IN PARAGRAPH 10(C)
ABOVE, IS REASONABLY CALCULATED TO GIVE ACTUAL NOTICE, AND WAIVES AND AGREES NOT
TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT
OR PROCEEDING ANY CLAIM THAT SUCH SERVICE OF PROCESS DOES NOT CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS.
13
<PAGE>
(iii) EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. THIS SUBPARAGRAPH 10(H)(III) HAS BEEN FULLY DISCUSSED BY
EACH OF THE PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY
EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH
PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS
AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.
(i) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts (including
by facsimile), with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.
(j) No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
(k) Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties hereto in respect of the subject matter hereof.
This Agreement supersedes all prior agreements and understandings between the
parties hereto with respect to such subject matter.
(l) Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable legal requirements or
otherwise, to consummate and
14
<PAGE>
make effective the transactions contemplated by this Agreement. If at any time
after the date hereof any further action is necessary or desirable to carry out
the purposes of this Agreement, either party, as the case may be, shall take or
cause to be taken all such necessary or convenient action and execute, and
deliver and file, or cause to be executed, delivered and filed, all necessary or
convenient documentation.
15
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed by its duly authorized representative as of the date and year
first set forth above.
COMPANY:
OPENTV CORP.
By: _____________________________
Title: _____________________________
OPENTV:
OPENTV, Inc.
By: _____________________________
Title: _____________________________
SSI:
SUN TSI SUBSIDIARY, INC.
By: _____________________________
Title: _____________________________
16
<PAGE>
EXHIBIT A
Schedule of Exceptions
17
<PAGE>
EXHIBIT 23.1
(H W R) Harney Westwood & Riegels
Barristers, Solicitors, Notaries, Patent and Trade Mark Agents
Craigmuir Chambers, P.O. Box 71
Road Town, Tortola, British Virgin Islands
Telephone: (284) 494-2233
Fax General: (284) 494-3547 . (284) 494-4885 . (284) 494-6314
Fax Incorporations: (284) 494-6291 . Fax Litigation: (284) 494-3398
e-mail: [email protected] . web-site: www.hwr.org
Writer's Direct Line:
Your Ref:
25 October 1999 Our Ref:
To whom it may concern
We are aware that we are referred to under the heading "Risk Factors - Because
we are a British Virgin Islands company, you may not be able to enforce
judgments against us that are obtained in U.S. courts" in the Prospectus forming
a part of a Registration Statement on Form F-1 submitted to the Securities and
Exchange Commission by OpenTV Corp. and hereby consent to such use of our name
therein. By giving such consent, we do not hereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come with the category of persons whose
consent is required under, the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Yours faithfully
HARNEY WESTWOOD AND RIEGELS
By: /s/ Jose Santos
-----------
Jose Santos
