<PAGE>
As filed with the Securities and Exchange Commission on November 18, 1999
Registration No. 333-89609
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT No. 2
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 Classification Code Number) Identification Number)
organization)
</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.. 8,625,000 $20.00 $172,500,000 $47,955
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 1,125,000 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) $35,807 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 18, 1999
PROSPECTUS
7,500,000 Shares
[LOGO]
opentv
Class A Ordinary Shares
-----------
This is OpenTV's initial public offering. The U.S. underwriters will offer
3,750,000 shares in the United States and Canada and the international managers
will offer 3,750,000 shares outside the United States and Canada.
We expect that the public offering price will be between $18.00 and $20.00
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 562,500 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 562,500
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 (82.7% 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 $63.9 million (based on the mid-point of the estimated price range on the
cover of this prospectus) 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 82.7%, 14.3% 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 70.0% 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................................ 3,750,000 shares
International Offering....................... 3,750,000 shares
----------------------
Total.................................... 7,500,000 shares
Ordinary Shares outstanding after the offerings:
Class A Ordinary Shares...................... 13,130,628 shares(/1/)
Class B Ordinary Shares...................... 30,631,746 shares(/2/)
----------------------
Total.................................... 43,762,374 shares
Use of Proceeds................................. We estimate that the net
proceeds from these
offerings (without
exercise of the over-
allotment options) will be
approximately $130.5
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 1,125,000 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 (82.7% 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 $164,105
Working capital (deficit)........................ (1,325) 29,675 160,200
Total assets..................................... 18,312 49,312 179,837
Minority interest................................ -- 2,153 2,153
Redeemable common stock.......................... 10,200 -- --
Total stockholders' equity (deficit)............. (140) 38,907 169,432
</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 7,500,000 Class A Ordinary Shares in these offerings at an assumed
initial public offering price of $19.00 per share (which is the mid-point 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. (82.7% 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 95.9% 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 $15.84 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 $19.00 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 $130.5 million from
these offerings ($150.4 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 $19.00 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 7,500,000 Class A
Ordinary Shares in these offerings at an assumed initial public offering price
of $19.00 per share (which is the mid-point 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;
13,130,628 shares issued and outstanding,
pro forma as adjusted...................... -- -- 161,525
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.................................... -- 63,851 63,851
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) (132,434) (132,434)
-------- --------- ---------
Total shareholders' equity.................. (140) 38,907 169,432
-------- --------- ---------
Total capitalization........................ $ 10,060 $ 38,907 $ 169,432
======== ========= =========
</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 $19.00 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 $164.7 million, or $3.16 per share. This represents an immediate
increase in net tangible book value of $2.39 per share to the existing
shareholders and an immediate dilution of $15.84 per share to new investors.
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $19.00
Net tangible book value as of September 30, 1999................ $0.77
Increase attributable to net proceeds of these offerings to
OpenTV......................................................... 2.39
-----
Pro forma net tangible book value after these offerings........... 3.16
------
Dilution to new investors......................................... $15.84
======
</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 $19.00 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 35% $ 1.73
New investors........... 7,500,000 14 142,500,000 65 19.00
---------- --- ------------ ---
Total ................ 52,081,971 100% $219,411,000 100%
========== === ============ ===
</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.................................. -- 63,851 (b) 63,851
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) (95,101)(b) (132,434)
-------- -------- ---------
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
$63.9 million represents a non-cash warrant operating expense that will be
recognized in the quarter ending December 31, 1999. The fair value was computed
using the mid-point of the estimated price range for shares in OpenTV Corp.'s
initial public offering. 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 (82.7 % 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 (82.7% 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 $63.9 million (based on the mid-
point of the estimated price range on the cover of this prospectus) 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
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<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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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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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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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 95.9% 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. (14.3%
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 6.9% 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. are issued upon exercise of such options,
we will facilitate the disposition of such shares either by purchasing such
shares directly or by providing such holders with the ability to exchange their
shares in OpenTV, Inc. for shares in 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
7,500,000 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% 95.9%
Sun Microsystems,
Inc.(/2/)............... 900,900 6.9 7,594,796(/3/) 19.9 19.4
Directors and officers
as a group (17
persons)(/4/)........... 697,833(/5/) 5.0 -- -- *
</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 95.9% 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 13,130,628 Class A Ordinary Shares outstanding (14,255,628 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
7,500,000 Class A Ordinary Shares sold by us in these offerings
(8,625,000 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 (through its wholly-owned subsidiary OTV
Holdings 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 (through its wholly-owned subsidiary OTV Holdings
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
with 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 3,750,000 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 ...................................................... 3,750,000
=========
</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
3,750,000 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 3,750,000 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.
78
<PAGE>
Commitments and Discounts
The U.S. representatives have advised us that the U.S. underwriters
propose initially to offer the Class A Ordinary Shares to the public at the
initial public offering price set forth on the cover page of this prospectus,
and to certain dealers at such price less a concession not in excess of $
per Class A Ordinary Share. The U.S. underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per Class A Ordinary Share to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and the proceeds before expenses to us. This information
is presented assuming either no exercise or full exercise by the U.S.
underwriters and the international managers of their over-allotment options.
<TABLE>
<CAPTION>
Without With
Per Share Option Option
--------- ------- ------
<S> <C> <C> <C>
Public offering price............................. $ $ $
Underwriting discount............................. $ $ $
Proceeds, before expenses, to OpenTV.............. $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the terms of the intersyndicate agreement, the U.S.
underwriters and the international managers are permitted to sell our Class A
Ordinary Shares to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the intersyndicate agreement, the U.S. underwriters and any dealer
to whom they sell our Class A Ordinary Shares will not offer to sell or sell
our Class A Ordinary Shares to persons who are non-U.S. or non-Canadian persons
or to persons they believe intend to resell to persons who are non-U.S. or non-
Canadian persons, and the international managers and any dealer to whom they
sell Class A Ordinary Shares will not offer to sell or sell Class A Ordinary
Shares to U.S. persons or to Canadian persons or to persons they believe intend
to resell to U.S. or Canadian persons, except in the case of transactions under
the terms of the intersyndicate agreement.
Over-allotment Option
We have granted an option to the U.S. underwriters, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of
562,500 additional Class A Ordinary Shares at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
U.S. underwriters may exercise this option 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 562,500 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.:
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, except as to the stock split described in Note 2 which is as
of November 15, 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. completed a one-for-five reverse stock split of its ordinary
shares on November 15, 1999. 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 $63,851,344
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. The
fair value was computed using the mid-point of the estimated price range for
shares in OpenTV Corp.'s initial public offering.
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.):
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, except as to the stock split described in Note 10 which is as
of November 15, 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 completed a one-for-five reverse stock split on November 15, 1999.
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.
7,500,000 Shares
[LOGO OF OPENTV](R)
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 18, 1999
PROSPECTUS
7,500,000 Shares
[LOGO OF OPENTV]
Class A Ordinary Shares
-----------
This is OpenTV's initial public offering. The international managers will
offer 3,750,000 shares outside the United States and Canada and the U.S.
underwriters will offer 3,750,000 shares in the United States and Canada.
We expect that the public offering price will be between $18.00 and $20.00
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 562,500
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
562,500 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>
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
Certain Netherlands Tax Consequences..................................... 78
Underwriting............................................................. 80
Legal Matters............................................................ 85
Experts.................................................................. 85
Available Information.................................................... 85
Additional Information................................................... 86
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>
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 our Class A
Ordinary Shares being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amounts to
be Paid
----------
<S> <C>
SEC registration fee.......................................... $ 47,955*
NASD filing fee............................................... $ 12,000*
Nasdaq National Market listing fee............................ $ 75,625*
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........................................ $ 177,420*
----------
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 24,
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 or, under certain circumstances, at a flat rate of
45%, on distributions made by us as well as on certain distributions deemed
made by us as described below, unless such Netherlands Shareholder has a
substantial interest in us (see "Substantial Interest").
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 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 3,750,000 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..................................................... 3,750,000
=========
</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 3,750,000 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
3,750,000 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
562,500 additional Class A Ordinary Shares at the public offering price set
forth on the cover page of this prospectus, less the underwriting discount. The
international managers may exercise this option 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
562,500 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 web 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.
7,500,000 Shares
[LOGO OF 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............................................ $ 47,955*
NASD filing fee................................................. $ 12,000*
Nasdaq National Market listing fee.............................. $ 75,625*
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.......................................... $ 177,420*
----------
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 1999 Share Option/Share 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+* Source Code License and Binary Distribution Agreement between Sun
Microsystems, Inc. and OpenTV, Inc., effective July 1, 1996.
10.11 Convertible Preferred Stock Purchase Agreement between OpenTV Corp.
and Sun TSI Subsidiary, Inc., dated October 23, 1999.
10.12++ Convertible Preferred Stock and Warrant Purchase Agreement among
OpenTV Corp., America Online, Inc., General Instrument Corporation,
LDIG OTV, Inc., News America Incorporated and TWI-OTV Holdings Inc.,
dated October 23, 1999.
10.13++ Exchange Agreement between OpenTV Corp. and Sun TSI Subsidiary, Inc.,
dated October 23, 1999.
10.14 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.
10.15 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 eighteenth 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 eighteenth day of November, 1999:
Signature Title Date
- --------- ----- ----
Chairman of the
* Board November 18,
- ------------------------------------- 1999
Jacobus D.T Stofberg
Chief Executive
/s/ Jan Steenkamp Officer and November 18,
- ------------------------------------- Director (principal 1999
Jan Steenkamp executive officer)
Chief Financial
* Officer and November 18,
- ------------------------------------- Director (principal 1999
Randall S. Livingston financial and
accounting officer)
U.S. Authorized
* Representative November 18,
- ------------------------------------- 1999
James F. Brown
Director
* November 18,
- ------------------------------------- 1999
Jacobus P. Bekker
Director
* November 18,
- ------------------------------------- 1999
Stephen G. Oldfield
Director
* November 18,
- ------------------------------------- 1999
William Raduchel
Director
* November 18,
- ------------------------------------- 1999
Allan M. Rosenzweig
Director
* November 18,
- ------------------------------------- 1999
Craig L. Enenstein
Director
* November 18,
- ------------------------------------- 1999
Michael E. Lehman
Director
* November 18,
- ------------------------------------- 1999
Peter W. Smith
/s/ Jan Steenkamp
*By_____________________________
Jan Steenkamp
Attorney-in-Fact
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
OpenTV, Inc. and Subsidiary (Predecessor to OpenTV Corp.):
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 1999 Share Option/Share 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+* Source Code License and Binary Distribution Agreement between Sun
Microsystems, Inc. and OpenTV, Inc., effective July 1, 1996.
10.11 Convertible Preferred Stock Purchase Agreement between OpenTV Corp.
and Sun TSI Subsidiary, Inc., dated October 23, 1999.
10.12++ Convertible Preferred Stock and Warrant Purchase Agreement among
OpenTV Corp., America Online, Inc., General Instrument Corporation,
LDIG OTV, Inc., News America Incorporated and TWI-OTV Holdings Inc.,
dated October 23, 1999.
10.13++ Exchange Agreement between OpenTV Corp. and Sun TSI Subsidiary, Inc.,
dated October 23, 1999.
10.14 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.
10.15 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 3.1
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
MEMORANDUM OF ASSOCIATION
OF
OPENTV CORP.
1 . NAME
The name of the Company is OpenTV Corp.
2. REGISTERED OFFICE
The Registered Office of the Company is at the offices of Insinger Trust
(BVI) Limited P.O. Box 438 Roadtown, Tortola, British Virgin Islands, or at
such other place within the British Virgin Islands as the Company may from
time to time by a resolution of members determine.
3. REGISTERED AGENT
The Registered Agent of the Company is Insinger Trust (BVI) Limited, P.O.
Box 438, Road Town, Tortola, British Virgin Islands, or such other
qualified person in the British Virgin Islands as the Company may from time
to time by a resolution of members determine.
4. GENERAL OBJECTS AND POWERS
4.1 The object of the Company is to engage in any act or activity that
is not prohibited under any law for the time being in force in the
British Virgin Islands.
4.2 The Company may not -
4.2.1 carry on business with persons resident in the British
Virgin Islands;
4.2.2 own an interest in real property situate in the British
Virgin Islands, other than a lease referred to in clause
4.3.5;
4.2.3 carry on banking or trust business, unless it is licensed to
do so under the Banks and Trust Companies Act, 1990;
4.2.4 carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed
under an enactment authorising it to carry
<PAGE>
2
on that business;
4.2.5 carry on the business of company management, unless it is
licensed under the Company Management Act, 1990; or
4.2.6 carry on the business of providing the registered office or
the registered agent for companies incorporated in the
British Virgin Islands.
4.3 For purposes of clause 4.2.1, the Company shall not be treated as
carrying on business with persons resident in the British Virgin
Islands if -
4.3.1 it makes or maintains deposits with a person carrying on
banking business within the British Virgin Islands;
4.3.2 it makes or maintains professional contact with solicitors,
barristers, accountants, bookkeepers, trust companies,
administration companies, investment advisers or other
similar persons carrying on business within the British
Virgin Islands;
4.3.3 it prepares or maintains books and records within the
British Virgin Islands;
4.3.4 it holds, within the British Virgin Islands, meetings of
its directors or members;
4.3.5 it holds a lease of property for use as an office from which
to communicate with members or where books and records of
the Company are prepared or maintained;
4.3.6 it holds shares, debt obligations or other securities in a
company incorporated under the International Business
Companies Act or under the Companies Act; or
4.3.7 shares, debt obligations or other securities in the Company
are owned by any person resident in the British Virgin
Islands or by any company incorporated under the
International Business Companies Act or under the Companies
Act.
4.4 The Company shall have all such powers as are permitted by law for
the time being in force in the British Virgin Islands, irrespective
of corporate benefit, to perform all acts and engage in all
activities necessary or conducive to the conduct, promotion or
attainment of the object of the Company.
5. CURRENCY
The capital of the Company shall be denominated in the currency of the
United States of America. Shares in the Company shall be issued in the
currency of the United States of America.
6. AUTHORISED CAPITAL
<PAGE>
3
The Company shall have no authorised capital, but the Company is authorised
to issue 1,200,000,000 shares of no par value.
7. CLASSES AND NUMBER OF SHARES
The shares which the Company is authorised to issue are divided into three
classes as follows -
7.1 500,000,000 'A' ordinary shares of no par value ("A Shares");
7.2 200,000,000 'B' ordinary shares of no par value ("B Shares");
7.3 500,000,000 'C' preference shares of no par value
("Preference Shares").
The A Shares and the B Shares are collectively referred to herein as
"Ordinary Shares". The holders of shares now or hereafter outstanding shall
have no pre-emptive right to purchase, or have offered to them for
purchase, any shares or other equity securities issued or to be issued by
the Company. The preferences, qualifications, limitations, restrictions and
the special or relative rights in respect of the rights of the shares of
each class are set out in the following clauses.
8. DESIGNATIONS, POWERS, PREFERENCES, ETC. OF PREFERENCE SHARES
8.1 Notwithstanding anything to the contrary herein or in the Company's
Articles of Association ("Articles of Association"), the directors
are hereby expressly authorised to provide (without any resolution
of members), by resolution or resolutions, out of the unissued
Preference Shares, for one or more series of Preference Shares and,
with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the
voting powers (if any) of the shares of such series, the relative,
participating, optional or other rights (if any) and any
qualifications, preferences, limitations or restrictions of the
shares of such series, including, without limitation, the dividend
rate (and whether dividends are cumulative), conversion rights,
rights and terms of redemption (including sinking fund provisions)
and redemption price and liquidation preferences and to increase or
decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of
such series then outstanding. The designation and relative rights
and preferences of each such series of Preference Shares and the
qualifications, limitations or restrictions thereof, if any, which
may differ from those of any or all other series at any time
outstanding, shall be filed in accordance with the applicable
provisions of British Virgin Islands law so as to constitute an
amendment to this Memorandum of Association.
8.2 Preference Shares, regardless of series, which are converted into
other securities or other consideration, shall be retired and
cancelled and shall have the status of authorised but unissued
Preference Shares, without designation as to series, provided that
they may not be reissued as Preference Shares of the same series as
that of which they originally formed part.
<PAGE>
4
8A Designations, Powers, Preferences, etc. of Convertible Preference Shares
- ---------------------------------------------------------------------------
Of the five hundred million (500,000,000) Preference Shares the Corporation
is authorized to issue, twenty-three million six hundred forty-eight thousand
six hundred and forty-six (23,648,646) of such Preference Shares are designated
"C-1 Convertible Preference Shares" and four million five hundred four thousand
---------------------------------
five hundred and four (4,504,504) of such Preference Shares are designated "C-2
---
Convertible Preference Shares". The C-1 Convertible Preference Shares and the
- -----------------------------
C-2 Convertible Preferences Shares are herein collectively referred to as the
"Convertible Preference Shares". The rights, preferences, privileges and
- ------------------------------
restrictions granted to and imposed upon the Convertible Preference Shares are
set forth below in this clause 8A. To the extent that there is any conflict or
inconsistency between any provision set forth in this clause 8A and any other
provision of this Memorandum of Association or of the Articles of Association,
the provisions of this clause 8A shall prevail.
Section 1. Definitions.
-----------
(a) General. The following terms shall have the indicated meanings:
-------
"Base Offering Amount" shall mean, initially, $40.0 million,
--------------------
increasing by $500,000 per month on the first day of each month commencing with
February 1, 2000. By way of example, the Base Offering Amount on January 1,
2000 would be $40.0 million and on February 1, 2000 would be $40.5 million
($40.0 million plus $500,000).
"Base Percentage" shall mean, initially, one hundred twenty-five
---------------
percent (125%), increasing by one percentage point (1%) per month on the first
day of each month commencing with February 1, 2000. By way of example, the Base
Percentage on January 1, 2000 would be 125% and on February 1, 2000 would be
126% (125% plus 1%).
"Base Price" shall mean the Original Issue Price (appropriately
----------
adjusted for any stock dividends, combinations, splits, reverse splits,
recapitalizations and similar events affecting the Convertible Preference Shares
after the Issue Date), multiplied by the Base Percentage.
"Board" shall mean the board of directors of the Company.
-----
The "Business" means to (i) develop, market, promote, distribute and
--------
license software to enable and facilitate interactive television; (ii) develop,
operate, manage, market, promote, distribute and license interactive television
applications and services; (iii) provide, market and promote training, technical
support and professional services associated with such software, applications
and services; and (iv) enter into commercial partnerships, joint ventures and
other agreements related to the development, marketing and promotion of such
software, applications and services. To the extent such software, applications
and services can be commercially marketed in areas outside of interactive
television, specifically, these being the internet, or for use in consumer
electronic appliances, cell phones or personal digital assistants, DVD players,
digital personal recorders or any other communications devices, such marketing
shall be considered to be included within the Business.
<PAGE>
5
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the British Virgin Islands, or any day on
which banks in the city of Road Town, Tortola, British Virgin Islands are
authorized by law to close).
"Change of Control" shall mean the occurrence of any of the following
-----------------
events:
(i) the Company issues or otherwise transfers or sells securities to
any Person in one or more transactions, and, as a result of such
issuance, transfer or sale (i) any Person other than MIH or its
Controlled Affiliates acquires "beneficial ownership" (as defined
in Rules 13d-3 or 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of all
Voting Stock of the Company, or (ii) any Person other than MIH
has, directly or indirectly, the right to elect or designate a
majority of the Board; or
(ii) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets,
other than a bona fide pledge of securities or the grant of a
security interest in assets pursuant to a credit facility or
other financial arrangement;
(iii) the Company consolidates with, or merges with or into, another
Person, or any Person consolidates with, or merges with or into,
the Company, which results in (i) any Person other than MIH or
its Controlled Affiliates acquiring "beneficial ownership" (as
defined in Rules 13d-3 or 13d-5 under the Exchange Act), directly
or indirectly, of more than 50% of the total voting power of all
Voting Stock of the Company, or (ii) any Person other than MIH
obtaining, directly or indirectly, the right to elect or
designate a majority of the Board.
"Company" shall mean this corporation.
-------
"Control" (including its correlative meanings "Controlled by" and
-------
"under common Control with" means the possession, direct or indirect, of the
power to direct or cause the direction of management and policies of a Person,
whether through the ownership of voting securities, by contract, management
agreement or otherwise.
"Controlled Affiliate" means, with respect to any Person, any other
--------------------
Person Controlled by such first Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, of the United States of America.
"Exchange Agreement" shall mean that certain Exchange Agreement, dated
------------------
as of the Issue Date, among the Company, Sun TSI Subsidiary, Inc., a Delaware
corporation ("SSI"), and OpenTV, Inc., a Delaware corporation.
---
<PAGE>
6
The "Fair Market Value" of any security or other asset shall mean:
-----------------
(i) In the case of a security:
(A) if the security is traded on a securities exchange and there
is an unaffiliated public float of at least 5% of the issued
and outstanding shares of such security, the average of the
per share closing prices of the security on such exchange
over the thirty (30)-day period ending three (3) trading
days prior to the date on which such value is measured;
(B) if the security is traded over-the-counter and there is an
unaffiliated public float of at least 5% of the issued and
outstanding shares of such security, the average of the per
share closing bid prices of the security over the thirty
(30)-day period ending three (3) trading days prior to the
date on which such value is measured; or
(C) if there is no public market for such security that meets
the criteria set forth in (A) or (B) above, the Fair Market
Value shall be the per share fair market value of such
security as of the date on which such value is measured, as
determined in good faith by the Board; provided that, until
-------------
such time as the A Shares are traded on a securities
exchange or over the counter and there is an unaffiliated
public float of at least 5% of the issued and outstanding
shares of A Shares, the Fair Market Value of an A Share
shall mean the fair market value of an A Share, as
determined in good faith by the Board for the purpose of
selling A Shares to any Person which is not Affiliated with
the Company as of the most recent date that such
determination has been made within thirty (30) days prior to
the applicable date or, if no such determination has been
made during such period, the fair market value of an A Share
as of the measurement date, as determined in good faith by
the Board.
(ii) In the case of assets other than securities, the Fair Market
Value shall be the fair market value of such assets, as
determined in good faith by the Board.
"Governmental Authority" shall mean any court, administrative agency
----------------------
or commission or other governmental agency or instrumentality, domestic or
foreign, or any arbitrator, of competent jurisdiction.
"Investors' Rights Agreement" shall mean that certain Investors'
---------------------------
Rights Agreement, dated as of the Issue Date, by and among the Company, the
holders of Convertible Preference Shares and others.
"Issue Date" shall mean October 23, 1999.
----------
<PAGE>
7
The "Issued Number" of C-1 Convertible Preference Shares is
-------------
23,648,646, subject to appropriate adjustment to reflect any stock dividends,
combinations, splits, reverse splits, recapitalizations or similar events
affecting the Convertible Preference Shares after the Issue Date.
"Junior Shares" shall mean all A Shares, B Shares, and all shares of
-------------
any class or series of capital stock of the Company, whether now existing or
hereafter created, to the extent that it ranks junior to the Convertible
Preference Shares as to dividend rights or rights on liquidation. A class or
series of Junior Shares shall rank junior to the Convertible Preference Shares
as to dividend rights or rights on liquidation if the holders of Convertible
Preference Shares shall be entitled to dividend payments or payments of amounts
distributable upon liquidation, dissolution or winding up of the affairs of the
Company, as the case may be, in preference or priority to the holders of shares
of such class or series.
"Liquidation Preference," measured per Convertible Preference Share as
----------------------
of any date in question (the "Relevant Date"), shall mean an amount equal to the
-------------
sum of (i) the Original Issue Price of such share, (ii) an amount equal to the
amount of cash dividends that would have been payable on such Convertible
Preference Share had the Board declared and paid the Convertible Preference
Dividends on a quarterly basis as contemplated by Section 2 from the Issue Date
to the date of such liquidating distribution, less any cash dividend amounts
actually paid on such Convertible Preference Share during such period, plus
(iii), without duplication, an amount equal to all declared and unpaid
Convertible Preference Dividends. In the case of clauses (ii) and (iii) hereof,
such amounts will constitute part of the Liquidation Preference whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Company legally available for the payment of dividends. In connection with
the determination of the Liquidation Preference of a Convertible Preference
Share upon liquidation, dissolution or winding up of the Company, the Relevant
Date shall be the date of distribution of amounts payable to shareholders in
connection with any such liquidation, dissolution or winding up.
"MIH" shall mean MIH (BVI) Limited, a corporation incorporated in the
---
British Virgin Islands.
"Ordinary Shares" shall mean the A Shares and B Shares, collectively.
---------------
"Original Issue Price" shall mean one dollar and eleven cents ($1.11)
--------------------
in United States currency per Convertible Preference Share.
"OTVH" shall mean OTV Holdings Limited, a British Virgin Islands
----
company.
"Parity Shares" shall mean any class or series of shares of the
-------------
Company, whether now existing or hereafter created, ranking on a parity basis
with the Convertible Preference Shares as to dividend rights or rights on
liquidation. Shares of any class or series shall rank on a parity basis as to
dividend rights or rights on liquidation with the Convertible Preference Shares,
whether or not the dividend rates, dividend payment dates or liquidation prices
per share are different from those of the Convertible Preference Shares, if the
holders of shares of such class or series shall be entitled to dividend
<PAGE>
8
payments or payments of amounts distributable upon liquidation, dissolution or
winding up of the affairs of this Company, as the case may be, in proportion to
their liquidation prices without preference or priority, one over the other, as
between the holders of shares of such class or series and the holders of
Convertible Preference Shares. No class or series of shares that rank junior to
the Convertible Preference Shares as to rights on liquidation shall rank or be
deemed to rank on a parity basis with the Convertible Preference Shares as to
dividend rights unless the instrument creating or evidencing such class or
series of shares otherwise expressly provides.
"Person" shall mean any individual, firm, corporation, partnership,
------
limited partnership, limited liability company, group (within the meaning of
Section 13(d)(3) of the Exchange Act), trust, joint venture, Governmental
Authority or other entity.
"Plan" shall mean the stock option plan of the Company as in effect on
----
the Issue Date.
"Public Offering" shall mean an underwritten, widely distributed,
---------------
public offering of A Shares of the Company pursuant to a registration statement
filed under the Securities Act and declared effective by the U.S. Securities and
Exchange Commission; provided that a registration statement filed for the
benefit of persons who would hold Ordinary Shares as a result of any exchange of
shares or options of OpenTV shall not constitute a Public Offering.
"Qualified IPO" shall mean a Public Offering initiated by the Company
-------------
in which (a) the aggregate gross offering proceeds at the public offering price
equals or exceeds the Base Offering Amount, (b) the public offering price per
Class A Share equals or exceeds the Base Price, and (c) following which the
Class A Shares are listed for trading on The Nasdaq National Market, the New
York Stock Exchange or the American Stock Exchange.
"Relevant Date" shall have the meaning ascribed to that term in the
-------------
definition of Liquidation Preference.
A "Required Vote of the C-1 Convertible Preference Shares" means the
------------------------------------------------------
affirmative vote or written consent of 66-2/3% or more of the outstanding C-1
Convertible Preference Shares, voting together as a class.
"Securities Act" shall mean the Securities Act of 1933, as amended, of
--------------
the United States of America.
"Senior Shares" shall mean any class or series of shares of the
-------------
Company, hereafter created, ranking on a basis senior to the Convertible
Preference Shares as to dividend rights or rights on liquidation.
A "Subsidiary" of any Person (the "first Person") shall mean any other
----------
Person (the "second Person") of which the first Person owns, directly or
indirectly, equity securities or other ownership interests equal to more than
30% of the outstanding equity securities or other ownership interests of the
second Person, and which equity securities or other ownership interests have
ordinary
<PAGE>
9
voting power sufficient to elect a majority of the board of directors or other
persons performing similar functions.
"Voting Stock" means, with respect to the Company, the shares of any
------------
class or kind ordinarily having the power to vote for the election of directors
or other members of the governing body of the Company. For avoidance of doubt,
A Shares, B Shares and Convertible Preference Shares all constitute Voting Stock
of the Company.
Section 2. Dividends.
---------
(a) Right to Dividends. Holders of Convertible Preference Shares shall be
------------------
entitled to receive, in preference to any dividends or distributions paid with
respect to any Junior Shares, when, as and if declared by the Board, and out of
any funds legally available therefor, cash dividends (the "Convertible
-----------
Preference Dividends") at the rate of seven percent (7%) per annum of the
- --------------------
Original Issue Price on each outstanding Convertible Preference Share (as
adjusted to reflect the effect of any stock dividends, combinations, splits,
reverse splits, recapitalizations or similar events affecting such shares). The
Convertible Preference Dividends shall be payable, when, as and if declared by
the Board, in equal quarterly installments on March 1, June 1, September 1 and
December 1 (or, if such day is not a Business Day, on the Business Day next
thereafter) of each year commencing on December 1, 1999 (each, a "Dividend
--------
Date"). Except as expressly provided in Section 3(a), dividends on the
Convertible Preference Shares shall not be cumulative, and the Company shall
have no obligation to declare or pay dividends on the Convertible Preference
Shares, whether or not the earnings of the Company are sufficient to pay such
dividends in whole or in part.
(b) Priority. Unless the Convertible Preference Dividends have been
--------
declared and either paid or a sum sufficient for the payment thereof set apart
for the three (3)-month period ending on the immediately preceding Dividend
Date, (i) the Company shall not acquire, redeem, or discharge any sinking fund
obligation with respect to, any Convertible Preference Shares, Parity Shares or
Junior Shares, or set aside any money or assets for any such purpose, (ii) the
Company shall not declare or pay any dividend on or make any distribution with
respect to any Parity Shares or Junior Shares or set aside any money or assets
for any such purpose, except that the Company may declare and pay a dividend on
any Parity Shares ranking on a parity basis with the Convertible Preference
Shares with respect to the right to receive dividend payments, contemporaneously
with the declaration and payment of a dividend on the Convertible Preference
Shares, provided that such dividends are declared and paid pro rata so that the
--------
amount of dividends declared and paid per Convertible Preference Share and such
Parity Share shall in all cases bear to each other the same ratio that unpaid
dividends per Convertible Preference Share and such Parity Share bear to each
other, and (iii) neither the Company nor any Subsidiary thereof shall purchase
or otherwise acquire any Convertible Preference Shares, Parity Shares or Junior
Shares.
Nothing contained in the preceding paragraph of this Section 2(b) shall
prevent (1) the payment of dividends on Ordinary Shares solely in other Ordinary
Shares (provided that any such dividends are, in the case of A Shares, paid
solely in A Shares, or, in the case of B Shares, paid solely in B Shares), (2)
the purchase or acquisition of B Shares solely in exchange for A Shares, (3) the
purchase or acquisition of Convertible Preference Shares pursuant to a purchase
or exchange offer or offers made to all holders
<PAGE>
10
of outstanding Convertible Preference Shares, provided that the terms of the
purchase or exchange offer shall be identical for all Convertible Preference
Shares, (4) the purchase of Ordinary Shares from employees, consultants and
independent contractors of the Company or any Subsidiary of the Company pursuant
to the Plan or agreements in existence as of the Issue Date, or entered into
thereafter following approval thereof by the Board, under which the Company has
the option to repurchase such shares upon the occurrence of certain events,
including, without limitation, the termination of employment by or service to
the Company or any Subsidiary of the Company, or (5) the issuance of (x) B
Shares to SSI or its permitted assigns in connection with the exercise of its
rights under the Exchange Agreement and the conversion of B Shares so acquired
into A Shares and (y) B Shares to employees in exchange for shares of Class B
Common Stock of OpenTV, Inc. and the conversion of B Shares so acquired into A
Shares. The provisions of this Section 2(b) are for the benefit of the holders
of Convertible Preference Shares and accordingly the provisions of this Section
2(b) shall not restrict any redemption or purchase by the Company or a
Subsidiary of the Company of Convertible Preference Shares held by any holder,
provided that all other holders of Convertible Preference Shares shall have
waived in writing the benefits of this provision with respect to such
redemption.
(c) Additional Dividends. If the Board elects to declare any dividends,
--------------------
after dividends on the Convertible Preference Shares for the three (3)-month
period ending on the most recent Dividend Date shall have been paid or set
aside, if the Board shall elect to declare additional dividends for such year,
such additional dividends shall be declared in equal amounts per share on all
Convertible Preference Shares and Ordinary Shares, but with each Convertible
Preference Share being entitled to dividends based upon the number of A Shares
into which such Convertible Preference Share could then be converted, pursuant
to Section 5 hereof, at the record date for the determination of shareholders
entitled to receive such dividend or, if no such record date is established, on
the date such dividend is declared.
Section 3. Liquidation.
-----------
(a) General. Upon any liquidation, dissolution or winding up of the
-------
Company, whether voluntary or involuntary, the holders of Convertible Preference
Shares shall be entitled to be paid out of the assets of the Company available
for distribution to its shareholders, whether such assets are capital, surplus
or earnings, an aggregate amount in cash, or securities, property or other
assets having a Fair Market Value, equal to the aggregate Liquidation Preference
at the date of payment, which amount shall be paid (i) before any distribution
or payment upon any such liquidation, dissolution or winding up of the Company
is made upon any Junior Shares, (ii) on a pari passu basis with any such payment
---- -----
made to the holders of any Parity Shares, and (iii) after any such payment is
made upon any Senior Shares. The holders of Convertible Preference Shares shall
be entitled to no other or further distribution of, or participation in any
remaining assets of, the Company after receiving the full preferential amounts
provided for in the preceding sentence. If upon such liquidation, dissolution
or winding up, the assets of the Company to be distributed among the holders of
Convertible Preference Shares and to all holders of Parity Shares are
insufficient to permit payment in full to such holders of the aggregate
preferential amounts which they are entitled to be paid, then the entire assets
of the Company to be distributed to such holders shall be distributed ratably
among them based upon the full preferential amounts to which
<PAGE>
11
the Convertible Preference Shares and such Parity Shares would otherwise
respectively be entitled. Upon any such liquidation, dissolution or winding up,
after the holders of Convertible Preference Shares and Parity Shares have been
paid in full the amounts to which they are entitled, the remaining assets of the
Company may be distributed to the holders of Junior Shares. Neither the
consolidation or merger of this Corporation into or with any other entity or
entities, nor the sale, transfer or lease by the Company of all or any part of
its assets, shall be deemed to be a liquidation, dissolution or winding up of
the Company, except that a transaction which constitutes a Change of Control
shall be deemed to constitute a liquidation.
(b) Method of Payment. Any such payments to holders of Convertible
-----------------
Preference Shares in respect of a Change of Control merger or consolidation
which constitutes a liquidation shall be made by the purchase or acquisition of
such shares by the surviving or acquiring Person or by the Company.
(c) Notice. The Company shall give written notice of any liquidation,
------
dissolution, winding up (including a Change of Control) of the Company
(including all material details related thereto including, but not limited to,
the type, amount and estimated Fair Market Value of any property or assets
proposed to be distributed to the holders of Convertible Preference Shares and
Ordinary Shares in such transaction) to each record holder of Convertible
Preference Shares not less than twenty (20) days prior to the occurrence of such
event. Each such holder may elect to convert its Convertible Preference Shares
as provided in Section 5 prior to the effective date of such liquidation.
Section 4. Voting Rights.
-------------
(a) Convertible Preference Shares. Each holder of Convertible Preference
-----------------------------
Shares shall be entitled to ten (10) votes (or, if higher, the number of votes
per share a holder of B Shares is entitled to vote) on each matter submitted to
security holders for each A Share into which such Convertible Preference Share
is convertible pursuant to the provisions of Section 5 hereof, at the record
date for the determination of the shareholders entitled to vote on such matters
or, if no such record date is established, at the date such vote is taken.
(b) A Shares. Each holder of A Shares shall be entitled to one (1) vote on
--------
each matter submitted to the security holders for each share thereof held.
(c) B Shares. Each holder of B Shares shall be entitled to ten (10) votes
--------
on each matter submitted to security holders for each share thereof held.
(d) Voting as a Class. Except as required by law and as otherwise provided
-----------------
in these Articles of Association, the holders of the Convertible Preference
Shares, the A Shares and the B Shares shall vote together and not as a separate
class.
(e) Board Representation. Notwithstanding Sections 4(a), (b), (c) and (d)
--------------------
above,
(i) So long as at least sixty percent (60%) of the Issued Number of C-
1 Convertible Preference Shares remain outstanding, the holders of C-1
Convertible Preference Shares, voting together
<PAGE>
12
as a separate class, shall have the right to elect two (2) directors to the
Board. If less than sixty percent (60%) of the Issued Number of C-1 Convertible
Preference Shares are outstanding, then so long as at least thirty percent (30%)
of the Issued Number of C-1 Convertible Preference Shares remain outstanding,
the holders of C-1 Convertible Preference Shares, voting together as a class,
shall have the right to elect one (1) director to the Board.
(ii) So long as at least thirty percent (30%) of the C-2 Convertible
Preference Shares (subject to appropriate adjustment to reflect any stock
dividends, combinations, splits, reverse splits, recapitalizations or similar
events affecting such shares after the Issue Date) remain outstanding, the
holders of C-2 Convertible Preference Shares, voting together as a separate
class, shall have the right to elect one (1) director to the Board.
(iii) The holders of the Ordinary Shares, without participation of
the holders of Convertible Preference Shares, voting together as a separate
class, shall have the right to elect the remaining members of the Board.
(iv) Any director elected solely by the holders of the C-1 Convertible
Preference Shares, the C-2 Convertible Preference Shares, or the Ordinary
Shares, as the case may be, may be removed, either with or without cause, by,
and only by, the affirmative vote of the holders of a majority of the C-1
Convertible Preference Shares, C-2 Convertible Preference Shares or Ordinary
Shares, as the case may be, and any vacancy thereby created or otherwise
resulting may be filled by, and only by, the holders of the C-1 Convertible
Preference Shares, C-2 Convertible Preference Shares, or Ordinary Shares, as the
case may be.
Section 5. Conversion. The holders of Convertible Preference Shares shall have
----------
the following conversion rights with respect to such shares:
(a) Optional Conversion. Each Convertible Preference Share may be
-------------------
converted, at any time at the option of the holder thereof, into fully paid and
nonassessable shares of A Shares (and any other securities or property expressly
provided in this Section 5) as set forth in this Section 5.
(b) Conversion Price. Each Convertible Preference Share may be converted
----------------
into a number of A Shares equal to the quotient obtained by dividing the
Original Issue Price for such share by the Conversion Price (as defined below)
in effect at the time of conversion. The Conversion Price initially shall be
equal to Original Issue Price, subject to adjustment from time to time as
provided below (the "Conversion Price").
----------------
(c) Mechanics of Conversion. A holder of Convertible Preference Shares who
-----------------------
desires to convert the same into A Shares shall surrender the certificate or
certificates representing such shares, duly endorsed, at the office of the
Company or at the office of any transfer agent for the Convertible Preference
Shares or A Shares, and shall give written notice to the Company at such office
that such holder elects to convert the same and shall state therein both the
number of Convertible Preference Shares being converted and the name or names in
which the holder wishes the certificate or certificates for A Shares to be
issued. The Company shall, as soon as practicable after such surrender, issue
and
<PAGE>
13
deliver at such office to such holder a certificate or certificates representing
the number of A Shares to which such holder is entitled and a new certificate or
certificates representing the number of Convertible Preference Shares
represented by the certificate or certificates surrendered by the holder minus
the number of Convertible Preference Shares so converted by the holder, and
shall, as soon as practicable, pay in cash (or, if the Company so elects or is
legally or financially unable to pay such dividends in cash, A Shares (valued at
the A Shares' Fair Market Value at the time of surrender)), all declared and
unpaid dividends on the Convertible Preference Shares being converted. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the certificate representing the
Convertible Preference Shares to be converted, and the Person entitled to
receive the A Shares issuable upon such conversion shall be treated for all
purposes as the record holder of such A Shares on such date. Any Convertible
Preference Shares converted into A Shares shall be retired and may not be
reissued by the Company.
(d) Adjustment for Stock Splits and Combinations. If the Company at any
--------------------------------------------
time or from time to time after the Issue Date effects a subdivision of the
outstanding Ordinary Shares, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased, and conversely, if
the Company at any time or from time to time after the Issue Date combines the
outstanding Ordinary Shares into a smaller number of shares, the Conversion
Price then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this subsection (d) shall become effective at
the close of business on the date such subdivision or combination becomes
effective.
(e) Adjustment for Certain Dividends and Distributions. If the Company at
--------------------------------------------------
any time or from time to time after the Issue Date makes, or fixes a record date
for the determination of holders of Ordinary Shares entitled to receive, a
dividend or other distribution payable in additional Ordinary Shares, then and
in each such event the Conversion 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 Conversion Price then
in effect by a fraction (1) the numerator of which is the total number of
Ordinary Shares 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 Ordinary Shares issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of Ordinary Shares 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 Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion Price
shall be adjusted pursuant to this subsection (e) as of the time of actual
payment of such dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the event the
-------------------------------------------------
Company at any time or from time to time after the Issue Date makes, or fixes a
record date for the determination of holders of Ordinary Shares entitled to
receive, a dividend or other distribution payable in securities of the Company
other than Ordinary Shares or other assets or property of the Company (other
than ordinary cash dividends), then and in each such event provision shall be
made so that the holders of Convertible Preference Shares shall receive upon
conversion thereof, in addition to the number of A Shares
<PAGE>
14
receivable thereupon, the amount of securities of the Company or other assets or
property of the Company which they would have received had their Convertible
Preference Shares been converted into A Shares on the date of such event and had
they thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable or other assets or
property of the Company by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 5 with
respect to the rights of the holders of the Convertible Preference Shares. If,
at any time when Convertible Preferred Shares remain outstanding, the Company
pays a dividend or other distribution to holders of Ordinary Shares which
consists of securities which are convertible into or exchangeable or exercisable
for Ordinary Shares, no such convertible, exchangeable or exercisable securities
will have an expiration date which occurs prior to the Automatic Conversion
Date.
(g) Adjustment for Reclassification, Exchange and Substitution. In the
----------------------------------------------------------
event that at any time or from time to time after the Issue Date, the A Shares
or other securities as provided herein issuable upon the conversion of the
Convertible Preference 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 Section 5), then and in any such event each
holder of Convertible Preference Shares shall have the right thereafter to
convert such stock 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 A Shares or other securities as
provided herein into which such shares of Convertible Preference Shares could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Transfers of Assets. If at
---------------------------------------------------------------
any time or from time to time after the Issue Date there is a capital
reorganization of the Ordinary Shares or other securities issuable upon
conversion of Convertible Preference Shares as provided herein (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger or consolidation or
statutory binding share exchange of the Company with or into another Person, or
the transfer of all or substantially all of the Company's properties and assets
to any other person, then, as a part of such capital reorganization, merger,
consolidation, exchange or transfer (subject to the provisions of Section 3),
provision shall be made so that the holders of the Convertible Preference Shares
shall thereafter be entitled to receive upon conversion of Convertible
Preference Shares the number of shares of stock or other securities, cash or
property to which a holder of the number of A Shares or other securities
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, exchange or transfer. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Convertible
Preference Shares after the capital reorganization, merger, consolidation,
exchange or transfer to the end that the provisions of this Section 5 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Convertible Preference Shares) shall be
applicable after that event and be as nearly equivalent as may be practicable.
(i) Sale of Shares Below Conversion Price.
-------------------------------------
<PAGE>
15
(1) If at any time or from time to time after the Issue Date, the
Company issues or sells, or is deemed by the express provisions
of this subsection (i) to have issued or sold, Additional
Ordinary Shares (as defined below), other than as a dividend or
other distribution on any class of stock as provided in
subsection (e) above and other than upon a subdivision or
combination of Ordinary Shares as provided in subsection (d)
above, for an Effective Price (as defined below) less than the
Conversion Price then in effect, then and in each such case the
then existing Conversion Price shall be reduced, as of the
opening of business on the date of such issue or sale, to a price
determined by multiplying that Conversion Price by a fraction (i)
the numerator of which shall be equal to the sum of (A) the
number of Ordinary Shares issued and outstanding at the close of
business on the Business Day immediately preceding the date of
such issue or sale, plus (B) the number of Ordinary Shares which
the aggregate consideration received (or by the express
provisions hereof is deemed to have been received) by the Company
for the total number of Additional Ordinary Shares so issued or
sold would purchase at such Conversion Price, plus (C) the number
of A Shares into which all outstanding Convertible Preference
Shares are convertible at the close of business on the Business
Day immediately preceding the date of such issuance or sale, plus
(D) the number of Ordinary Shares underlying all Other Securities
(as defined below) at the close of business on the Business Day
immediately preceding the date of such issue or sale, and (ii)
the denominator of which shall be equal to the sum of (A) the
number of Ordinary Shares outstanding at the close of business on
the date of such issuance or sale after giving effect to such
issuance or sale of Additional Ordinary Shares, plus (B) the
number of A Shares into which all outstanding Convertible
Preference Shares are convertible at the close of business on the
Business Day immediately preceding the date of such issuance or
sale, plus (C) the number of A Shares underlying the Other
Securities at the close of business on the Business Day
immediately preceding the date of such issuance or sale.
(2) For the purpose of making any adjustment required under this
subsection (i), the consideration for any issue or sale of
securities shall be deemed to be (A) to the extent it consists of
cash, equal to the gross amount paid in such issuance or sale,
(B) to the extent it consists of property other than cash, equal
to the Fair Market Value of that property, and (C) if Additional
Ordinary Shares, Convertible Securities (as defined below) or
rights or options to purchase either Additional Ordinary Shares
or Convertible Securities are issued or sold together with other
stock, securities or assets of the Company for a consideration
which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in
good faith by the Board to be allocable to such Additional
Ordinary Shares, Convertible Securities or rights or options.
(3) For the purpose of the adjustment required under this subsection
(i), if the
<PAGE>
16
Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into or
exchangeable or exercisable for, Additional Ordinary Shares (such
convertible or exchangeable or exercisable stock or securities
being hereinafter referred to as "Convertible Securities") and if
----------------------
the Effective Price of such Additional Ordinary Shares is less
than the Conversion Price then in effect, then in each case the
Company shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the
number of Additional Ordinary Shares issuable upon exercise,
conversion or exchange thereof irrespective of whether the
holders thereof have the fully vested legal right to exercise,
convert or exchange the Convertible Securities for Additional
Ordinary Shares and to have received as consideration for the
issuance of such Additional Ordinary Shares an amount equal to
the total amount of the consideration, if any, received by the
Company for the issuance of such rights or options or Convertible
Securities, plus, in the case of such rights or options, the
consideration, if any, payable to the Company upon the exercise
of such rights or options, plus, in the case of Convertible
Securities, the consideration, if any, payable to the Company
(other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the exercise,
conversion or exchange thereof. No further adjustment of the
Conversion Price, as adjusted upon the issuance of such rights,
options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Ordinary Shares on the exercise
of any such rights or options or the conversion or exchange of
any such Convertible Securities. If any such rights or options
or the conversion or exchange privilege represented by any such
Convertible Securities shall expire without having been
exercised, the Conversion Price as adjusted upon the issuance of
such rights, options or Convertible Securities shall be
readjusted to the Conversion Price which would have been in
effect had an adjustment been made on the basis that the only
Additional Ordinary Shares so issued were the Additional Ordinary
Shares, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion or exchange of such
Convertible Securities, and such Additional Ordinary Shares, if
any, were issued or sold for the consideration actually received
by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of the
rights or options whether or not exercised, plus the
consideration received for issuing or selling the Convertible
Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Company (other
than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion or exchange of
such Convertible Securities.
(4) "Additional Ordinary Shares" shall mean all Ordinary Shares
--------------------------
issued by the Company after the Issue Date, whether or not
subsequently reacquired or retired by the Company, other than (i)
Ordinary Shares issued upon conversion, exercise or exchange of
any securities outstanding as of the Issue Date which are
<PAGE>
17
convertible into, or exercisable or exchangeable for, Ordinary
Shares (including Warrants, Convertible Preference Shares and A
Shares issuable upon conversion of B Shares); (ii) up to
22,000,000 Ordinary Shares (including options, warrants and other
Ordinary Share purchase rights and Ordinary Shares issued
pursuant to such options, warrants and other rights) to be issued
to employees, officers or directors of, or consultants or
advisors to, the Company or any Subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are
approved by the Board; (iii) B Shares issued (x) to SSI or its
permitted assigns pursuant to the Exchange Agreement and any
Ordinary Shares or other securities issuable upon conversion
thereof and (y) to employees in exchange for shares of Class B
Common Stock of OpenTV, Inc.; (iv) warrants for up to 3.5 million
A Shares that are exercisable upon the achievement of certain
performance thresholds and up to 3.5 million A Shares issuable
upon exercise thereof; and (v) Ordinary Shares issued or issuable
following the affirmative vote of at least a Required Vote of the
C-1 Convertible Preference Shares. The "Effective Price" of
---------------
Additional Ordinary Shares shall mean the quotient determined by
dividing the total number of Additional Ordinary Shares issued or
sold, or deemed to have been issued or sold by the Company under
this subsection (i), by the aggregate consideration received, or
deemed to have been received, by the Company for such issue under
this subsection (i), for such Additional Ordinary Shares. "Other
-----
Securities" with respect to an issue or sale of Additional
----------
Ordinary Shares shall mean stock and other securities convertible
into or exchangeable for Ordinary Shares; the "number of Ordinary
------------------
Shares underlying Other Securities" on a particular date shall
----------------------------------
mean the number of Ordinary Shares issuable upon the exercise,
conversion or exchange, as the case may be, of such Other
Securities at the close of business on such date. The share
numbers in this Section 4(i)(4) shall be appropriately adjusted
for any stock dividends, combinations, splits, reverse splits,
recapitalizations and similar events affecting the securities of
the Company.
(j) Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price or the number of A Shares or other
securities issuable upon conversion of the Convertible Preference 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 each
registered holder of the Convertible Preference Shares at the holder's address
as shown in the Company's books. 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
consideration received or deemed to be received by the Company for any
Additional Ordinary Shares issued or sold or deemed to have been issued or sold,
(2) the Conversion Price at the time in effect, (3) the number of Additional
Ordinary Shares and (4) the type and amount, if any, of other property which at
the time would be received upon conversion of the Convertible Preference Shares.
(k) Notices of Record Date. In the event of (i) any taking by the Company
----------------------
of a record of the
<PAGE>
18
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 entity, 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 each holder of Convertible Preference Shares at least
ten days prior to the record date specified therein, a 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 A Shares (or other securities) shall be entitled to exchange their A Shares
(or other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
(l) Automatic Conversion.
--------------------
(1) Each Convertible Preference Share shall automatically be
converted into A Shares based on the then effective Conversion
Price upon the earliest to occur of (A) the date that the
conversion is approved by a Required Vote of the C-1 Convertible
Preference Shares, with respect to the C-1 Convertible Preference
Shares; (B) the date that the conversion is approved by the
affirmative vote or written consent of 66-2/3% or more of the
outstanding C-2 Convertible Preference Shares, voting together as
a class, with respect to the C-2 Convertible Preference Shares;
(C) immediately prior to the closing of a Qualified IPO, or (D)
upon the earlier to occur of (i) the 181st day following receipt
by the Company of a request for a registration of Registrable
Securities (as defined in the Investors' Rights Agreement) in
accordance with Section 3(c) of the Investors' Rights Agreement
from a holder(s) of Registrable Securites (as defined in the
Investors' Rights Agreement) owning the amount required in
Section 3(c) of the Investors' Rights Agreement and requesting
registration in accordance with Section 3(c) of the Investors'
Rights Agreement, and (ii) the delivery by the Company to the
Investors of written notice of the Company's determination to
terminate the Deferral Period under Section 3(c) of the
Investors' Rights Agreement.
(2) Upon the occurrence of either of the events specified in
paragraph (1) above, the outstanding Convertible Preference
Shares shall be converted automatically without any further
action by the holders of such shares whether or not the
certificates representing such shares are surrendered to the
Company or its transfer agent and thereafter, holders of
certificates representing Convertible Preference Shares shall for
all purposes be deemed to hold the number of A Shares and other
securities, if any, issuable upon conversion thereof as expressly
provided in Section 5; provided, however, that the Company shall
-------- -------
not be obligated to issue certificates evidencing the A Shares
issuable upon such
<PAGE>
19
conversion unless the certificates evidencing such Convertible
Preference Shares are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement reasonably
satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Convertible
Preference Shares, the holders of Convertible Preference Shares
shall surrender the certificates representing such shares at the
office of the Company or any transfer agent for the Convertible
Preference Shares or A Shares. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of A Shares into which
the Convertible Preference Shares surrendered were convertible on
the date on which such automatic conversion occurred.
(m) Fractional Shares. No fractional A Shares shall be issued upon
-----------------
conversion of Convertible Preference Shares. In lieu of any fractional share to
which the holder would otherwise be entitled, the Company shall pay cash equal
to the product of such fraction multiplied by the Fair Market Value of one (1) A
Share on the date of conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall at
---------------------------------------------
all times reserve and keep available out of its authorized but unissued A
Shares, solely for the purpose of effecting the conversion of the Convertible
Preference Shares, such number of its A Shares and other securities, if any,
issuable upon conversion thereof as expressly provided in Section 5 as shall
from time to time be sufficient to effect the conversion of all outstanding
Convertible Preference Shares.
(o) Notices. Any notice required or permitted by this Article III to be
-------
given to a holder of Convertible Preference Shares or to the Company shall be in
writing and be deemed given upon the earlier of actual receipt or three (3) days
after the same has been deposited in the United States mail, by certified or
registered mail, return receipt requested, postage prepaid, and addressed (i) to
each holder of record at the address of such holder appearing on the books of
the Company, or (ii) to the Company at its Registered Office (with a copy to c/o
MIH Limited, Jupiterstraat 13-15, 2132 HC Hoofddorp, The Netherlands, marked for
the attention of the Chief Executive), or (iii) to the Company or any holder, at
any other address specified in a written notice given to the other for the
giving of notice.
(p) Payment of Taxes. The Company will pay all taxes (other than taxes
----------------
based upon income) and other governmental charges that may be imposed with
respect to the issue and delivery of A Shares upon conversion of Convertible
Preference Shares, including without limitation any tax or other charge imposed
in connection with any transfer involved in the issue and delivery of A Shares
or other securities, if any, issuable upon conversion thereof as expressly
provided in Section 5 in a name other than that in which the Convertible
Preference Shares so converted were registered.
Section 6. Protective Provisions for C-1 Convertible Preference Shares. In
-----------------------------------------------------------
addition to any other vote or consent required herein or by applicable law:
<PAGE>
20
(a) A Required Vote of the C-1 Convertible Preference Shares shall be
required to amend, alter, or repeal any provision of the Memorandum of
Association, the Articles of Association or the bylaws of the Company
(including, without limitation, any amendment, alteration or repeal resulting
from a merger, consolidation, binding share exchange or other corporate
transaction to which the Company is a party, by the filing of a certificate of
designations or otherwise) that adversely affects the voting powers,
preferences, or other special rights or privileges, qualifications, limitations,
or restrictions of the Convertible Preference Shares.
(b) So long as fifty percent (50%) of the Issued Number of C-1 Convertible
Preference Shares remain outstanding, a Required Vote of the C-1 Convertible
Preference Shares shall be required for the taking of any of the following
actions:
(i) any authorization or any designation, whether by reclassification
or otherwise, of any new class or series of Senior Shares or
Parity Shares or any other securities convertible into Senior
Shares or Parity Shares or any increase in the authorized or
designated number of any class or series of Senior Shares or
Parity Shares (including the Convertible Preference Shares);
(ii) any increase or decrease (other than by conversion) in the
authorized number of Convertible Preference Shares;
(iii) any merger, reorganization or consolidation involving the
Company or any of its Subsidiaries, which (a) would result in a
Change of Control of the Company or (b) involves the sale,
transfer or other disposition of assets of the Company to any
other Person or the acquisition of assets from any other Person
(including, in either case, by the merger, reorganization or
consolidation of a Subsidiary of the Company with any other
Person), which assets, in either case, at the time of such
transaction have a Fair Market Value of greater than twenty
percent (20%) of the Fair Market Value of all equity securities
of the Company, on a fully diluted basis, immediately prior to
such transaction, other than any merger, reorganization or
consolidation which constitutes an Excepted Transaction as
defined in the Investors' Rights Agreement;
(iv) any sale, transfer or other disposition of all or substantially
all of the assets of the Company;
(v) any sale, transfer or other disposition of assets of the Company
(including the issuance of equity securities, except in
connection with a Public Offering of the Company's A Shares) or
acquisition of assets from any other Person, in either case,
which at the time of such transaction have a Fair Market Value of
greater than twenty percent (20%) of the Fair Market Value of all
equity securities of the Company, on a fully diluted basis
immediately prior to such transaction;
<PAGE>
21
(vi) any issuance or sale of additional Convertible Preference Shares
other than to SSI pursuant to the C-2 Preference Shares Purchase
Agreement or the Exchange Agreement in effect on the date hereof;
(vii) any transaction (or series of related transactions) between the
Company or its Subsidiaries or senior officers, on the one hand,
and MIH or any of its Controlled Affiliates (other than the
Company and its Subsidiaries), on the other, except for any
transaction (or series of related transactions) which (x) is on
an arms' length basis and (y) provides for aggregate
consideration of less than $500,000 per fiscal year;
(viii) any liquidation, dissolution or winding up, voluntary or
involuntary, of the Company;
(ix) any incurrence by the Company of any material indebtedness for
borrowed money, the principal amount of which exceeds, in the
aggregate, $50 million in any six (6)-month period; and
(x) any initiation by the Company of insolvency proceedings, any
decision by the Company not to contest any initiation of
insolvency proceedings instituted against the Company by third
parties or any general assignment for the benefit of the
Company's creditors.
(c) Any Convertible Preference Shares which are converted in accordance with
Section 5 or which are redeemed, repurchased or otherwise acquired by the
Company, shall be canceled and added to the authorized but undesignated
Preference Shares of the Company but shall not be reissued as Convertible
Preference Shares.
9. DESIGNATIONS, POWERS, PREFERENCES, ETC OF ORDINARY SHARES
9.1 Save as herein otherwise provided, the A Shares and the B Shares
shall rank pari passu in all respects.
9.2 The A Shares and the B Shares shall have the following rights
and be subject to the following restrictions:
As Regards Voting -
9.2.1 If there is only one class of Ordinary Share in issue, each
Ordinary Share shall entitle the holder thereof to one vote.
9.2.2 Subject as set out in clause 9.2.3 below, if there are A
Shares and B Shares in issue, each A Share shall entitle the
holder thereof to one vote, and each B Share
<PAGE>
22
shall entitle the holder thereof to ten votes, provided,
however, that, except as otherwise required by law, holders
of A Shares and B Shares, as such, shall not be entitled to
vote on any amendment to this Memorandum of Association or
to the Articles of Association which relates solely to the
terms of one or more outstanding series of Preference Shares
unless such amendment would adversely affect the rights of
the holders of Ordinary Shares of either class, in which
case the class so affected shall be entitled to a class vote
thereon. Except as expressly set out herein or in the
Articles of Association and subject to the requirements of
any applicable laws and the rights of any outstanding series
of Preference Shares to vote as a separate class or series,
all matters submitted to a vote of members shall be voted on
by the holders of the A Shares and the B Shares, voting
together as a single class.
9.2.3 Should any of the B Shares be converted into A Shares under
the provisions of clauses 9.2.9 to 9.2.19 hereof, then the
holders thereof shall have the rights (including the voting
rights) of A Shares.
As Regards Dividends And Distributions -
9.2.4 Subject to the preferential and other dividend rights of any
outstanding series of Preference Shares, holders of A Shares
and B Shares shall be entitled to such dividends and other
distributions in cash, shares or property of the Company as
may be declared thereon by a resolution of the directors
from time to time out of assets or funds of the Company
legally available therefor. No dividend or other
distribution may be declared or paid on any A Share unless
an identical dividend or other distribution is
simultaneously declared or paid, as the case may be, on each
B Share, nor shall any dividend or other distribution be
declared or paid on any B Share unless an identical dividend
or other distribution is simultaneously declared or paid, as
the case may be, on each A Share, in each case, without
preference or priority of any kind. All dividends and
distributions on the A Shares and B Shares payable in
Ordinary Shares shall be paid in the form of A Shares to the
holders of A Shares and in the form of B Shares to the
holders of B Shares. In no event shall shares of either
class of Ordinary Share be split, divided or combined unless
the outstanding shares of the other class of Ordinary Shares
be proportionately split, divided or combined.
9.2.5 In the event of a transaction as a result of which the A
Shares are converted into or exchanged for one or more other
securities, cash or other property (a "Class A Conversion
Event"), then from and after such Class A Conversion Event,
a holder of B Shares shall be entitled to receive, upon the
conversion of such B Shares pursuant to clauses 9.2.9 to
9.2.19, the amount of such securities, cash and other
property that such holder would have received if the
conversion of
<PAGE>
23
such B Shares had occurred immediately prior to the record
date (or, if there is no record date, the effective date) of
the Class A Conversion Event. This clause 9.2.5 shall be
applicable in the same manner to all successive conversions
or exchanges of securities issued pursuant to any Class A
Conversion Event.
9.2.6 No adjustments in respect of dividends shall be made upon
the conversion of any B Share, provided, however, that, if a
B Share is converted after the record date for the payment
of a dividend or other distribution on B Shares but before
such payment, then the record holder of such B Share at the
close of business on such record date shall be entitled to
receive the dividend or other distribution payable on such B
Share on the payment date notwithstanding the conversion
thereof.
As Regards Option Rights Or Warrants -
9.2.7 Subject to clauses 9.2.4, 9.2.5 and 9.2.6, the Company may
not issue additional B Shares or issue options, rights or
warrants to subscribe for additional B Shares, except that
the Company may -
9.2.7.1 in exchange for the transfer to the Company of
shares of Class B Common Stock of OpenTV, Inc (a
Delaware corporation) issue B Shares to the holders
of such shares of Class B Common Stock; and
9.2.7.2 make a pro rata offer to all holders of Ordinary
Shares of rights to subscribe for additional shares
of the class of Ordinary Shares held by them.
As Regards Mergers -
9.2.8 In the event of a merger of the Company with or into another
entity (whether or not the Company is the surviving entity),
the holders of each A Share and B Share shall be entitled to
receive the same per share consideration as the per share
consideration, if any, received by the holders of each share
of the other class of Ordinary Shares, provided that, if
such consideration consists in any part of voting securities
(or of options or warrants to purchase, or of securities
convertible into or exchangeable for, voting securities),
then the Company may (but is not obliged to) provide in the
applicable merger agreement for the holders of B Shares to
receive, on a per share basis, voting securities with ten
times the number of votes per share as those voting
securities to be received by the holders of A Shares (or
options or warrants to purchase, or securities convertible
into or exchangeable for, voting securities with ten times
the number of votes per share as those voting securities
issuable upon exercise of the options or warrants to be
received by the holders of A Shares, or into which the
convertible or
<PAGE>
24
exchangeable securities to be received by the holders of A
Shares may be converted or exchanged).
As regards Conversion Of B Shares -
9.2.9 Voluntary conversion
Each B Share shall be convertible at any time, at the option
of its record holder, into one validly issued, fully paid
and non-assessable A Share.
9.2.10 Voluntary conversion procedure
At the time of a voluntary conversion, the record holder of
B Shares shall deliver to the principal office of the
Company or any transfer agent for A Shares -
9.2.10.1 the certificate or certificates representing the B
Shares to be converted, duly endorsed in blank or
accompanied by proper instruments of transfer; and
9.2.10.2 written notice to the Company stating that the
record holder elects to convert such share or
shares and stating the name or names (with
addresses) and the nominations in which the
certificate or certificates representing the A
Shares issuable upon the conversion are to be
issued and including instructions for the delivery
thereof.
Conversions shall be deemed to have been effected at the
time when delivery is made to the Company or its transfer
agent of such written notice and the certificate or
certificates representing the B Shares to be converted and
as of such time each Person named in such written notice as
the Person to whom a certificate representing A Shares is to
be issued, shall be deemed to be the holder of record of the
number of A Shares to be evidenced by that certificate. Upon
such delivery, the Company or its transfer agent shall
promptly issue and deliver at the stated address of such
record holder of A Shares, a certificate or certificates
representing the number of A Shares to which such record
holder is entitled by reason of such conversion and shall
cause such A Shares to be registered in the name of the
record holder.
9.2.11 Automatic conversion
Subject to clause 9.2.12 below, each B Share shall
automatically, without any further action on the part of the
Company or any other Person, convert into one A Share -
9.2.11.1 upon any Transfer of any B Share to any Person
other than the Initial
<PAGE>
25
Holder, a Permitted Transferee, a holder of
Convertible Preference Shares (or an Affiliate of
such holder) or a holder of A Shares who used to
be a holder of Convertible Preference Shares (or
an Affiliate of such holder); or
9.2.11.2 on the first date on which the number of B Shares
then outstanding is less than 10% of all the then
outstanding Ordinary Shares (calculated without
regard to the difference in voting rights between
the classes of Ordinary Shares); or
9.2.11.3 if and when the directors and the holders of a
majority of the outstanding B Shares approve the
conversion of all the B Shares into A Shares; or
9.2.11.4 if and when the directors, in their sole
discretion, elect to effect a conversion after a
determination that there has been a material
adverse change in the liquidity, marketability or
market value of the A Shares, considered in the
aggregate, due to -
9.2.11.4.1 the exclusion of the A Shares from
trading on a national securities
exchange or the exclusion of the A
Shares from quotation on Nasdaq
National Market or such other system
then in use; or
9.2.11.4.2 requirements under any applicable
state law,
in any such case, as a result of the existence of
the B Shares.
9.2.12 Notwithstanding anything to the contrary set out in clause
9.2.11, a holder of B Shares may pledge such holder's B
Shares to a financial institution pursuant to a bona fide
pledge of such B Shares as collateral security for any
indebtedness or other obligations of any Person (the
"Pledged Shares") due to the pledgee or its nominee,
provided, however, that -
9.2.12.1 such B Shares shall not be voted by or registered
in the name of the pledgee and shall remain
subject to the provisions of clause 9.2.9 to
9.2.19; and
9.2.12.2 upon any foreclosure, realisation or other similar
action by the pledgee, such Pledged Shares shall
automatically convert into A Shares on a share for
share basis unless all right, title and interest
in such Pledged Shares shall be Transferred
concurrently by the pledgee or the purchaser in
such foreclosure to a Permitted Transferee;
9.2.13 The automatic conversion events set out in clause 9.2.11
shall be referred to
<PAGE>
26
herein as "Events of Automatic Conversion". The
determination of whether an Event of Automatic Conversion
shall have occurred shall be made by the directors or a
committee of the directors.
9.2.14 Automatic conversion procedure
Any conversion pursuant to an Event of Automatic Conversion
shall be deemed to have been effected at the time the Event
of Automatic Conversion occurred (the "Conversion Time"). At
the Conversion Time, the certificate or certificates that
represented immediately prior thereto the B Shares which
were so converted (the "Converted B Shares") shall,
automatically and without further action, represent the same
number of A Shares. Holders of Converted B Shares shall
deliver their certificates, duly endorsed in blank or
accompanied by proper instruments of transfer, to the
principal office of the Company or the office of any
transfer agent for A Shares, together with a notice setting
out the name or names (with addresses) and the nominations
in which the certificate or certificates representing such A
Shares are to be issued and including instructions for
delivery thereof. Upon such delivery, the Company or its
transfer agent shall promptly issue and deliver at such
stated address to such holder of A Shares a certificate or
certificates representing the number of A Shares to which
such holder is entitled by reason of such conversion, and
shall cause such A Shares to be registered in the name of
such holder. The Person entitled to receive the A Shares
issuable upon such conversion shall be treated for all
purposes as the record holder of such A Shares at and as of
the Conversion Time and the rights of such Person as the
holder of B Shares which have been converted shall cease and
terminate at and as of the Conversion Time, in each case
without regard to any failure by such holder to deliver the
certificates or the notice required by this clause 9.2.14.
9.2.15 Unconverted shares: notice required
In the event of the conversion of less than all the B Shares
evidenced by a certificate surrendered to the Company in
accordance with the procedures of this clause 9.2, the
Company shall execute and deliver to or upon the written
order of the holder of such unconverted shares, without
charge to such holder, a new certificate evidencing the
number of B Shares not converted.
9.2.16 Retired shares
B Shares which are converted into A Shares as provided
herein shall be retired and cancelled and shall have the
status of authorised but unissued B Shares.
9.2.17 Reservation
The Company shall at all times reserve and keep available,
out of its authorised
<PAGE>
27
and unissued A Shares, for the purposes of effecting
conversions, such number of duly authorised A Shares as
shall from time to time be sufficient to effect the
conversion of all outstanding B Shares. All the A Shares so
issuable shall, when so issued, be duly and validly issued,
fully paid and free from liens and charges with respect to
such issuance.
9.2.18 Determination of voting rights and Events of Automatic
Conversion
The directors of the Company or a duly authorised committee
of such directors shall have the power to determine, in good
faith after reasonable enquiry, whether an Event of
Automatic Conversion has occurred with respect to any B
Share. A determination by the directors of the Company or
such committee that an Event of Automatic Conversion has
occurred shall be conclusive. As a condition to counting the
votes cast by any holder of B Shares at any annual or
special meeting of shareholders or in connection with any
written consent of shareholders or as a condition to
registration of transfer of B Shares or for any other
purpose, the directors or a duly authorised committee
thereof, in their/its discretion, may require the holder of
such shares to furnish such affidavits or other proof as the
directors or such committee deems necessary or advisable to
determine whether an Event of Automatic Conversion shall
have occurred. If the directors or such committee determines
that a holder has substantially failed to comply promptly
with any request by the directors or such committee for such
proof, such shares shall be entitled to one vote per share
until such time as the directors or such committee
determines that such holder has complied with such request.
The directors or a committee thereof may exercise the
authority granted by this clause 9.2.15 through duly
authorised officers or agents.
9.2.19 Share legend
The Company shall include on the certificates representing
the B Shares a legend referring to the restrictions on
Transfer and registration imposed by clauses 9.2.9 to
9.2.18.
As Regards Liquidation -
9.2.20 In the event of any voluntary or involuntary liquidation,
distribution or winding up of the Company, after
distribution in full of the preferential and/or other
amounts to be distributed to the holders of any outstanding
series of Preference Shares, the holders of A Shares and B
Shares shall be entitled to receive all the remaining assets
of the Company available for distribution to its
shareholders, rateably in proportion to the number of A
Shares and B Shares held by them. In any such distribution,
A Shares and B Shares shall be treated equally on a per
share basis.
<PAGE>
28
10. VARIATION OF CLASS RIGHTS
Subject to the provisions of clause 9.2.2, the rights or restrictions
attached to all or any shares of any class or series may be amended,
modified, varied or cancelled by a resolution of members or directors as
set out in clause 13.1, provided that no such amendment, modification,
variation or cancellation which adversely affects the rights or
restrictions attaching to any class or series of shares shall be effected
without the approval of, or ratification by, a resolution passed at a
separate meeting of the holders of the shares in question, by a simple
majority of the votes exercisable by the holders of the applicable class or
series of shares present and voting at the meeting, and the provisions of
the Articles of Association relating to meetings of members shall apply to
any such separate class meeting, except that a quorum at any such meeting
shall be a member or members present in person or by proxy holding at least
one-fifth of the issued shares of the class or series in question, provided
that, if a quorum is not so present, the meeting shall be adjourned to the
next day and the members present or represented at the adjourned meeting
shall constitute a quorum.
11. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
Unless otherwise provided by the terms of issue, by this Memorandum of
Association or by the Articles of Association, any right or restriction
attached to all or any class or series of shares shall be deemed not to be
adversely affected by the creation or issue of any other shares ranking
pari passu with (but not in priority to) any such share already issued by
the Company.
12. REGISTERED SHARES AND BEARER SHARES
Shares may only be issued as registered shares and not as bearer shares.
13. AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
13.1 The Company may amend its Memorandum of Association and Articles of
Association by a resolution of members or directors.
13.2 In addition to any requirements of law and of this Memorandum of
Association, an affirmative vote of the holders of 66 percent or
more of the combined votes of all the then outstanding Ordinary
Shares, voting together as a single class, or the affirmative vote of
66 2/3 of the total number of directors (each, a "Supermajority
Vote") shall be required to -
13.2.1 alter, amend, repeal or adopt any provision which is
inconsistent with, any provision of clauses 8, 9 or this
clause 13, of this Memorandum of Association or of
Regulations 48, 49, 51, 63, 64, 65, 72, 73, 76, 77, 78, 81 or
116 of the Articles of Association; and
13.2.2 approve any merger of the Company which would, directly or
indirectly have the effect of making changes to this
Memorandum of Association or to the Articles
<PAGE>
29
of Association which would require a Supermajority Vote if
effected directly as an amendment to this Memorandum of
Association or to the Articles of Association.
14. DEFINITIONS AND INTERPRETATION
In this Memorandum of Association -
14.1 unless the context clearly indicates a contrary intention, an
expression which denotes any one gender includes the other genders, a
natural person includes a juristic person and vice versa, the singular
includes the plural and vice versa and the following terms have the
meanings assigned to them below and cognate expressions bear
corresponding meanings -
"Affiliate" - in relation to any Person, any
other Person which directly or
indirectly Controls, is Controlled
or is under common Control with,
such Person;
"Beneficial Owner" - in relation to any share, means a
Person who (i) has the power to
vote or dispose or to direct the
voting or disposition of such
share, directly or indirectly,
through any agreement, arrangement
or understanding (written or
oral); or (ii) has the right to
acquire such share (whether such
right is exercisable immediately
or only after the passage of time)
pursuant to any agreement,
arrangement or understanding
(written or oral) or upon the
exercise of conversion rights,
exchange rights, warrants or
options or otherwise, and
"Beneficially Own" and "Beneficial
Ownership" have corresponding
means;
"Control" - in relation to any Person, (i) the
holding of shares or a similar
equity interest (which in the case
of a partnership shall refer to
the partnership interest)
representing more than 50% of all
the issued shares or of the whole
equity interest in the capital of
that Person (or of another Person
which has Control of such Person),
or (ii) the ability to appoint the
<PAGE>
30
majority of the members of the
board of directors or other
governing body of such Person, or
(iii) the ability by virtue of the
holding of shares or the
possession of voting power in or
in relation to that Person or by
virtue of any powers conferred by
the statutes or other document
relating to the Person or the
shareholders or partners of such
Person to exercise a dominant
influence over such Person;
"Determination Date" - the date on which B Shares are
first issued by the Company;
"Initial Holder" - each Person in whose name one or
more B Shares are registered at
the Determination Date and each
joint owner of a B Share at the
Determination Date. A Person shall
cease to be an Initial Holder once
that Person no longer holds of
record or beneficially any B
Shares. For the purposes of the
definition of Initial Holder, if
any B Shares are registered in the
name of a Nominee, such Shares
shall be deemed to be registered
in the name of the Person for whom
such Nominee is acting and such
Shares shall be deemed not to be
registered in the name of such
Nominee;
"Nominee" - a partnership or other entity
which is acting as a bona fide
nominee for the registration of
record ownership of securities
Beneficially Owned by another
Person and that is identified as
such at the time of such
registration;
"Permitted Transferee" - any Affiliate of an Initial
Holder;
"Person" - any individual, firm, company,
corporation, trust, government,
State or agency of a State or any
joint venture, partnership,
limited liability company, public
company limited or other
incorporated or unincorporated
body;
"Transfer" - any sale, transfer (including a
transfer made in whole or in part
without consideration as a
<PAGE>
31
gift), exchange, assignment,
pledge, encumbrance, alienation or
any other disposition or
hypothecation of record ownership
or of Beneficial Ownership of any
share, whether by operation of law
or otherwise, provided, however,
that (i) a pledge of any share
made in accordance with the
provisions of clause 9.2.12; and
(ii) a grant of a proxy with
respect to any share to a Person
designated by the directors of the
Company who are soliciting proxies
on behalf of the Company shall not
be considered a "Transfer" and
provided further that, in the case
of any Transfer of record
ownership to a Nominee, such
Transfer of record ownership shall
be deemed to be made to the Person
or Persons for whom such Nominee
is acting;
14.2 terms which have not been defined herein but have been defined in the
Articles of Association have the same meaning when used herein.
We, , for the purposes of incorporating an
International Business Company under the laws of the British Virgin Islands
hereby subscribe our name to this Memorandum of Association this day
of ,1999 in the presence of:
Witness Subscriber
-------- ------------------------
<PAGE>
EXHIBIT 3.2
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
ARTICLES OF ASSOCIATION
OF
OPENTV CORP.
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following table
shall bear the meanings set opposite them respectively in the second column
thereof.
Words Meaning
----- -------
capital The sum of the aggregate par value of all
outstanding shares with par value of the Company
and shares with par value held by the Company as
treasury shares plus
(a) the aggregate of the amounts designated as
capital of all outstanding shares without
par value of the Company and shares without
par value held by the Company as treasury
shares and
(b) the amounts as are from time to time
transferred from surplus to capital by a
resolution of directors.
chief executive officer The chief executive officer from time to time of
the Company.
1
<PAGE>
member A person who holds shares in the Company.
person Any individual, firm, company, corporation,
trust, government, state or agency of a state,
joint venture, the estate of a deceased
individual, limited liability company, public
company limited, partnership or incorporated or
unincorporated association of persons.
resolution of directors Except as otherwise required by law, the
Memorandum or these Articles, a resolution
(a) approved at a duly convened and constituted
meeting of directors of the Company or of a
committee of directors of the Company by
the affirmative vote of a simple majority
of the directors present at the meeting who
voted and did not abstain or
(b) consented to in writing by three-quarters
of all directors or three-quarters of all
members of the committee, as the case may
be;
except that where a director is given more than
one vote, he shall be counted by the number of
votes he casts for the purpose of establishing a
majority.
resolution of members Except as otherwise required by law, the
Memorandum or these Articles, a resolution
approved at a duly convened and constituted
meeting of the members of the Company by the
affirmative vote of
(a) a simple majority of the votes of the
shares entitled to vote thereon which were
present at the meeting and were voted and
not abstained or
(b) a simple majority of the votes of each
class or series of shares which were
present at the meeting and entitled to vote
thereon as a class or series and were voted
and not abstained and of a simple majority
of the votes of the remaining shares
entitled to vote thereon which were present
at the meeting and were voted and not
abstained.
2
<PAGE>
securities Shares and debt obligations of every kind, and
options, warrants and rights to acquire shares,
or debt obligations.
surplus The excess, if any, at the time of the
determination of the total assets of the Company
over the aggregate of its total liabilities, as
shown in its books of account, plus the
Company's capital.
the Act The International Business Companies Act (No. 8
of 1984) including any modification, extension,
re-enactment or renewal thereof and any
regulations made thereunder.
the Memorandum The Memorandum of Association of the Company as
originally framed or as from time to time
amended.
the Seal Any Seal which has been duly adopted as the Seal
of the Company.
these Articles These Articles of Association as originally
framed or as from time to time amended.
treasury shares Shares in the Company that were previously
issued but were repurchased, redeemed or
otherwise acquired by the Company and not
cancelled.
2. "Written" or any term of like import includes words typewritten, printed,
painted, engraved, lithographed, photographed or represented or reproduced
by any mode of reproducing words in a visible form, including telex,
facsimile, telegram, cable or other form of writing produced by electronic
communication.
3. Save as aforesaid any words or expressions defined in the Act shall bear
the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
3
<PAGE>
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by members holding the shares except
that it is the votes allocated to the shares that shall be counted and not
the number of members who actually voted and a reference to shares being
present at a meeting shall be given a corresponding construction.
6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be issued
according to the provisions of the Memorandum.
REGISTERED SHARES
7. Every member holding registered shares in the Company shall be entitled to
a certificate signed by a director or officer of the Company and under the
Seal specifying the share or shares held by him and the signature of the
director or officer and the Seal may be facsimiles.
8. If several persons are registered as joint holders of any shares, any one
of such persons may give an effectual receipt for any dividend payable in
respect of such shares.
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
9. Subject to the provisions of these Articles, the Memorandum and any
resolution of members, the unissued shares of the Company shall be at the
disposal of the directors who may, without limiting or affecting any rights
previously conferred on the holders of any existing shares or class or
series of shares, offer, allot, grant options over or otherwise dispose of
shares to such persons, at such times and upon such terms and conditions as
the Company may by resolution of directors determine.
10. No share in the Company may be issued until the consideration in respect
thereof is fully paid, and when issued the share is for all purposes fully
paid and non-assessable save that a share issued for a promissory note or
other written obligation for payment of a debt may be issued subject to
forfeiture in the manner prescribed in these Articles.
11. Shares in the Company shall be issued for money, services rendered,
personal property, an estate in real property, a promissory note or other
binding obligation to contribute money or property or any combination of
the foregoing as shall be determined by a resolution of directors.
12. Shares in the Company may be issued for such amount of consideration as the
directors may from time to time by resolution of directors determine,
except that in the case of shares with par value, the amount shall not be
less than the par value, and in the absence of fraud the decision of the
directors as to the value of the consideration received by the Company in
respect of the issue is conclusive unless a question of law is involved.
The consideration in respect of the shares constitutes capital to the
extent of the par value and the excess constitutes surplus.
13. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company, shall
be treated for all
4
<PAGE>
purposes as having been issued for money equal to the consideration
received or deemed to have been received by the Company in respect of the
other share, debt obligation or security.
14. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the Company
may by resolution of directors determine.
15. The Company may issue fractions of a share and a fractional share shall
have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and other
attributes of a whole share of the same class or series of shares.
16. Upon the issue by the Company of a share without par value, if an amount is
stated in the Memorandum to be authorized capital represented by such
shares then each share shall be issued for no less than the appropriate
proportion of such amount which shall constitute capital, otherwise the
consideration in respect of the share constitutes capital to the extent
designated by the directors and the excess constitutes surplus, except that
the directors must designate as capital an amount of the consideration that
is at least equal to the amount that the share is entitled to as a
preference, if any, in the assets of the Company upon liquidation of the
Company.
17. The Company may purchase, redeem or otherwise acquire and hold its own
shares on such terms and conditions as may be determined by a resolution of
directors, provided, however, that the Company may only do so out of
surplus or in exchange for newly issued shares of equal value.
18. No purchase, redemption or other acquisition of shares shall be made unless
the directors determine that immediately after the purchase, redemption or
other acquisition the Company will be able to satisfy its liabilities as
they become due in the ordinary course of its business and the realizable
value of the assets of the Company will not be less than the sum of its
total liabilities, other than deferred taxes, as shown in the books of
account, and its capital and, in the absence of fraud, the decision of the
directors as to the realizable value of the assets of the Company is
conclusive, unless a question of law is involved.
19. A determination by the directors under the preceding Regulation is not
required where shares are purchased, redeemed or otherwise acquired
a) pursuant to a right of a member to have his shares redeemed or to
have his shares exchanged for money or other property of the Company;
b) by virtue of a transfer of capital pursuant to Regulation 45;
c) by virtue of the provisions of Section 83 of the Act; or
d) pursuant to an order of the Court.
20. Shares that the Company purchases, redeems or otherwise acquires pursuant
to the preceding Regulation may be cancelled or held as treasury shares
except to the extent
5
<PAGE>
that such shares are in excess of 80 percent of the issued shares of the
Company in which case they shall be cancelled but they shall be available
for reissue.
21. Where shares in the Company are held by the Company as treasury shares or
are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the election
of directors of the other company, such shares of the Company are not
entitled to vote or to have dividends paid thereon and shall not be treated
as outstanding for any purpose except for purposes of determining the
capital of the Company.
22. The Company may by a resolution of directors include in the computation of
surplus for any purpose the unrealized appreciation of the assets of the
Company, and, in the absence of fraud, the decision of the directors as to
the value of the assets is conclusive, unless a question of law is
involved.
MORTGAGES AND CHARGES OF SHARES
23. Members may mortgage or charge their shares in the Company and upon
satisfactory evidence thereof the Company shall give effect to the terms of
any valid mortgage or charge except insofar as it may conflict with any
requirements herein contained for consent to the transfer of shares.
24. In the case of the mortgage or charge of shares there may be entered in the
share register of the Company at the request of the registered holder of
such shares
a) a statement that the shares are mortgaged or charged;
b) the name of the mortgagee or chargee; and
c) the date on which the aforesaid particulars are entered in the share
register.
25. Where particulars of a mortgage or charge are registered, such particulars
shall be cancelled
a) with the consent of the named mortgagee or chargee or anyone authorized
to act on his behalf; or
b) upon evidence satisfactory to the directors of the discharge of the
liability secured by the mortgage or charge and the issue of such
indemnities as the directors shall consider necessary or desirable.
26. Whilst particulars of a mortgage or charge are registered, no transfer of
any share comprised therein shall be effected without the written consent
of the named mortgagee or chargee or anyone authorized to act on his
behalf.
FORFEITURE
27. When shares issued for a promissory note or other written obligation for
payment of a debt have been issued subject to forfeiture, the following
provisions shall apply.
6
<PAGE>
28. Written notice specifying a date for payment to be made and the shares in
respect of which payment is to be made shall be served on the member who
defaults in making payment pursuant to a promissory note or other written
obligations to pay a debt.
29. The written notice specifying a date for payment shall
a) name a further date not earlier than the expiration of 14 days from the
date of service of the notice on or before which payment required by
the notice is to be made; and
b) contain a statement that in the event of non-payment at or before the
time named in the notice the shares, or any of them, in respect of
which payment is not made will be liable to be forfeited.
30. Where a written notice has been issued and the requirements have not been
complied with within the prescribed time, the directors may at any time
before tender of payment forfeit and cancel the shares to which the notice
relates.
31. The Company is under no obligation to refund any money to the member whose
shares have been forfeited and cancelled pursuant to these provisions.
Upon forfeiture and cancellation of the shares the member is discharged
from any further obligation to the Company with respect to the shares
forfeited and cancelled.
LIEN
32. The Company shall have a first and paramount lien on every share issued for
a promissory note or for any other binding obligation to contribute money
or property or any combination thereof to the Company, and the Company
shall also have a first and paramount lien on every share standing
registered in the name of a member, whether singly or jointly with any
other person or persons, for all the debts and liabilities of such member
or his estate to the Company, whether the same shall have been incurred
before or after notice to the Company of any interest of any person other
than such member, and whether the time for the payment or discharge of the
same shall have actually arrived or not, and notwithstanding that the same
are joint debts or liabilities of such member or his estate and any other
person, whether a member of the Company or not. The Company's lien on a
share shall extend to all dividends payable thereon. The directors may at
any time either generally, or in any particular case, waive any lien that
has arisen or declare any share to be wholly or in part exempt from the
provisions of this Regulation.
33. In the absence of express provisions regarding sale in the promissory note
or other binding obligation to contribute money or property, the Company
may sell, in such manner as the directors may by resolution of directors
determine, any share on which the Company has a lien, but no sale shall be
made unless some sum in respect of which the lien exists is presently
payable nor until the expiration of twenty-one days after a notice in
writing, stating and demanding payment of the sum presently payable and
giving notice of the intention to sell in default of such payment, has been
served on the holder for the time being of the share.
34. The net proceeds of the sale by the Company of any shares on which it has a
lien shall be applied in or towards payment of discharge of the promissory
note or other
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binding obligation to contribute money or property or any combination
thereof in respect of which the lien exists so far as the same is presently
payable and any residue shall (subject to a like lien for debts or
liabilities not presently payable as existed upon the share prior to the
sale) be paid to the holder of the share immediately before such sale. For
giving effect to any such sale the directors may authorize some person to
transfer the share sold to the purchaser thereof. The purchaser shall be
registered as the holder of the share and he shall not be bound to see to
the application of the purchase money, nor shall his title to the share be
affected by any irregularity or invalidity in the proceedings in reference
to the sale.
TRANSFER OF SHARES
35. Subject to any limitations in the Memorandum, registered shares in the
Company may be transferred by a written instrument of transfer signed by
the transferor and containing the name and address of the transferee, but
in the absence of such written instrument of transfer the directors may
accept such evidence of a transfer of shares as they consider appropriate.
36. The Company shall not be required to treat a transferee of a registered
share in the Company as a member until the transferee's name has been
entered in the share register.
TRANSMISSION OF SHARES
37. The executor or administrator of a deceased member, the guardian of an
incompetent member or the trustee of a bankrupt member shall be the only
person recognized by the Company as having any title to his share but they
shall not be entitled to exercise any rights as a member of the Company
until they have proceeded as set forth in the next following three
Regulations.
38. The production to the Company of any document which is evidence of probate
of the will, or letters of administration of the estate, or confirmation as
executor, of a deceased member or of the appointment of a guardian of an
incompetent member or the trustee of a bankrupt member shall be accepted by
the Company even if the deceased, incompetent or bankrupt member is
domiciled outside the British Virgin Islands if the document evidencing the
grant of probate or letters of administration, confirmation as executor,
appointment as guardian or trustee in bankruptcy is issued by a foreign
court which had competent jurisdiction in the matter. For the purpose of
establishing whether or not a foreign court had competent jurisdiction in
such a matter the directors may obtain appropriate legal advice. The
directors may also require an indemnity to be given by the executor,
administrator, guardian or trustee in bankruptcy.
39. Any person becoming entitled by operation of law or otherwise to a share or
shares in consequence of the death, incompetence or bankruptcy of any
member may be registered as a member upon such evidence being produced as
may reasonably be required by the directors. An application by any such
person to be registered as a member shall for all purposes be deemed to be
a transfer of shares of the deceased, incompetent or bankrupt member and
the directors shall treat it as such.
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40. Any person who has become entitled to a share or shares in consequence of
the death, incompetence or bankruptcy of any member may, instead of being
registered himself, request in writing that some person to be named by him
be registered as the transferee of such share or shares and such request
shall likewise be treated as if it were a transfer.
41. What amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and the
circumstances of the case.
ALTERATION OF AUTHORIZED CAPITAL OR CAPITAL
42. The Company may either by a resolution of members or by a resolution of
directors amend the Memorandum to
a) increase or reduce its authorized capital and in connection therewith
the Company may in respect of any unissued shares increase or reduce
the number of such shares, increase or reduce the par value of any
such shares or effect any combination of the foregoing;
b) increase the number of its shares having no par value;
c) increase its capital constituted by shares of no par value by
transferring reserves or profits to the capital, with or without a
distribution of shares;
d) combine and divide all or any part of its share capital into shares of
larger amount than its existing shares or combine and reduce the
number of the issued no par value shares;
e) increase the number of its issued no par value shares without an
increase of its capital;
f) subdivide its shares, or any of them, into shares of smaller amount
than is fixed by the Memorandum;
g) convert any shares having a par value into shares of no par value;
h) convert any shares of no par value into shares having a par value;
i) convert any of its shares, whether issued or not, into shares of
another class.
43. The Company may, either by a resolution of members or by a resolution of
directors, amend the Memorandum to
a) divide the shares, including issued shares, of a class or series into
a larger number of shares of the same class or series; or
b) combine the shares, including issued shares, of a class or series into
a smaller number of shares of the same class or series,
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provided, however, that where shares having a par value are divided or
combined under (a) or (b) of this Regulation, the aggregate par value of
the new shares must be equal to the aggregate par value of the original
shares.
44. The capital of the Company may by a resolution of directors be increased by
transferring an amount of the surplus of the Company to capital.
45. Subject to the provisions of the two next succeeding Regulations, the
capital of the Company may by resolution of directors be reduced by
transferring an amount of the capital of the Company to surplus.
46. No reduction of capital shall be effected that reduces the capital of the
Company to an amount that immediately after the reduction is less than the
aggregate par value of all outstanding shares with par value and all shares
with par value held by the Company as treasury shares and the aggregate of
the amounts designated as capital of all outstanding shares without par
value and all shares without par value held by the Company as treasury
shares that are entitled to a preference, if any, in the assets of the
Company upon liquidation of the Company.
47. No reduction of capital shall be effected unless the directors determine
that immediately after the reduction the Company will be able to satisfy
its liabilities as they become due in the ordinary course of its business
and that the realizable assets of the Company will not be less than its
total liabilities, other than deferred taxes, as shown in the books of the
Company and its remaining capital, and, in the absence of fraud, the
decision of the directors as to the realizable value of the assets of the
Company is conclusive, unless a question of law is involved.
MEETINGS AND CONSENTS OF MEMBERS
48. Any action required or permitted to be taken by the members must be
effected at a duly called annual or special meeting (as described in
Regulation 51) of the members entitled to vote on such action or written
consent without a meeting. The following provisions shall apply to such
written consent.
(a) Unless otherwise provided in the Memorandum, any action required by
statute to be taken at any annual or special meeting of members or any
action that may be taken at any annual or special meeting of members,
may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
(b) Every written consent shall bear the date of signature of each member
who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days
of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number
of members to take action are delivered to the Company at its
registered office in the British Virgin Islands, its principal place
of business or an officer or agent of the Company having custody of
the book in which proceedings of meetings of members are
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recorded. Delivery made to the Company's registered office shall be by
hand or by certified or registered mail, return receipt requested.
(c) Notwithstanding the foregoing, the members may not take any action by
written consent after the date on which the Company closes a public
offering by it of shares pursuant to an effective registration
statement under the United States Securities Act of 1933, as amended.
49. Meetings of members shall be held at such times and places as may be fixed
from time to time by the directors.
50. An annual meeting of members for election of directors and for such other
business as may come before the meeting shall be held each year at such
date and time as may be determined by the directors.
51. Special meetings of members may be called only by the directors pursuant to
a resolution of directors to that effect or by the chief executive officer.
The aforegoing provisions of this Regulation 51, as well as the provisions
of Regulation 48 shall not apply to action taken by holders of preference
shares.
52. Written notice of all meetings of members, stating the time, place and
purposes thereof, shall be given not fewer than ten days before the date of
the proposed meeting to those persons whose names appear as members in the
share register of the Company on the date of the notice and are entitled to
vote at the meeting.
53. The directors may fix the date notice is given of a meeting of members as
the record date for determining those shares that are entitled to vote at
the meeting.
54. A meeting of members may be called on short notice:
a) if members holding not less than 90 percent of the total number of
shares entitled to vote on all matters to be considered at the
meeting, or 90 percent of the votes of each class or series of shares
where members are entitled to vote thereon as a class or series
together with not less than a 90 percent majority of the remaining
votes, have agreed to short notice of the meeting, or
b) if all members holding shares entitled to vote on all or any matters to
be considered at the meeting have waived notice of the meeting and for
this purpose presence at the meeting shall be deemed to constitute
waiver.
55. The inadvertent failure of the directors to give notice of a meeting to a
member, or the fact that a member has not received notice, does not
invalidate the meeting.
56. A member may be represented at a meeting of members by a proxy who may
speak and vote on behalf of the member.
57. The instrument appointing a proxy shall be produced at the place appointed
for the meeting before the time for holding the meeting at which the person
named in such instrument proposes to vote.
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58. An instrument appointing a proxy shall be in substantially the following
form or such other form as the Chairman of the meeting shall accept as
properly evidencing the wishes of the member appointing the proxy.
(Name of Company)
I/We being a member of the above Company
with shares HEREBY APPOINT
of or failing him
of to be my/our proxy to vote for me/us at the
meeting of members to be held on the day of
and at any adjournment thereof.
(Any restrictions on voting to be inserted here.)
Signed this day of
.............................
Member
59. The following shall apply in respect of joint ownership of shares:
a) if two or more persons hold shares jointly each of them may be present
in person or by proxy at a meeting of members and may speak as a
member;
b) if only one of the joint owners is present in person or by proxy he may
vote on behalf of all joint owners, and
c) if two or more of the joint owners are present in person or by proxy
they must vote as one.
60. A member shall be deemed to be present at a meeting of members if he
participates by telephone or other electronic means and all members
participating in the meeting are able to hear each other.
61. A meeting of members is duly constituted if, at the commencement of the
meeting, there are present in person or by proxy not less than 50 percent
of the votes of the shares or class or series of shares entitled to vote on
resolutions of members to be considered at the meeting. If a quorum be
present, notwithstanding the fact that such quorum may be represented by
only one person then such person may resolve any matter and a certificate
signed by such person accompanied where such person be a proxy by a copy of
the proxy form shall constitute a valid resolution of members.
62. If within two hours from the time appointed for the meeting a quorum is not
present, the meeting shall stand adjourned to the next business day at the
same time and place or to such other time and place as the directors may
determine, and if at the adjourned meeting there are present within one
hour from the time appointed for the meeting
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in person or by proxy not less than one third of the votes of the shares or
each class or series of shares entitled to vote on the resolutions to be
considered by the meeting, those present shall constitute a quorum but
otherwise the meeting shall be dissolved.
63. At any meeting of members, only such business shall be conducted as shall
have been brought before such meeting -
a) by or at the direction of the Chairman of the Board of Directors; or
b) by any member who is a holder of record at the time of the giving of
the notice provided for in Regulation 52 who is entitled to vote at the
meeting and who complies with the procedures set out in Regulation 64.
64. For business to be properly brought to the annual meeting of members by a
member, the member must have given written notice thereof, either by
personal delivery or by prepaid registered post to the Secretary of the
Company (the "Secretary") at the principal executive offices of the Company
not less than 30 days nor more than 60 days prior to the meeting as
originally scheduled, provided, however, that, if less than 40 days' notice
or prior public disclosure of the date of the meeting is given or made to
members, notice by the member to be timely must be so received not later
than the close of business on the fifth day following the day on which such
notice of the date of the general meeting was posted or such public
disclosure was made. For the purposes of this Regulation 64, any
adjournment(s) or postponement(s) of the original meeting whereby the
meeting will reconvene within 30 days from the original date shall be
deemed, for purposes of notice, to be a continuation of the original
meeting and no business may be brought before any reconvened meeting unless
such timely notice of such business was given to the Secretary for the
meeting as originally scheduled. A member's notice to the Secretary shall
set out as to each matter that the member wishes to be brought before the
meeting of members -
a) a brief description of the business desired to be brought before the
meeting;
b) the name and address of record of the member proposing such business;
c) the class and number of shares of the Company which are beneficially
owned by such member;
d) any material interest of such member in such business; and
e) if the member intends to solicit proxies in support of such member's
proposal, a representation to that effect.
Notwithstanding the aforegoing, nothing in this Regulation 64 shall be
interpreted or construed to require the inclusion of information about any
such proposal in any proxy statement distributed by, at the direction of,
or on behalf of, the directors. The chairman of a meeting of members
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Regulation 64 and, if he should so determine, he shall
so declare to the meeting and any such business not properly brought before
the meeting shall not be transacted. However, the notice requirements set
out in this Regulation 64 shall be deemed satisfied by a member if the
member has notified the
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Company of his intention to present a proposal at a meeting of members and
such member's proposal has been included in a proxy statement that has been
distributed by, at the direction of, or on behalf of, the directors to
solicit proxies for such meeting; provided that, if such member does not
appear or send a qualified representative, as determined by the chairman of
the meeting, to present such proposal at such meeting, the Company need not
present such proposal for a vote at such meeting, notwithstanding that
proxies in respect of such vote may have been received by the Company.
65. At every meeting of members, the Chairman of the Board of Directors shall
preside as chairman of the meeting. If there is no Chairman of the Board
of Directors or if the Chairman of the Board of Directors is not present at
the meeting, the chief executive officer shall be the chairman. In the
absence of the chief executive officer, such person as shall be selected by
the Board of Directors shall act as chairman of the meeting. The Chairman
of the Board of Directors, in addition to a deliberative vote as director,
shall cast the deciding vote in the event that any vote by the Board of
Directors requiring a majority vote for approval ends in a tie.
66. The chairman may, with the consent of the meeting, adjourn any meeting from
time to time, and from place to place, but no business shall be transacted
at any adjourned meeting other than the business left unfinished at the
meeting from which the adjournment took place.
67. At any meeting of the members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision shall be
announced to the meeting and recorded in the minutes thereof. If the
chairman shall have any doubt as to the outcome of any resolution put to
the vote, he shall cause a poll to be taken of all votes cast upon such
resolution, but if the chairman shall fail to take a poll then any member
present in person or by proxy who disputes the announcement by the chairman
of the result of any vote may immediately following such announcement
demand that a poll be taken and the chairman shall thereupon cause a poll
to be taken. If a poll is taken at any meeting, the result thereof shall
be duly recorded in the minutes of that meeting by the chairman.
68. Any person other than an individual shall be regarded as one member and
subject to the specific provisions hereinafter contained for the
appointment of representatives of such persons the right of any individual
to speak for or represent such member shall be determined by the law of the
jurisdiction where, and by the documents by which, the person is
constituted or derives its existence. In case of doubt, the directors may
in good faith seek legal advice from any qualified person and unless and
until a court of competent jurisdiction shall otherwise rule, the directors
may rely and act upon such advice without incurring any liability to any
member.
69. Any person other than an individual which is a member of the Company may by
resolution of its directors or other governing body authorize such person
as it thinks fit to act as its representative at any meeting of the Company
or of any class of members of the Company, and the person so authorized
shall be entitled to exercise the same powers on behalf of the person which
he represents as that person could exercise if it were an individual member
of the Company.
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70. The chairman of any meeting at which a vote is cast by proxy or on behalf
of any person other than an individual may call for a notarially certified
copy of such proxy or authority which shall be produced within seven days
of being so requested or the votes cast by such proxy or on behalf of such
person shall be disregarded.
71. Directors of the Company may attend and speak at any meeting of members of
the Company and at any separate meeting of the holders of any class or
series of shares in the Company.
72. No business shall be conducted at a meeting of members except in accordance
with Regulations 48 to 71.
NUMBER OF DIRECTORS AND SHARE QUALIFICATION
73. The number of directors shall be at least five and no greater than 15, as
determined from time to time by a resolution of directors.
74. The continuing directors may act, notwithstanding any casual vacancy in
their body, so long as there remain in office not less than the prescribed
minimum number of directors duly qualified to act, but if the number falls
below the prescribed minimum, the remaining directors shall not act except
for the purpose of filling such vacancy.
75. The shareholding qualification for directors may be fixed, and from time to
time varied, by a resolution of members and unless and until so fixed no
qualification shall be required. A director may be an individual or a
company.
APPOINTMENT AND RETIREMENT OF DIRECTORS
76. The term of each director shall expire at the next annual meeting of
members following such director's election. Retiring directors shall be
eligible for re-election. The first directors of the Company shall be
appointed by the subscribers to the Memorandum, and thereafter, they shall
be elected by the members to serve the term set forth in this Regulation
76.
77. Any vacancy on the Board of Directors resulting from death, resignation,
removal or other cause and any newly created directorship resulting from
any increase in the authorized number of directors between meetings of
members shall be filled only by the affirmative vote of a majority of all
the directors then in office (even if less than a quorum) and any director
so appointed shall hold office for the remainder of the annual term of the
directors and until a successor is duly elected or until his earlier death,
resignation or removal from office in accordance with these Articles or any
applicable law.
78. Nominations of persons for election to the Board of Directors shall be made
only at a meeting of members and only
a) by or at the direction of the directors; or
b) by a member entitled to vote for the election of directors who complies
with the notice procedures set out below.
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Such nominations, other than those made by or at the direction of the
directors, shall be made pursuant to timely notice in writing to the
Secretary. To be timely, a member's notice shall be delivered to or mailed
and received at the principal executive offices of the Company not less
than 30 days nor more than 60 days before the meeting, provided, however,
that if less than 40 days notice or prior public disclosure of the date of
the meeting is given or made to members, notice by the member to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. For the purposes of this
Regulation, any adjournment or postponement of the original meeting whereby
the meeting will reconvene within 30 days from the original date shall be
deemed for the purposes of this notice to be a continuation of the original
meeting and no nominations by a member of persons to be elected directors
may be made at any such reconvened meeting and no nominations by a member
of persons to be elected directors of the Company may be made at any such
reconvened meeting unless pursuant to a notice which was timely for the
meeting on the date originally scheduled. Each such notice shall set out
(i) the name and address of the member who intends to make the
nomination and of the persons to be nominated;
(ii) a representation that the member is a holder of record of shares
in the Company entitled to vote at such meeting and that he
intends to appear in person or by proxy at the meeting to
nominate the persons specified in the notice;
(iii) a description of all arrangements or understandings between the
member and each nominee and any other person (naming such
person) pursuant to which the nominations are to be made by the
member;
(iv) such other information regarding each nominee proposed by such
member as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the United States
Securities and Exchange Commission, had each nominee been
nominated, or intended to be nominated, by the directors;
(v) the consent of each nominee to serve as a director of the
Company if so elected; and
(vi) if the member intends to solicit proxies in support of such
member's nominees, a representation to that effect.
79. The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the aforegoing procedure or if the
member solicits proxies in favour of such member's nominees without having
made the representation required by the immediately preceding sentence.
Only such persons as are nominated in accordance with the procedures set
out above shall be eligible to serve as directors of the Company. If at any
meeting of members at which an election of directors ought to take place,
the place of any retiring director is not filled, he shall, if willing,
continue in office until the dissolution of the annual meeting of
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members in the next year, and so on from year to year until his place is
filled, unless it shall be determined at such meeting not to fill such
vacancy.
80. The appointment of a director shall take effect upon compliance with the
requirements of the Act.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
81. Subject to the provisions of the Act, a director shall cease to hold office
as such only -
a) if he becomes insolvent, or assigns his estate for the benefit of his
creditors, or suspends payment or files a petition for the liquidation
of his affairs, or compounds generally with his creditors; or
b) if he becomes of unsound mind; or
c) if (unless he is not required to hold a share qualification) he has not
duly qualified himself within two months of his appointment or if he
ceases to hold the required number of shares to qualify him for
office; or
d) if he is absent from meetings of the directors for six consecutive
months without leave of the directors and is not represented at any
such meetings during such six consecutive months and the directors
resolve that the office be vacated by an alternative director,
provided that the directors shall have power to grant any director
leave of absence for any or an indefinite period; or
e) if he dies; or
f) one month or, with the permission of the directors earlier, after he
has given notice in writing of his intention to resign; or
g) if he shall, pursuant to the provisions of the Act, be disqualified or
cease to hold office or be prohibited from acting as director; or
h) if he is removed from office by a resolution signed by all the other
directors; or
i) if he is removed from office for cause by a resolution of members. For
the purposes hereof, 'cause' means the willful and continuous failure
by a director to substantially perform his duties to the Company
(other than any such failure resulting from incapacity due to physical
or mental illness) or the willful engaging by the director in gross
misconduct materially and demonstrably injurious to the Company.
REGISTER OF DIRECTORS
82. The Company may determine by resolution of directors to keep a register of
directors containing
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a) the names and addresses of the persons who are directors of the
Company;
b) the date on which each person whose name is entered in the register was
appointed as a director of the Company; and
c) the date on which each person named as a director ceased to be a
director of the Company.
83. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by resolution of directors to register a copy of the
register with the Registrar of Companies.
CHIEF EXECUTIVE OFFICER/MANAGING DIRECTOR
84. The directors may from time to time appoint one or more of their number to
be a chief executive officer, managing director, joint chief executive
officers or joint managing directors of the Company or to be the holder of
any other executive office in the Company, including, for the purposes of
these Articles, the office of chairman and may, subject to any contract
between him or them and the Company, from time to time terminate his or
their appointment and appoint another or others in his or their place or
places.
85. A director appointed in terms of the provisions of Regulation 84 to the
office of chief executive officer or managing director of the Company, or
to any other executive office in the Company, may be paid, in addition to
the remuneration payable in terms of Regulation 98 or 99, such remuneration
- not exceeding a reasonable maximum in each year - in respect of such
office as may be determined by a disinterested quorum of the directors.
86. The directors may from time to time entrust and confer upon a chief
executive officer, managing director or other executive officer for the
time being such of the powers and authorities vested in them as they think
fit.
POWERS OF DIRECTORS
87. The management of the business and the control of the Company shall be
vested in the directors who, in addition to the powers and authorities by
these Articles expressly conferred upon them, may exercise all such powers,
and do all such acts and things, as may be exercised or done by the Company
and are not hereby or by the Act expressly directed or required to be
exercised or done by meeting of members, but subject nevertheless to such
management and control not being inconsistent with these Articles or with
any resolution passed at any meeting of members, but no resolution of
members shall invalidate any prior act of the directors which would have
been valid if such resolution had not been passed. The general powers
given by this Regulation shall not be limited or restricted by any special
authority or power given to the directors by any other Regulation.
88. The directors may authorise authorize the payment of such donations by the
Company to such religious, charitable, public or other bodies, clubs, funds
or
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associations or persons as may seem to them advisable in the interests of
the Company.
89. Every officer or agent of the Company has such powers and authority of the
directors, including the power and authority to affix the Seal, as are set
out in these Articles or in the resolution of directors appointing the
officer or agent, except that no officer or agent has any power or
authority with respect to the matters requiring a resolution of directors
under the Act.
90. Any director which is a body corporate may appoint any person its duly
authorized representative for the purpose of representing it at meetings of
the Board of Directors or with respect to unanimous written consents.
91. The directors may by resolution of directors exercise all the powers of the
Company to borrow money and to mortgage or charge its undertakings and
property or any part thereof, to issue debentures, debenture stock and
other securities whenever money is borrowed or as security for any debt,
liability or obligation of the Company or of any third party.
92. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as the
case may be, in such manner as shall from time to time be determined by
resolution of directors.
93. The Company may determine by resolution of directors to maintain at its
registered office a register of mortgages, charges and other encumbrances
in which there shall be entered the following particulars regarding each
mortgage, charge and other encumbrance:
a) the sum secured;
b) the assets secured;
c) the name and address of the mortgagee, chargee or other encumbrancer;
d) the date of creation of the mortgage, charge or other encumbrance; and
e) the date on which the particulars specified above in respect of the
mortgage, charge or other encumbrance are entered in the register.
94. The Company may further determine by a resolution of directors to register
a copy of the register of mortgages, charges or other encumbrances with the
Registrar of Companies.
95. The directors may, by resolution of directors, designate one or more
committees, each consisting of one or more directors.
96. Each committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are set
forth in the resolution of directors establishing the committee, except
that no committee has any power or
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<PAGE>
authority to amend the Memorandum or these Articles, to appoint directors
or fix their emoluments, or to appoint officers or agents of the Company.
97. The meetings and proceedings of each committee of directors consisting of
two or more directors shall be governed mutatis mutandis by the provisions
of these Articles regulating the proceedings of directors so far as the
same are not superseded by any provisions in the resolution establishing
the committee.
REMUNERATION AND EXPENSES OF DIRECTORS
98. With the prior or subsequent approval by a resolution of members, the
directors may, by a resolution of directors, fix the emoluments of
directors with respect to services to be rendered in any capacity to the
Company.
99. The directors shall be paid all their travelling and other expenses
properly and necessarily incurred by them in and about the business of the
Company, and in attending meetings of the directors or of committees
thereof, and if any director shall be required to perform extra services or
otherwise shall be specially occupied about the Company's business, he
shall be entitled to receive a remuneration to be fixed by a disinterested
quorum of the directors which may be either in addition to or in
substitution for the remuneration provided for in Regulation 98.
PROCEEDINGS OF DIRECTORS
100. The directors of the Company or any committee thereof may meet at such
times and in such manner and places as the directors may determine to be
necessary or desirable.
101. A director shall be deemed to be present at a meeting of directors if he
participates by telephone or other electronic means and all directors
participating in the meeting are able to hear each other.
102. A director shall be given not less than three days notice of meetings of
directors, but a meeting of directors held without three days notice having
been given to all directors shall be valid if all the directors entitled to
vote at the meeting who do not attend, waive notice of the meeting and for
this purpose, the presence of a director at a meeting shall constitute
waiver on his part. The inadvertent failure to give notice of a meeting to
a director, or the fact that a director has not received the notice, does
not invalidate the meeting.
103. A director may by a written instrument appoint an alternate who need not be
a director and an alternate is entitled to attend meetings in the absence
of the director who appointed him and to vote or consent in place of the
director.
104. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate not
less than one-half of the total number of directors, unless there are only
two directors in which case the quorum shall be two.
105. If the Company shall have only one director the provisions herein contained
for meetings of the directors shall not apply but such sole director shall
have full power
20
<PAGE>
to represent and act for the Company in all matters as are not by the Act
or the Memorandum or these Articles required to be exercised by the members
of the Company and in lieu of minutes of a meeting shall record in writing
and sign a note or memorandum of all matters requiring a resolution of
directors. Such a note or memorandum shall constitute sufficient evidence
of such resolution for all purposes.
106. At every meeting of the directors the Chairman of the Board of Directors
shall preside as chairman of the meeting. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of Directors is not
present at the meeting the Vice-Chairman of the Board of Directors shall
preside. If there is no Vice-Chairman of the Board of Directors or if
the Vice-Chairman of the Board of Directors is not present at the meeting
the directors present shall choose some one of their number to be chairman
of the meeting.
107. Any action that may be taken by the directors or a committee of directors
at a meeting may also be taken by a resolution of directors or a committee
of directors consented to in writing or by telex, telegram, cable,
facsimile or other written electronic communication by three-quarters of
all directors or three-quarters of all members of the committee, as the
case may be, provided that a copy of the proposed resolution will have been
sent or delivered to all directors or all members of the committee, for
their consent. The consent may be in the form of counterparts, each
counterpart being signed by one or more directors.
108. Subject to the provisions of the Act, and provided that he has disclosed to
the directors the nature and extent of any material interest of his, a
director, notwithstanding his office -
a) may be a party to, or otherwise interested in, any transaction or
arrangement with the Company or in which the Company is otherwise
interested;
b) may be a director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested in, any
body corporate promoted by the Company or in which the Company is
otherwise interested; and
c) shall not, by reason of his office, be accountable to the Company for
any benefit which he derives from any such office or employment or
from any such transaction or arrangement or from any interest in any
such body corporate and no such transaction or arrangement shall be
liable to be avoided on the ground of any such interest or benefit.
109. For the purposes of Regulation 108 -
a) a general notice given to the directors that a director is to be
regarded as having an interest of the nature and extent specified in
the notice in any transaction or arrangement in which a specified
person or class of persons is interested shall be deemed to be a
disclosure that the director has an interest in any such transaction
of the nature and extent so specified; and
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<PAGE>
b) an interest of which a director has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as
an interest of his.
110. The directors shall cause the following corporate records to be kept:
a) minutes of all meetings of directors, members, committees of directors,
committees of officers and committees of members;
b) copies of all resolutions consented to by directors, members,
committees of directors, committees of officers and committees of
members; and
c) such other accounts and records as the directors by resolution of
directors consider necessary or desirable in order to reflect the
financial position of the Company.
111. The books, records and minutes shall be kept at the registered office of
the Company, its principal place of business or at such other place as the
directors determine.
OFFICERS
112. The Company may by resolution of directors appoint officers of the Company
at such times as shall be considered necessary or expedient. Such officers
may consist of a Chairman of the Board of Directors, a Vice-Chairman of the
Board of Directors, a Chief Executive Officer, Secretaries and Treasurers
and such other officers as may from time to time be deemed desirable. Any
number of offices may be held by the same person.
113. The officers shall perform such duties as shall be prescribed at the time
of their appointment subject to any modification in such duties as may be
prescribed thereafter by resolution of directors or resolution of members,
but in the absence of any specific allocation of duties it shall be the
responsibility of the Chairman of the Board of Directors to preside at
meetings of directors and members, the Vice-Chairman to act in the absence
of the Chairman, the Chief Executive Officer to manage the day to day
affairs of the Company, the Secretaries to maintain the share register,
minute books and records (other than financial records) of the Company and
to ensure compliance with all procedural requirements imposed on the
Company by applicable law, and the Treasurer to be responsible for the
financial affairs of the Company.
114. The emoluments of all officers shall be fixed by resolution of directors.
115. The officers of the Company shall hold office until their successors are
duly elected and qualified, but any officer elected or appointed by the
directors may be removed at any time, with or without cause, by resolution
of directors. Any vacancy occurring in any office of the Company may be
filled by resolution of directors.
LIMITATION OF LIABILITY
22
<PAGE>
116. To the full extent permitted by the Act or any other applicable laws
presently or hereafter in effect, no director of the Company shall be
personally liable to the Company or its members for or with respect to any
acts or omissions in the performance of his or her duties as a director of
the Company. Any repeal or modification of this Regulation 116 by a
resolution of members shall not adversely affect the right or protection of
a director of the Company existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
INDEMNIFICATION
117. Subject to the limitations hereinafter provided the Company may indemnify
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred in connection
with legal, administrative or investigative proceedings any person who
a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person
is or was a director, an officer or a liquidator of the Company; or
b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other
enterprise.
118. The Company may only indemnify a person if the person acted honestly and in
good faith with a view to the best interests of the Company and, in the
case of criminal proceedings, the person had no reasonable cause to believe
that his conduct was unlawful.
119. The decision of the directors as to whether the person acted honestly and
in good faith and with a view to the best interests of the Company and as
to whether the person had no reasonable cause to believe that his conduct
was unlawful is, in the absence of fraud, sufficient for the purposes of
these Articles, unless a question of law is involved.
120. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself, create
a presumption that the person did not act honestly and in good faith and
with a view to the best interests of the Company or that the person had
reasonable cause to believe that his conduct was unlawful.
121. If a person to be indemnified has been successful in defence of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred by the person
in connection with the proceedings.
122. The Company may purchase and maintain insurance in relation to any person
who is or was a director, an officer or a liquidator of the Company, or who
at the request of the Company is or was serving as a director, an officer
or a liquidator of, or in any other capacity is or was acting for, another
company or a partnership, joint venture,
23
<PAGE>
trust or other enterprise, against any liability asserted against the
person and incurred by the person in that capacity, whether or not the
Company has or would have had the power to indemnify the person against the
liability as provided in these Articles.
SEAL
123. The Company may have more than one Seal and references herein to the Seal
shall be references to every Seal which shall have been duly adopted by
resolution of directors. The directors shall provide for the safe custody
of the Seal and for an imprint thereof to be kept at the Registered Office.
Except as otherwise expressly provided herein, the Seal when affixed to any
written instrument shall be witnessed and attested to by the signature of a
director or any other person so authorized from time to time by resolution
of directors. Such authorization may be before or after the Seal is
affixed, may be general or specific and may refer to any number of
sealings. The directors may provide for a facsimile of the Seal and of the
signature of any director or authorized person which may be reproduced by
printing or other means on any instrument and it shall have the same force
and validity as if the Seal had been affixed to such instrument and the
same had been signed as hereinbefore described.
DIVIDENDS
124. The Company may by a resolution of directors declare and pay dividends in
money, shares or other property, but dividends shall only be declared and
paid out of surplus. In the event that dividends are paid in specie, the
directors shall have responsibility for establishing and recording in the
resolution of directors authorizing the dividends, a fair and proper value
for the assets to be so distributed.
125. The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of the
Company.
126. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve fund, and
may invest the sum so set aside as a reserve fund upon such securities as
they may select.
127. No dividend shall be declared and paid unless the directors determine that
immediately after the payment of the dividend the Company will be able to
satisfy its liabilities as they become due in the ordinary course of its
business and the realizable value of the assets of the Company will not be
less than the sum of its total liabilities, other than deferred taxes, as
shown in its books of account, and its capital. In the absence of
fraud, the decision of the directors as to the realizable value of the
assets of the Company is conclusive, unless a question of law is involved.
128. Notice of any dividend that may have been declared shall be given to each
member in the manner hereinafter mentioned and all dividends unclaimed for
three years after having been declared may be forfeited by resolution of
directors for the benefit of the Company.
129. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of which
the Company holds,
24
<PAGE>
directly or indirectly, shares having more than 50 percent of the vote in
electing directors.
130. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
131. In the case of a dividend of authorized but unissued shares with par value,
an amount equal to the aggregate par value of the shares shall be
transferred from surplus to capital at the time of the distribution.
132. In the case of a dividend of authorized but unissued shares without par
value, the amount designated by the directors shall be transferred from
surplus to capital at the time of the distribution, except that the
directors must designate as capital an amount that is at least equal to the
amount that the shares are entitled to as a preference, if any, in the
assets of the Company upon liquidation of the Company.
133. A division of the issued and outstanding shares of a class or series of
shares into a larger number of shares of the same class or series having a
proportionately smaller par value does not constitute a dividend of shares.
ACCOUNTS AND AUDIT
134. The Company may by resolution of members call for the directors to prepare
periodically a profit and loss account and a balance sheet. The profit and
loss account and balance sheet shall be drawn up so as to give respectively
a true and fair view of the profit and loss of the Company for the
financial period and a true and fair view of the state of affairs of the
Company as at the end of the financial period.
135. The Company may by resolution of members call for the accounts to be
examined by auditors.
136. The first auditors shall be appointed by resolution of directors;
subsequent auditors shall be appointed by a resolution of members.
137. The auditors may be members of the Company but no director or other officer
shall be eligible to be an auditor of the Company during his continuance in
office.
138. The remuneration of the auditors of the Company
a) in the case of auditors appointed by the directors, may be fixed by
resolution of directors; and
b) subject to the foregoing, shall be fixed by resolution of members or in
such manner as the Company may by resolution of members determine.
139. The auditors shall examine each profit and loss account and balance sheet
required to be served on every member of the Company or laid before a
meeting of the members of the Company and shall state in a written report
whether or not
25
<PAGE>
a) in their opinion the profit and loss account and balance sheet give a
true and fair view respectively of the profit and loss for the period
covered by the accounts, and of the state of affairs of the Company at
the end of that period; and
b) all the information and explanations required by the auditors have been
obtained.
140. The report of the auditors shall be annexed to the accounts and shall be
read at the meeting of members at which the accounts are laid before the
Company or shall be served on the members.
141. Every auditor of the Company shall have a right of access at all times to
the books of account and vouchers of the Company, and shall be entitled to
require from the directors and officers of the Company such information and
explanations as he thinks necessary for the performance of the duties of
the auditors.
142. The auditors of the Company shall be entitled to receive notice of, and to
attend any meetings of members of the Company at which the Company's profit
and loss account and balance sheet are to be presented.
NOTICES
143. Any notice, information or written statement to be given by the Company to
members may be served in the case of members holding registered shares in
any way by which it can reasonably be expected to reach each member or by
mail addressed to each member at the address shown in the share register
and in the case of members holding shares issued to bearer, in the manner
provided in the Memorandum.
144. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or by
sending it by registered mail addressed to the Company, at its registered
office, or by leaving it with, or by sending it by registered mail to, the
registered agent of the Company.
145. Service of any summons, notice, order, document, process, information or
written statement to be served on the Company may be proved by showing that
the summons, notice, order, document, process, information or written
statement was delivered to the registered office or the registered agent of
the Company or that it was mailed in such time as to admit to its being
delivered to the registered office or the registered agent of the Company
in the normal course of delivery within the period prescribed for service
and was correctly addressed and the postage was prepaid.
PENSION AND SUPERANNUATION FUNDS
26
<PAGE>
146. The directors may establish and maintain or procure the establishment and
maintenance of any non-contributory or contributory pension or
superannuation funds for the benefit of, and give or procure the giving of
donations, gratuities, pensions, allowances or emoluments to, any persons
who are or were at any time in the employment or service of the Company or
any company which is a subsidiary of the Company or is allied to or
associated with the Company or with any such subsidiary, or who are or were
at any time directors or officers of the Company or of any such other
company as aforesaid or who hold or held any salaried employment or office
in the Company or such other company, or any persons in whose welfare the
Company or any such other company as aforesaid is or has been at any time
interested, and to the wives, widows, families and dependents of any such
person, and may make payments for or towards the insurance of any such
persons as aforesaid, and may do any of the matters aforesaid either
alone or in conjunction with any such other company as aforesaid. Subject
always to the proposal being approved by resolution of members, a director
holding any such employment or office shall be entitled to participate in
and retain for his own benefit any such donation, gratuity, pension
allowance or emolument.
VOLUNTARY WINDING UP AND DISSOLUTION
147. The Company may voluntarily commence to wind up and dissolve by a
resolution of members but if the Company has never issued shares it may
voluntarily commence to wind up and dissolve by resolution of directors.
CONTINUATION
148. The Company may by resolution of members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British Virgin
Islands in the manner provided under those laws.
27
<PAGE>
We, hereby subscribe our name to
these Articles of Association the day of in the presence of:
Witness Subscriber
......................... ............................
28
<PAGE>
EXHIBIT 10.11
OPENTV CORP.
C-2 PREFERENCE SHARES
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 ...................................................... 1
3. Representations and Warranties of the Company ........................ 2
3.1 Good Standing and Qualification ............................... 2
3.2 Capitalization ................................................ 2
3.3 Authorization; Binding Obligations ............................ 2
3.4 Compliance with Other Instruments ............................. 3
3.5 Consents ...................................................... 3
3.6 Offering Valid ................................................ 3
4.Representations and Warranties of SSI ................................. 3
4.1 Organization, Good Standing and Qualification ................. 3
4.2 Requisite Power and Authority ................................. 3
4.3 Authorization; Binding Obligations ............................ 4
4.4 Compliance with Other Instruments ............................. 4
4.5 Consents ...................................................... 4
4.6 Investment Representations .................................... 4
4.7 Transfer Restrictions ......................................... 5
5. Miscellaneous ........................................................ 5
5.1 Governing Law ................................................. 5
5.2 Successors and Permitted Assigns .............................. 5
5.3 Entire Agreement .............................................. 5
5.4 Severability .................................................. 5
5.5 Amendment ..................................................... 6
5.6 Delays or Omissions ........................................... 6
5.7 Notices ....................................................... 6
5.8 Expenses ...................................................... 6
5.9 Attorneys' Fees ............................................... 6
5.10 Headings ...................................................... 6
5.11 Counterparts .................................................. 6
5.12 No Strict Construction ........................................ 6
5.13 Broker's Fees ................................................. 7
5.14 Consent to Exclusive Jurisdiction ............................. 7
5.15 Waiver of Jury Trial .......................................... 7
-i-
<PAGE>
INDEX OF EXHIBITS
-----------------
Memorandum of Association Exhibit A
Schedule of Exceptions Exhibit B
Investors' Rights Agreement Exhibit C
List of Stockholders Exhibit D
-ii-
<PAGE>
OPENTV CORP.
C-2 PREFERENCE SHARES PURCHASE AGREEMENT
This C-2 Preference Shares Purchase Agreement (this "Agreement") is entered
---------
into as of October 23, 1999, by and between OpenTV Corp., a British Virgin
Islands corporation (the "Company"), and Sun TSI Subsidiary, Inc., a Delaware
-------
corporation ("SSI").
---
Recitals
Whereas, the Company has authorized the sale and issuance of an aggregate
of up to 4,504,504 shares of its C-2 Convertible Preference Shares (the
"Preference Shares");
- ------------------
Whereas, SSI desires to purchase the Preference Shares on the terms and
conditions set forth herein; and
Whereas, the Company desires to issue and sell the Preference Shares to SSI
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 SSI, and SSI agrees to purchase from the Company, four million, five
hundred four thousand, five hundred four (4,504,504) Preference Shares for an
aggregate purchase price (the "Purchase Price") equal to Four
--------------
Million, Nine Hundred Ninety-nine Thousand, Nine Hundred Ninety-nine U.S.
Dollars ($4,999,999.00). 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 A (the
---------
"Memorandum").
- -----------
2. Closing, Delivery and Payment.
2.1 Closing. The closing of the sale and purchase of the Preference Shares
under this Agreement (the "Closing") shall take place at 10:00 a.m.,
-------
Pacific Daylight Time, one (1) day following the lapse or early termination of
the appropriate waiting period with respect to the filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
-------
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 SSI may mutually agree (such date is hereinafter referred to
as the "Closing Date"). The Closing shall be conditioned on the lapse or early
------------
termination of the waiting period with respect to filings required under the HSR
Act.
<PAGE>
2.2 Delivery. At the Closing, subject to the terms and conditions hereof,
the Company will deliver to SSI a certificate representing the number of
Preference Shares to be purchased at the Closing by SSI, against payment of the
Purchase Price therefor by wire transfer, in immediately available funds, to an
account designated by the Company.
3. Representations and Warranties of the Company.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit B, the Company hereby represents and warrants to SSI as follows:
- ---------
3.1 Good Standing and Qualification. 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
execute and deliver this Agreement and the Investors' Rights Agreement in the
form attached hereto as Exhibit C (the "Investors' Rights Agreement"), to issue
--------- ---------------------------
and sell the Preference Shares hereunder, to issue shares of A Ordinary Shares
of the Company upon conversion of the Preference Shares (the "Conversion
----------
Shares"), and to carry out the provisions of this Agreement, the Investors'
- ------
Rights Agreement and the Memorandum.
3.2 Capitalization. Immediately prior to the Closing, 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 C Preference Shares, (A)
24,000,000 of which shares 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. The rights,
preferences, privileges and restrictions of the Preference Shares are as stated
in the Memorandum. The Conversion Shares have been duly and validly reserved for
issuance upon conversion of the Preference Shares. Other than as set forth on
Exhibit D and except as may be granted pursuant to the Investors' Rights
- ---------
Agreement, 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 and the Memorandum, the Preference Shares and the Conversion Shares
will be validly issued, fully paid and nonassessable, and will be free of all
liens or encumbrances; provided, however, that the Preference Shares and the
-------- -------
Conversion Shares may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or in the Investors' Rights
Agreement or as otherwise required by such laws at the time a transfer is
proposed.
3.3 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 Investors' Rights Agreement, 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 and the Conversion Shares pursuant to the Memorandum has been taken or
will be taken prior to the Closing. The Agreement and the Investors' Rights
Agreement, when executed and delivered, will be valid and binding obligations of
the Company enforceable against the Company 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;
-2-
<PAGE>
(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 8 of the Investors' Rights Agreement may be limited by
principles of public policy. The sale of the Preference Shares and the
subsequent conversion of the Preference Shares into the 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.
3.4 Compliance with Other Instruments. The execution, delivery, and
performance of and compliance with this Agreement and the Investors' Rights
Agreement, and the issuance and sale of the Preference Shares pursuant hereto
and the Conversion Shares pursuant to the Memorandum will not result in any such
material violation, or be in material conflict with or constitute a material
default under any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or of any judgment, decree, order, writ applicable
to the Company.
3.5 Consents. Except as required by the HSR Act, 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 Investors' Rights Agreement and the offer, sale or issuance of the
Preference Shares and the Conversion Shares, except such as have 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.
3.6 Offering Valid. Assuming due payment for the Preference Shares and the
accuracy of the representations and warranties of SSI contained in Section 4.6
hereof, the offer, sale and issuance of the Preference Shares and the Conversion
Shares will be exempt from the 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 and the Conversion Shares
in accordance herewith.
4. Representations and Warranties of SSI.
SSI hereby represents and warrants to the Company as follows:
4.1 Organization, Good Standing and Qualification. SSI is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware. SSI has all requisite corporate power and authority to
execute and deliver this Agreement and the Investors' Rights Agreement, to
purchase the Preference Shares and the Conversion Shares hereunder, and to carry
out the provisions of this Agreement and the Investors' Rights Agreement.
4.2 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 Investors' Rights Agreement, and the performance of all
obligations of SSI hereunder and thereunder at the Closing has been taken or
will be taken prior to the Closing. The
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<PAGE>
Agreement and the Investors' Rights Agreement, when executed and delivered, will
be valid and binding obligations of SSI enforceable against SSI 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 8 of the
Investors' Rights Agreement may be limited by principles of public policy.
4.3 Compliance with Other Instruments. The execution, delivery, and
performance of and compliance with this Agreement and the Investors' Rights
Agreement will not result in any such material violation, or be in material
conflict with or constitute a material default under any material mortgage,
indenture, contract, agreement, instrument or contract to which it is party or
of any judgment, decree, order, writ applicable to SSI.
4.4 Consents. Except as required by the HSR Act, no governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed by SSI in
connection with the execution and delivery of this Agreement and the Investors'
Rights Agreement, and the purchase of the Preference Shares and the Conversion
Shares, except such as have 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. SSI understands that neither the
Preference Shares nor the Conversion Shares have been registered under the
Securities Act. SSI also understands that the Preference Shares being offered
and sold and the Conversion Shares 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:
(a) 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 Preference Shares (or the Conversion Shares) are registered pursuant
to the Securities Act, or an exemption from registration is available.
(b) Acquisition for Own Account. SSI is acquiring the Preference
Shares (and the Conversion Shares) for SSI's own account for investment only,
and not with a view towards, or for resale in connection with, their
distribution.
(c) Accredited Investor. SSI represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(d) 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.
-4-
<PAGE>
(e) Rule 144. SSI acknowledges and agrees that the Preference Shares
and, upon issuance, the Conversion Shares 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.
(f) 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.
(g) 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.
4.6 Transfer Restrictions. SSI acknowledges and agrees that the Preference
Shares and upon issuance, the Conversion Shares, are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement.
5. Miscellaneous.
5.1 HSR Filings. SSI and the Company hereby agree to file with the
appropriate governmental authorities the notification and report form under the
HSR Act with respect to the purchase and sale of the Preference Shares to SSI by
the Company as promptly as possible after the date hereof, but no later than ten
(10) days after the date hereof, and to cooperate with each other with respect
thereto.
5.2 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.
5.3 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 the other party
hereto.
5.4 Entire Agreement. This Agreement and the Exhibits 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 with respect to the subject matter hereof except as specifically
set forth herein.
5.5 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.
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<PAGE>
5.6 Amendment. 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.
5.7 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.
5.8 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 c/o OpenTV, Inc., 401 East Middlefield Road, Mountain View,
California 94043 and to SSI at c/o Sun Microsystems, Inc., 901 San Antonio Road,
Mail Stop PAL1-521, Palo Alto, California 94303, attention Laura Fennel, or at
such other address as the Company or SSI may designate by ten (10) days advance
written notice to the other parties hereto.
5.9 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 Investors' Rights Agreement.
5.10 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.
5.11 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.
5.12 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.
5.13 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
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<PAGE>
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
5.14 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 5.14 being untrue.
5.15 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
INVESTORS' RIGHTS AGREEMENT, THE PREFERENCE SHARES OR THE CONVERSION 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 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 5.8 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.
5.16 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 INVESTORS' RIGHTS AGREEMENT, THE PREFERENCE SHARES, THE
CONVERSION 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
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<PAGE>
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 5.16
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.
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<PAGE>
In Witness Whereof, each party hereto has caused this C-2 Preference Shares
Purchase Agreement to be executed by its duly authorized representative as of
the date set forth in the first paragraph hereof.
COMPANY:
OpenTV Corp.,
a British Virgin Islands corporation
By:________________________
Name:
Title:
SSI:
Sun TSI Subsidiary, Inc.,
a Delaware corporation
By:_______________________
Name:
Title:
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<PAGE>
Exhibit A
MEMORANDUM OF ASSOCIATION OF THE COMPANY
-10-
<PAGE>
Exhibit B
SCHEDULE OF EXCEPTIONS
-11-
<PAGE>
Exhibit C
INVESTORS' RIGHTS AGREEMENT
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<PAGE>
Exhibit D
LIST OF SHAREHOLDERS
-13-
<PAGE>
EXHIBIT 10.14
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is entered into as of
---------
October 23, 1999, by and among OpenTV Corp., a British Virgin Islands company
(the "Company"), each of the Persons who have executed this Agreement and are
-------
named in Annex A hereto (each sometimes referred to individually as a "Investor"
--------
and sometimes collectively as the "Investors" which term shall include any
---------
Permitted Transferee to which an Investor Transfers Shares), each of the Persons
who have executed this Agreement and are named in Annex B to this Agreement
(each sometimes referred to herein individually as an "Existing Holder" and
---------------
sometimes collectively as the "Existing Holders", which term shall include any
----------------
Permitted Transferee to which an Existing Holder Transfers Shares), MIH (BVI)
Ltd., a company incorporated in the British Virgin Islands ("MIH") and, solely
---
for the purposes of Section 27, Sun Microsystems, Inc., a Delaware corporation
("Sun").
---
Therefore, the parties hereto hereby agree as follows:
1. Definitions. Unless the context otherwise requires, the terms defined
-----------
in this Section 1 shall have the meanings herein specified for all purposes of
this Agreement, applicable to both the singular and plural forms of any of the
terms herein defined.
"Affiliate" means with respect to any party hereto, any Person Controlling,
---------
Controlled by or under common Control with such party.
"Agreement" means this Investors' Rights Agreement.
---------
"Automatic Conversion Date" means the date upon which all of the Preference
-------------------------
Shares of the Company convert to Ordinary Shares, whether (i) immediately prior
to the closing of a Qualified IPO, (ii) the voluntary conversion of all such
shares by the holders thereof, (iii) the date that the conversion is approved by
a Required Vote of the Series C-1 Convertible Preference Shares as provided in
the Memorandum, or (iv) the earlier of (x) the 181st day following receipt by
the Company of a request for a registration of Registrable Securities in
accordance with Section 3(c) from Investors owning the amount required pursuant
to Section 3(c) and requesting registration of Registrable Securities in
accordance with Section 3(c), and (y) the delivery by the Company to the
Investors of written notice of the Company's determination to terminate the
Deferral Period under Section 3(c).
<PAGE>
"Base Offering Amount" means, initially, $40.0 million, increasing by
--------------------
$500,000 per month on the first day of each month commencing with February 2000.
By way of example, the Base Offering Amount on January 1, 2000 would be $40.0
million and on February 1, 2000 would be $40.5 million ($40.0 million plus
$500,000).
"Base Percentage" means, initially, one hundred twenty-five percent (125%),
---------------
increasing by one percentage point (1%) per month on the first day of each month
commencing with February 2000. By way of example, the Base Percentage on
January 1, 2000 would be 125% and on February 1, 2000 would be 126% (125% plus
1%).
"Base Price" means the Original Issue Price (appropriately adjusted for any
----------
stock dividends, combinations, splits, reverse splits, recapitalizations and
similar events affecting the Convertible Preference Shares after the date
hereof), multiplied by the Base Percentage.
"Board" means the Board of Directors of the Company.
-----
"Business" means to (i) develop, market, promote, distribute and license
--------
software to enable and facilitate interactive television, (ii) develop, operate,
manage, market, promote, distribute and license interactive television
applications and services, (iii) provide, market and promote training, technical
support and professional services associated with such software, applications
and services, and (iv) enter into commercial partnerships, joint ventures and
other agreements relating to the development, marketing and promotion of such
software, applications and services. To the extent such software, applications
and services can be commercially marketed in areas outside of interactive
television, specifically, these being the internet, or for use in consumer
electronic appliances, cell phones or personal digital assistants, DVD players,
digital personal recorders or any other communications devices, such marketing
shall be considered to be included within the Business.
"Change of Control" means any transaction or series of transactions as a
-----------------
result of which any Person, other than MIH or its Controlled Affiliates,
acquires beneficial ownership (as defined in Rules 13d-3 or 13d-5 under the
Exchange Act ), directly or indirectly, of more than fifty percent (50%) of the
total voting power of the outstanding capital stock of the Company entitled to
vote in the election of members of the Board. For purposes of determining
beneficial ownership of securities in connection with a potential Change in
Control, any Equity Securities which MIH or its Affiliates become entitled to
vote as a result of the letter agreement among MIH, Sun and SSI referred to in
clause (vi) of Section 26(j) shall not be considered to be beneficially owned by
MIH and shall be considered to be beneficially owned by Sun or SSI, as
applicable.
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<PAGE>
"Class A Shares" means the A Ordinary Shares of the Company.
--------------
"Class B Shares" means the B Ordinary Shares of the Company.
--------------
"Commission" means the U.S. Securities and Exchange Commission.
----------
"Company Securities" shall mean (i) any Ordinary Shares, Preference Shares
------------------
or other equity securities of the Company or (ii) any security of the Company
convertible into, or exercisable or exchangeable for, with or without additional
consideration, any Ordinary Shares, Preference Shares or other equity securities
of the Company.
"Control" (including its correlative meanings "Controlled by" and "under
-------
common Control with") means the possession, direct or indirect, of the power to
direct or cause the direction of management and policies of a Person, whether
through the ownership of voting securities, by contract, management agreement or
otherwise.
"Controlled Affiliate" means (i) with respect to any Person, any other
--------------------
Person which is Controlled by such first Person, (ii) in the case of a
Controlled Affiliate of MIH or an Investor for purposes of Section 13, means any
Person which MIH or such Investor, as the case may be, can cause to comply with
the requirements set forth in such Section, and (iii) in the case of a
Controlled Affiliate of MIH for purposes of Section 24, means any Person which
MIH can cause to comply with the requirements set forth in such Section.
"Convertible Preference Shares" means the C-1 Convertible Preference Shares
-----------------------------
of the Company and the C-2 Convertible Preference Shares of the Company.
"Equity Security" shall mean (i) any Ordinary Shares, Preference Shares or
---------------
other equity security of the Company, or (ii) any security of the Company
convertible into, or exercisable or exchangeable for, with or without
consideration, any Ordinary Shares, Preference Shares or other equity security
of the Company, but shall not include any Equity Securities of the Company
acquired from any Person which is not a party to or an Affiliate of a party to
this Agreement (other than the Company).
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
------------
"Exchange Agreement" means that certain Exchange Agreement, dated as of the
------------------
date hereof, between the Company, SSI and OpenTV.
"Holder" of any security means the owner of such security, including any
------
transferee or assignee of record of such security in accordance with Section
26(d). A
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<PAGE>
Holder of Convertible Preference Shares shall be treated as the Holder of the
Registrable Securities underlying such Convertible Preference Shares.
"Holders of a Majority of the Registrable Securities" means the Person or
---------------------------------------------------
Persons who are the Holders of greater than fifty percent (50%) of the shares of
Registrable Securities then outstanding.
"Holders of Two-Thirds of the Registrable Securities" means the Person or
---------------------------------------------------
Persons who are the Holders of sixty-six and two-thirds percent (66-2/3%) or
more of the shares of Registrable Securities then outstanding.
"HSR Act" means the U.S. Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"Initiating Holder" means (i) with respect to each registration effected
-----------------
pursuant to Section 3(a) hereof, other than a registration on Form F-3 and
except as provided in Section 3(c), an Investor or group of Investors, OTVH or
SSI, and (ii) with respect to a registration on Form F-3, the Holder or Holders
of Registrable Securities requesting registration of Registrable Securities
having an anticipated aggregate public offering price of at least $1,500,000.
"Investor" has the meaning assigned to it in the introductory paragraph of
--------
this Agreement.
"Issued Number" means an aggregate of 23,648,646 Convertible Preference
-------------
Shares and Ordinary Shares, subject to appropriate adjustment to reflect any
stock dividends, combinations, splits, reverse splits, recapitalizations or
similar events affecting such Convertible Preference Shares or Ordinary Shares
after the date hereof.
"Memorandum" means the Memorandum and Articles of Association of the
----------
Company, as in effect from time to time.
"MIH" has the meaning assigned to it in the introductory paragraph of this
---
Agreement.
"OpenTV" means OpenTV, Inc., a Delaware corporation.
------
"Ordinary Shares" means, collectively, the Class A Shares and Class B
---------------
Shares.
"Original Issue Price" means US one dollar, eleven cents (US $1.11).
--------------------
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<PAGE>
"Original Issued Amount" means, with respect to America Online, Inc. and
----------------------
its Permitted Transferees, 4,504,504; with respect to GI and its Permitted
Transferees, 2,252,252; with respect to each of LDIG OTV, Inc., News America
Incorporated and TWI-OTV Holdings Inc. and their respective Permitted
Transferees, 5,630,630 (in each case, appropriately adjusted for any stock
dividends, combinations, splits, reverse splits, recapitalizations and similar
events affecting the Convertible Preference Shares or Ordinary Shares of the
Company occurring after the date hereof).
"OTVH" means OTV Holdings Limited, a British Virgin Islands corporation.
----
"Parent" means (i) with respect to OTVH, MIH; (ii) with respect to SSI,
------
Sun; (iii) with respect to LDIG OTV Inc., Liberty Digital, Inc.; (iv) with
respect to TWI-OTV Holdings Inc., Time Warner, Inc.; (v) with respect to News
America Incorporated, The News Corporation Limited; (vi) with respect to GI, GI
itself or, following the merger of GI and Motorola Inc., Motorola Inc.; and
(vii) with respect to America Online, Inc., America Online, Inc., itself;
provided, however, that to the extent a Parent of an Investor or Existing Holder
- -------- -------
hereto acquires the ownership of the Equity Securities held by another Investor
or Existing Holder such that such Investor or Existing Holder becomes a
Subsidiary of such Parent, other than by a direct Transfer of such Person's
Equity Securities (for example, by acquiring a Parent or such Parent's equity
interests in such Investor or such Parent's equity interest in an Existing
Holder), then the Parent acquiring such ownership shall also be deemed to be the
Parent of the Investor or Existing Holder whose interest it so acquired. For
purposes of determining such acquisition of ownership of Equity Securities,
other than by direct Transfer, any Equity Securities which MIH or its Affiliates
become entitled to vote as a result of the letter agreement among MIH, Sun and
SSI referred to in clause (vi) of Section 26(j) shall not be considered to be
owned by MIH and shall be considered to be owned by Sun or SSI, as applicable.
"Permitted Transferee" means the Parent of an Investor or Existing Holder
--------------------
or any Subsidiary of the Parent of an Investor or Existing Holder to which
Shares are transferred in accordance with Section 2(b)(i).
"Person" includes any natural person, corporation, trust, association,
------
company, partnership, joint venture and any other entity, and any government,
governmental agency, instrumentality or political subdivision.
"Preference Shares" means the preference shares of the Company, including
-----------------
the Convertible Preference Shares.
"Public Offering" shall mean an underwritten, widely distributed, public
---------------
offering of Class A Shares of the Company pursuant to a registration statement
filed under the
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<PAGE>
Securities Act and declared effective by the Commission; provided that a
registration statement filed for the benefit of persons who would hold Ordinary
Shares as a result of any exchange of shares or options of OpenTV shall not
constitute a Public Offering.
"Purchase Agreements" mean that certain C-1 Convertible Preference Shares
-------------------
and Warrant Purchase Agreement dated as of the date hereof, among the Company
and the Investors (the "Investor Purchase Agreement"), and that certain C-2
---------------------------
Convertible Preference Shares Purchase Agreement dated as of the date hereof,
between the Company and SSI.
"Qualified IPO" shall mean a Public Offering initiated by the Company,
-------------
other than a Public Offering pursuant to Section 3(c), in which (a) the
aggregate gross offering proceeds at the public offering price equals or exceeds
the Base Offering Amount, (b) the public offering price per Class A Share equals
or exceeds the Base Price, and (c) following which the Class A Shares are to be
listed for trading on The Nasdaq National Market, the New York Stock Exchange or
the American Stock Exchange.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" means (1) the Class A Shares issued or issuable
----------------------
upon conversion of the Convertible Preference Shares issued or issuable pursuant
to the Purchase Agreements, (2) the Class A Shares issuable upon exercise of the
Warrants, (3) the Class A Shares issuable upon conversion of the Class B Shares
issued or issuable to SSI pursuant to the Exchange Agreement, (4) the Class A
Shares issued or issuable upon conversion of Class B Shares held by or hereafter
acquired by any party to this Agreement, (5) the Class A Shares held by OTVH or
SSI as of the date hereof or acquired hereafter by OTVH, SSI or any Investor
pursuant to the terms and conditions of this Agreement or otherwise, (6) Class A
Shares issuable upon exercise of the GI Warrants (as defined in Section
18(d)(viii)), and (7) any securities issued or issuable with respect to the
Ordinary Shares referred to in clause (1), (2), (3), (4), (5) or (6) above by
way of a stock dividend or stock split or in connection with a combination of
shares, reclassification, recapitalization, merger or consolidation or
reorganization; provided, however, that such Class A Shares shall only be
-------- -------
treated as Registrable Securities if and so long as they have not been (i) sold
to or through an underwriter in a Public Offering, or (ii) sold in a private
transaction in which the transferor's rights under Section 3 or 4 are not
assigned or assignable, or (iii) sold pursuant to Rule 144 or otherwise in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect to such Ordinary Shares are removed upon
the consummation of such sale.
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<PAGE>
"Representative" means Liberty Digital, Inc. or any substitute therefor of
--------------
which the Company has received written notice pursuant to Section 17(d).
"Rule 144" means Rule 144 or any similar or analogous rule promulgated
--------
under the Securities Act.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
--------------
"Senior Voting Shares" means any class or series of capital stock of the
--------------------
Company the holders of which are entitled to (i) cast more than one vote per
share (or with respect to any convertible capital stock, more than one vote per
Ordinary Share issuable upon the initial conversion thereof) when voting with
the holders of the Ordinary Shares or (ii) vote as a separate class or series,
without regard to any other class or series of Ordinary Shares or Preference
Shares, upon any matter required to be submitted to stockholders of the Company.
"Shareholders Agreement" means that certain Shareholders' Agreement between
----------------------
OTVH, the Company and SSI, dated as of the date hereof.
"Shareholders Agreements" means the Shareholders Agreement and that certain
-----------------------
Second Amended and Restated Stockholders' Agreement, among the Company, OTVH,
Sun, SSI and OpenTV, dated as of the date hereof.
"Shares" means issued and outstanding Ordinary Shares and Preference Shares
------
of the Company as of the date of determination, but shall not include any issued
and outstanding Ordinary Shares or Preference Shares of the Company acquired
from any Person which is not a party to or an Affiliate of a party to this
Agreement (other than the Company).
"Specified Corporate Action" means any of the following: (i) any merger,
--------------------------
reorganization or consolidation of the Company or any of its Subsidiaries with
another corporation which results in a Change in Control, other than any merger,
reorganization or consolidation with any Person mutually acceptable to the
parties hereto or any Subsidiary of any such Person (such merger, reorganization
or consolidation with such a Person, an "Excepted Transaction"); (ii) a
--------------------
liquidation or dissolution, voluntary or involuntary, of the Company; (iii) a
sale of all or substantially all of the assets of the Company; (iv) any
transaction (or series of related transactions) between the Company and its
Subsidiaries or senior officers, on the one hand, and MIH and its Controlled
Affiliates (other than the Company and its Subsidiaries), on the other, except
for a transaction (or series of related transactions) which (x) is on arms'
length terms and conditions, and (y) provides for aggregate compensation or
consideration of less than $.5
-7-
<PAGE>
million in any fiscal year; (v) the authorization, issuance or sale of any
Equity Securities of the Company which are Senior Voting Shares, other than (x)
the issuance of Class B Shares or other Equity Securities to SSI pursuant to the
Exchange Agreement or the Purchase Agreement to which SSI is a party, (y) the
issuance of Class B Shares to individual stockholders of OpenTV described in the
Step Summary (as defined in the Investor Purchase Agreement), or (z) any
distribution to all shareholders of the Company of rights (A) to acquire shares
of a newly designated class of capital stock of the Company, which class of
capital stock constitutes Senior Voting Stock (provided that the holders of
Class A Shares and Class B Shares receive identical securities) or (B) which
rights entitle a holder to subscribe for and purchase Ordinary Shares at a price
less than the fair market value thereof; provided, that such rights (x) may be
--------
redeemed by action of the Company's Board for a nominal consideration and (y) do
not become separable from the Ordinary Shares or exercisable prior to a Person
(other than a Person owning Equity Securities prior to the initial Public
Offering or acquiring Equity Securities pursuant to the Purchase Agreements, the
Exchange Agreement or the Shareholders Agreements) acquiring after the date
hereof beneficial ownership of more than fifteen percent (15%) of the voting
power of the outstanding Company Securities of the Company (and provided that no
other Person then beneficially owns Company Securities having a higher
percentage of the outstanding voting power of the Company) without the prior
approval of the Board; (vi) any increase in the number of Class A Shares
reserved for issuance to employees, officers or directors of, or consultants or
advisors to, the Company or any Subsidiary pursuant to the Stock Purchase Plan
or the Stock Option Plan or other customary employee stock arrangements that are
approved by the Board in excess of, in the aggregate, 22,000,000 Class A Shares
(as adjusted to reflect any stock dividends, combinations, splits, reverse
splits, recapitalizations or similar events affecting such Class A Shares after
the date hereof); (vii) any issuance or sale (including in connection with a
merger, acquisition or other business combination) by the Company of Equity
Securities to a Person (other than as permitted under clause (vi) above) on
terms (including price per share) which are more favorable to such Person
acquiring such Equity Securities than the terms pursuant to which the Investors
purchased Convertible Preference Shares and Warrants pursuant to the Investor
Purchase Agreement, other than any warrants exercisable for Class A Shares which
vest based upon the performance by the holder of such warrant, provided that
such warrants are not issued at a price per warrant share lower than the
purchase price per warrant share of the Warrants or with a term of exercise,
measuring such term from the date a warrant becomes vested, which would exceed
the two-year exercise period of the Warrants; and (viii) any transaction whereby
the Company would devote or commit substantial resources or make significant
expenditures to enter into any line of business outside the scope of the
Company's Business.
"SSI" means Sun TSI Subsidiary, Inc., a Delaware corporation.
---
-8-
<PAGE>
"Stock Option Plan" means the Amended and Restated 1998 Stock Option/Stock
-----------------
Issuance Plan of the Company assigned from OpenTV pursuant to an assignment and
assumption agreement.
"Stock Purchase Plan" means the 1999 Employee Stock Purchase Plan of the
-------------------
Company adopted by the Board on October 17, 1999.
"Subsidiary" of any Person (the "first Person") means any other Person (the
----------
"second Person") of which the first Person owns, directly or indirectly, equity
securities or other ownership interests equal to more than 30% of the
outstanding equity securities or other ownership interests of the second Person,
and which equity securities or other ownership interests have ordinary voting
power sufficient to elect a majority of the board of directors or other Persons
performing similar functions.
"Sun" has the meaning assigned to it in the introductory paragraph of this
---
Agreement.
"Transfer" means to sell, assign, transfer, distribute (including, without
--------
limitation, any distribution upon dissolution or liquidation), pledge,
hypothecate, mortgage, encumber or dispose of, directly or indirectly, Equity
Securities.
"Warrants" means the warrants to purchase, in the aggregate, up to
--------
23,648,646 Class A Shares (as adjusted pursuant to the terms of such warrants)
issued and sold to certain of the Investors pursuant to the Investor Purchase
Agreement.
2. Restrictions on Transfer.
------------------------
(a) The Investors and the Existing Holders each agree not to Transfer
all or any portion of the Registrable Securities unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by this
Agreement, (B) such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (C) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel for such Holder, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will
-9-
<PAGE>
not require opinions of counsel or require a transferee to be bound by this
Agreement, for transactions made pursuant to Rule 144.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a Transfer by a Holder to a Permitted Transferee thereof in
accordance with clause (b) below.
(b) Any Holder may at any time (i) Transfer all or a portion of its
Equity Securities of the Company to one or more of its Permitted Transferees
provided that (w) the transferor shall remain a party to this Agreement and
- --------
agrees to guaranty the performance by the transferee of its obligations pursuant
to the provisions of this Agreement, (x) the transferee agrees in writing with
the other Holders 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 (y) if the transferee ceases to be a Subsidiary of the
applicable Parent), then the transferor shall cause the transferee to Transfer
to the transferor or another Subsidiary of the applicable Parent all of its
Equity Securities prior to the date of such cessation in accordance with this
Section 2(b) or (ii) pledge or grant a security interest in the Equity
Securities owned by it, provided that (x) such pledge security interest is to a
--------
financial institution in connection with a bona fide financing transaction and
the pledgee or secured party agrees to perform the Holder's obligations
hereunder and (y) such financial institution agrees that (i) prior to any
foreclosure, it shall first offer such Equity Securities to the other Holders
pursuant to Section 19 or 20 (as applicable) (assuming for such purposes that
the price offered for such Equity Securities is equal to the amount necessary to
extinguish a ratable portion of the underlying obligation for such pledge or
security interest), (2) prior to any foreclosure with respect to Class B Shares,
it shall first offer to exchange such Class B Shares pursuant to Section 21 and
then offer such Equity Securities pursuant to Section 19 or 20, and thereafter
convert all remaining Class B Shares to Class A Shares and (3) that such
financial institution and any of its transferees (other than any Investor or
Existing Holder) will be subject to the obligations of, but will not be entitled
to any benefits under, this Agreement with respect to any such foreclosed Equity
Securities; provided, however, that following any Transfer under clause (i) or
-------- -------
(ii) above, the Company and any other party hereto shall only be obligated to
provide notices hereunder or, in the case of the Company, provide information,
documents and access pursuant to Sections 9, 11 or 14 or otherwise to the
original Holder which is a party to this Agreement or any other Permitted
Transferee of all of such Holder's equity interest in the Company.
(c) Notwithstanding anything to the contrary contained herein (other
than Section 2(b)) and subject to the terms and conditions contained in this
Section 2(c), (i) each Investor agrees that it shall not Transfer any Preference
Shares, except as
-10-
<PAGE>
permitted by Section 20 hereby, in which case it will convert such Preference
Shares to Class A Shares prior to Transfer to any Person other than another
Investor, (ii) each Investor agrees that it shall not Transfer any Warrants
except as permitted by Section 20, (iii) OTVH agrees that it shall not Transfer
any Class B Shares except pursuant to the Shareholders Agreement or a
transaction in compliance with Section 21 or unless and until such Class B
Shares are converted into Class A Shares in accordance with the Memorandum prior
to such Transfer, and (iv) each Investor, OTVH and, where applicable, SSI agrees
that it shall not Transfer any Equity Securities in violation of any of the
rights and obligations contained in this Agreement, including, without
limitation, the rights of first offer, tag-along rights and exchange rights
contained in this Agreement.
(d) Each certificate representing shares of Preference Shares or
Registrable Securities and each Warrant shall (unless otherwise permitted by the
provisions of the Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required under
applicable state securities laws or as provided elsewhere in this Agreement):
(A) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL FOR THE TRANSFEROR REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(B) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
TRANSFER RESTRICTIONS AS SET FORTH IN AN INVESTORS' RIGHTS AGREEMENT
DATED OCTOBER 23, 1999, ENTERED INTO BY THE HOLDER OF THESE SHARES,
THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
(e) The Company shall be obligated to reissue promptly unlegended
certificates (as to the legend in paragraph (A) above) at the request of any
Holder thereof (i) if the Holder shall have obtained an opinion of counsel
(which counsel may be counsel
-11-
<PAGE>
to the Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend, or (ii) if such Registrable Securities
are registered under the Securities Act or may be sold under Rule 144
promulgated under the Securities Act.
(f) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
(g) For purposes of this Agreement, (i) references to an Investor's or
Existing Holder's ownership of Shares shall be deemed to mean those Shares
beneficially owned by such Investor's or Existing Holder's Parent and (ii) for
purposes of Sections 19 and 20 hereof, Equity Securities to be Transferred by an
Investor or OTVH or their respective Permitted Transferees shall be subject to
the provisions of Sections 19 and 20.
3. Required Registration.
---------------------
(a) Subject to Section 3(c), if and whenever the Company shall receive
a written request therefor from an Initiating Holder, the Company agrees to
prepare and file promptly, and in any event within 45 days after such request, a
registration statement under the Securities Act covering the shares of
Registrable Securities which are the subject of such request and agrees to use
its best efforts to cause such registration statement to become effective. Upon
the receipt of such request, the Company agrees to give prompt written notice to
all Holders of Registrable Securities that such registration is to be initiated.
The Company agrees to include in such registration statement such shares of
Registrable Securities for which it has received written requests to register
such shares by the Holders thereof within thirty (30) days after the receipt of
written notice from the Company.
(b) The Company shall not be required to effect a registration
requested pursuant to this Section 3:
(i) prior to the earlier to occur of (A) one hundred eighty (180)
days after an initial Public Offering or the consummation of a transaction which
is registered on Form S-4 and which results in the Class A Shares (or the shares
into which the Class A Shares are converted in a merger or other transaction
which is the subject of the Form S-4 registration) becoming traded on The Nasdaq
National Market, The New York Stock Exchange, or the American Stock Exchange,
and (B) October 30, 2000; or
-12-
<PAGE>
(ii) during the Lock-Up Period (as defined in Section 10) to which
the Holders requesting registration of their Registrable Securities are then
subject; or
(iii) if within thirty (30) days of receipt of a written
request from an Initiating Holder pursuant to Section 3(a), the Company gives
notice to the Holders of the Company's intention to commence a Public Offering
of Class A Shares to be originally issued by the Company within one hundred and
eighty (180) days, in the case of an initial Public Offering, or within sixty
(60) days, in the case of any other Public Offering so long as (v) a
registration statement with respect thereto is filed with the Commission within,
in the case of an initial Public Offering, ninety (90) days, and in the case of
any subsequent Public Offering, forty-five (45) days thereafter and (w)
thereafter the Company uses its best efforts to cause such registration
statement to be declared effective; provided, however, that the Company shall
-------- -------
not exercise this right a second time if (x) the Company fails to file a
registration statement within the period specified or (y) Holders have requested
to initiate a registration pursuant to this Section 3 which either has not been
declared effective or has not been withdrawn by such Holders; provided, further,
-------- -------
that this Section 3(b)(iii) shall not apply in the event that the Company has
elected to defer a requested registration pursuant to Section 3(c); or
(iv) if the Company shall furnish to Holders requesting registration
pursuant to this Section 3, a certificate signed by the Chairman of the Board
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be effected at such time, in which event the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of an Initiating Holder; provided
that such right to delay a registration shall be exercised by the Company not
more than once in any twelve (12) month period and shall not be applicable with
respect to a registration pursuant to 3(c); or
(v) in the case of any requested registration the estimated aggregate
gross proceeds to the selling security holders would be less than $5,000,000,
except as provided in Section 3(c).
(c) In the event that the Class A Shares of the Company are not registered
under the Exchange Act and listed or traded on The Nasdaq National Market, the
New York Stock Exchange or the American Stock Exchange as of October 30, 2000,
then any Investor or Investors (meeting the requirements referred to in the last
sentence of this Section 3(c)) shall be entitled to request registration
hereunder notwithstanding the provisions of Section 3(b) above; provided, that
--------
the Company shall have the right to defer such requested registration for a
period (the "Deferral Period"), not to exceed the earlier
---------------
-13-
<PAGE>
of (i)the 181st day from October 30, 2000, and (ii) the delivery by the Company
to the Investors of written notice of the Company's determination to terminate
the period of deferral of such requested registration, so long as the Company
thereafter uses its best efforts to cause the occurrence of the Company's
initial Public Offering. In the event the Company has so elected to defer such
obligation and a registration statement with respect to the requested
registration has not been filed with the Commission prior to the end of such
Deferral Period, and, if filed, the Company does not continue to use its best
efforts to register such Registrable Securities covered thereby, then following
the end of such deferral period the limits on the Holder's right to request
registration set forth in Section 3(b) shall not be applicable to a registration
requested by any Holder. In order to constitute a valid requested registration
by the Investors pursuant to this Section 3(c), the Investors requesting
registration (or joining therein) shall then beneficially own that number of
Registrable Securities equal to at least 50% of the Issued Number and the number
of Registrable Securities with respect to which the Investors are requesting
registration equals or exceeds 25% of the Issued Number.
(d) Notwithstanding anything to the contrary contained herein, (i)
each Investor (including for this purpose all transferees and assignees thereof
as permitted by this Agreement) shall only have the right to initiate one
registration pursuant to this Section 3, provided that, at the time of such
request, such Investor owns Shares equal to at least fifty percent (50%) of such
Investor's Original Issued Amount, (ii) OTVH (including for this purpose all
transferees and assignees thereof as permitted by this Agreement) shall only
have the right to request four (4) registrations pursuant to this Section 3, and
(iii) SSI (including for this purpose all transferees and assignees thereof as
permitted by this Agreement) shall only have the right to request two (2)
registrations pursuant to this Section 3; provided, however, that each Investor,
-------- -------
OTVH and SSI may request an unlimited number of registrations on Form F-3,
subject to Section 3(e).
(e) (i) The Company shall not be required by this Section 3 to
effect a registration of Registrable Securities pursuant to any registration
statement on Form F-3 unless the proposed public offering price of the
securities to be included in such registration shall be at least $1,500,000. The
Company shall not be required to effect more than two registrations at the
request of the Holders during any consecutive 12 months.
(ii) The Company shall not be required to register the
Registrable Securities of a Holder in the event that the Company determines that
all of the Registrable Securities proposed by such Holder to be registered could
be sold by such Holder in a single transaction pursuant to Rule 144 and the
Company agrees to remove the legend referred to in Section 2(d)(A).
-14-
<PAGE>
(f) Any registration under this Section 3 shall be on the least
burdensome of Forms F-1, F-2 or F-3 (or any successor forms) for which the
Company in the proposed transaction is then eligible. The Company will notify
the Holders at such time as the Company qualifies to register Registrable
Securities on Form F-3, and thereafter and so long as it qualifies for such Form
F-3, the Company will effect any such registration properly requested pursuant
to this Section 3, on Form F-3, unless agreed to the contrary with the
Initiating Holder. An F-3 registration requested by the Holders shall be deemed
to have been made pursuant to the proviso in Section 3(d), but shall be subject
to the restrictions set forth in Section 3(e)(i).
(g) If the Holders initiating a request for the registration of
Registrable Securities pursuant to this Section 3 intend to distribute the
Registrable Securities covered by their request by means of a Public Offering,
the right of any Holder to registration pursuant to this Section 3 shall be
conditioned upon such Holder's participation in such Public Offering and the
inclusion of such Holder's Registrable Securities in the Public Offering to the
extent requested (unless otherwise mutually agreed by the Holders of a Majority
of the Registrable Securities initiating such request for registration and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such Public Offering agree to enter into (together with
the Company) an underwriting agreement with the underwriter or underwriters
selected for such underwriting which shall be in customary form and on terms and
conditions reasonably acceptable to the Company and those Holders of the
Registrable Securities participating in such registration. If any Holder of
Registrable Securities does not agree to enter into an underwriting agreement
having such terms and conditions, such Holder shall withdraw the Registrable
Securities proposed to be registered by it from the registration and shall
reimburse the Company for the incremental amount of registration expenses
incurred by the Company in connection with the registration of the Registrable
Securities such Holder was proposing to sell within thirty (30) days after such
withdrawal. Such underwriters shall be selected by the Company and shall be
(i) selected from among the list of nationally recognized investment banking
firms attached to this Agreement as Annex C, or (ii) approved by the Holders of
the Registrable Securities participating in such registration, such approval not
to be unreasonably withheld.
(h) Notwithstanding any other provision of this Section 3, if the
managing underwriter of a Public Offering advises the Company and the Holders of
Registrable Securities participating in such registration in writing that in its
good faith judgment the number of shares of Registrable Securities requested to
be included in such registration exceeds the number of shares of Registrable
Securities which can be sold in such offering without having a material and
adverse effect upon the success of such offering, including the price at which
such Registrable Securities can be sold, then (i) the number of shares of
Registrable Securities so requested to be included in such registration
-15-
<PAGE>
shall be reduced to that number of shares which in the good faith judgment of
the managing underwriter can be sold in such offering and (ii) this reduction in
the aggregate number of shares to be registered shall be allocated among all
Holders thereof first, by reducing the number of shares pursuant to the exercise
-----
of any incidental registration rights granted to Persons other than the Holders;
and second, by reducing the number of shares to be registered by the Holders
------
exercising or participating in a demand registration initiated pursuant to
Section 3(a). If the number of Registrable Securities to be registered by a
Holder pursuant to Section 3 is reduced in accordance with this Section 3(h) to
less than 75% of the number originally requested to be registered by such
Holder, then in no event shall such registration be deemed to have been a
"registration" for purposes of the limitations on the number of registrations to
which a Holder is entitled hereunder contained in Section 3(d).
(i) If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company and other holders of the
Company's securities may include securities for its (or their) own account in
such registration if the managing underwriter so agrees and if the number of
Registrable Securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(j) A registration effected pursuant to this Section 3 shall not be
deemed to have been effected until the applicable registration statement shall
have become effective under the Securities Act (and not subject to any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason) for the period specified in Section
5(a). Each Holder of Registrable Securities requested to be registered in a
registered offering pursuant to Section 3 may, before any registration statement
becomes effective, withdraw its Registrable Securities from inclusion therein,
should the terms of the proposed distribution not be satisfactory to such
Holder. If Holders holding in the aggregate 50% or more of the Registrable
Securities requested to be included in such registration elect to withdraw such
registration statement, such registration statement shall be withdrawn (if
necessary) and such registration shall not be deemed to have been a
"registration" for purposes of the limitations on the number of registrations
hereunder contained in this Section 3; provided, that the Holders of Registrable
--------
Securities shall reimburse the Company for their pro rata portion of the
registration expenses incurred by the Company in connection with such
registration within 30 days after such withdrawal (unless at the time of such
withdrawal, such withdrawing Holders of Registrable Securities have learned of a
material adverse change in the operating results, financial condition or
business of the Company of which such Holders were not aware as of the time of
the written request for a registration pursuant to this Section 3 and have
withdrawn such request promptly following the disclosure by the Company of such
material adverse change, in which case, the Holders
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<PAGE>
of Registrable Securities which were to be included in such registration shall
not be obligated to reimburse the Company for such registration expenses in
order to preserve their respective rights under this Section 3).
4. Incidental Registration.
-----------------------
(a) Each time the Company shall determine to file a registration
statement under the Securities Act (other than (i) pursuant to Section 3 hereof,
(ii) on Form F-4 or another registration statement for shares to be issued in a
merger or acquisition transaction, (iii) a registration statement covering
solely an employee benefit plan, or (iv) an initial Public Offering of the
Company initiated by the Company) in connection with the proposed offer and sale
for money of any of its securities either for its own account or on behalf of
any other security holder, the Company agrees to give prompt written notice of
its determination to each Investor, OTVH and SSI. Upon the written request of
any such Holder given within thirty (30) days after the receipt of such written
notice from the Company, the Company agrees to use its best efforts to cause all
Registrable Securities, held by such Holders which such Holders have so
requested registration thereof, to be included in such registration statement
and registered under the Securities Act, all to the extent required to permit
the sale or other disposition of such Registrable Securities.
(b) If the registration of which the Company gives written notice
pursuant to Section 4(a) is for a Public Offering, the Company agrees to so
advise each Holder as a part of its written notice. In such event the right of
any such Holder to registration pursuant to this Section 4 shall be
conditioned upon such Holder's participation in such Public Offering and the
inclusion of such Holder's Registrable Securities in the Public Offering to the
extent provided herein. All Holders distributing their Registrable Securities
through such Public Offering agree to enter into (together with the Company and
the other holders distributing their securities through such Public Offering) an
underwriting agreement with the underwriter or underwriters selected for such
underwriting by the Company, provided that such underwriting agreement is in
customary form and is reasonably acceptable to the Company and the Holder
selling Registrable Securities through such underwriting. If any Holder of
Registrable Securities does not agree to enter into an underwriting agreement
having such terms and conditions, such Holder shall withdraw from such
registration the Registrable Securities proposed to be registered by it and
shall reimburse the Company for the incremental amount of registration expenses
incurred by the Company in connection with the registration of the Registrable
Securities such Holder was proposing to sell within thirty (30) days after such
withdrawal.
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<PAGE>
(c) Notwithstanding any other provision of this Section 4, if the
managing underwriter of a Public Offering advises the Company and the Holders of
the Registrable Securities participating in such Public Offering in writing that
in its good faith judgment the number of shares of Registrable Securities and
the other securities to be registered exceeds the number of shares of
Registrable Securities and other securities which can be sold in such offering
without having a material and adverse effect upon the success of such offering,
including the price at which such Registrable Securities can be sold, then (i)
the number of shares of Registrable Securities and other securities so requested
to be included in the offering shall be reduced to that number of shares which
in the good faith judgment of the managing underwriter can be sold in such
offering (except for shares to be issued by the Company in an offering initiated
by and for the account of the Company, which, subject to the first proviso of
Section 3(b)(iii), shall have priority over the shares of Registrable
Securities), and (ii) such reduced number of shares shall be allocated among all
participating Holders of Registrable Securities and the holders of other
securities in proportion, is nearly as practicable, to the respective number of
shares of Registrable Securities proposed to be offered and sold in such
registration.
(d) Any Holder of Registrable Securities may elect to withdraw its
respective Registrable Securities from inclusion in a registration to be
effected pursuant to this Section 4 at any time prior to five (5) Business Days
prior to the then anticipated effective date of the applicable registration
statement.
5. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 3 or 4 hereof to use its best efforts to effect the
registration of Registrable Securities under the Securities Act, the Company
agrees to:
(a) In accordance with the Securities Act and all applicable rules
and regulations, prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective until the earlier of (i)
ninety (90) days, or (ii) the sale of the securities covered by such
registration statement, and prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus contained
therein as may be necessary to keep such registration statement effective and
such registration statement and prospectus accurate and complete until the
earlier of (i) such ninety (90) day period or (ii) the sale of the securities
covered by such registration statement;
(b) Furnish to the Holders of securities participating in such
registration and to the underwriters of the securities being registered, without
charge and as soon as such documents become available to the Company, such
number of copies of the registration statement and each amendment and supplement
thereto, preliminary
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<PAGE>
prospectus, final prospectus and such other documents as such underwriters and
Holders may reasonably request in order to facilitate the public offering of
such securities;
(c) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders and underwriters may
reasonably request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;
(d) Notify the Holders participating in such registration, promptly
after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(e) Notify such Holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus or
for additional information;
(f) If, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event has occurred as the
result of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, notify as promptly as practicable each Holder of
Registrable Securities participating in such registration of the happening of
such event and prepare and file as promptly as practicable with the Commission,
and as promptly as practicable notify such Holders of the filing of, such
amendments or supplements to such registration statement or prospectus as may be
necessary to correct any statements or omissions.
(g) Advise such Holders, as promptly as practicable after it shall
receive notice or obtain knowledge thereof, of the issuance, or threatened
issuance, of any stop order or other order by the Commission suspending the
effectiveness of such registration statement; use its best efforts to prevent
the issuance of any such threatened stop order or other order of which it
becomes aware; and, if such stop order or other order is issued, promptly use
its best efforts to obtain a lifting of such order as promptly as possible and
promptly notify each such Holder of any such lifting or withdrawal.
(h) Make available for inspection upon request by any Holder of
Registrable Securities covered by such registration statement, by any managing
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<PAGE>
underwriter of any distribution to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
Holder or any such underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause all of the
Company's officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement; and
(i) At the request of any Holder of Registrable Securities covered by
such registration statement, furnish to such Holder on the effective date of the
registration statement or, if such registration includes an underwritten public
offering, at the closing provided for in the underwriting agreement, (i) an
opinion dated such date of the counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the Holder
or Holders making such request (which opinion shall be reasonably acceptable to
such Holders), and (ii) a copy of the "cold comfort" letter executed by the
Company's independent certified public accountants and delivered by such
accountants to the underwriters, each covering such matters as are customarily
the subject of opinions of issuer's counsel or independent certified public
accountants, as the case may be, provided to underwriters in Public Offerings.
6. Expenses.
--------
(a) With respect to each registration effected pursuant to Section 3
hereof and with respect to each inclusion of shares of Registrable Securities in
a registration statement pursuant to Section 4 hereof, the Company agrees to
bear all fees, costs and expenses of and incidental to the Company's performance
of or compliance with this Agreement (the "Registration Expenses"); provided,
--------------------- --------
however, that the Holders participating in any such registration shall bear, on
- -------
a pro rata basis, all underwriting discounts and commissions attributable to
Registrable Securities sold pursuant to such registration statement by such
Holders. Such fees, costs and expenses to be borne by the Company shall
include, without limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company, all
legal fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the securities to be
offered are to be registered or qualified, reasonable fees and disbursements of
one firm of counsel for the selling Holders, up to $25,000 per registered
offering, selected by the Holders of a majority of the shares of Registrable
Securities to be included in such registration, and the premiums and other costs
of policies of insurance against liability arising out of such offering.
Notwithstanding anything to the contrary contained herein, the Company shall not
be required to pay for expenses of any registration of securities begun pursuant
to Section 3, the request for which has been subsequently withdrawn by the
Initiating Holder unless (i) the withdrawal is based upon material adverse
information concerning the Company of
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which the Initiating Holder was not aware at the time of making such request,
(ii) such Initiating Holder agrees to forfeit its right to request a
registration pursuant to Section 3(d), in which event such right shall be
forfeited by such Holder (provided, that such forfeiture will not affect its
--------
rights under Section 3(c) and the proviso set forth in the last sentence of
Section 3(d)). If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (i) of the preceding sentence, then the
Holder initiating the request for such registration shall not forfeit its rights
pursuant to Section 3 to a demand registration.
(b) To the extent Registration Expenses are not required to be paid by
the Company, such Registration Expenses shall be borne by the Holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares owned by each such requesting Holder which
are included in any registration effected pursuant to Section 3 or Section 4.
7. Indemnification.
---------------
(a) The Company hereby agrees to indemnify and hold harmless, to the
full extent permitted by law, each Holder of Registrable Securities which are
included in a registration statement pursuant to the provisions of this
Agreement and each of such Holder's officers, directors, employees, attorneys,
accountants and agents, and each Person who controls such Holder within the
meaning of the Securities Act from and against, and agrees to reimburse such
Holder, its officers, directors, employees, attorneys, accountants and agents,
and controlling Persons with respect to, any and all claims, actions, demands,
losses, damages, liabilities, costs and expenses to which such Holder, its
officers, directors, employees, attorneys, accountants and agents, or
controlling Persons, may become subject under applicable laws, insofar as such
claims, actions, demands, losses, damages, liabilities, costs or expenses arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
-------- -------
case to the extent that any such claim, action, demand, loss, damage, liability,
cost or expense is caused by an untrue statement or alleged untrue statement or
omission or alleged omission so made in strict conformity with written
information furnished by such Holder, such underwriter or such controlling
Person specifically for use in the preparation thereof.
(b) Each Holder of shares of Registrable Securities which are
included in a registration statement pursuant to the provisions of this
Agreement hereby agrees, severally and not jointly, to indemnify and hold
harmless, to the full extent permitted by
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<PAGE>
law, the Company, its officers, directors, employees, attorneys, accountants and
agents, and each Person who controls the Company within the meaning of the
Securities Act, from and against, and agrees to reimburse the Company, its
officers, directors, employees, attorneys, accountants and agents, and
controlling Persons with respect to, any and all claims, actions, demands,
losses, damages, liabilities, costs or expenses to which the Company, its
officers, directors or such controlling Persons may become subject under
applicable laws, insofar as such claims, actions, demands, losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in strict
conformity with written information furnished by such Holder specifically for
use in the preparation thereof. Notwithstanding the foregoing, no Holder of
Registrable Securities shall be obligated hereunder to pay more than the net
proceeds realized by it upon its sale of Registrable Securities included in such
registration statement.
(c) Promptly after receipt by a party entitled to indemnification
pursuant to the provisions of subsection (a) or (b) of this Section 7 of notice
of the commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of subsection (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 7 and shall not relieve the indemnifying party from liability under this
Section 7 unless such indemnifying party is materially prejudiced by such
omission. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying parties similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
-------- -------
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties). Upon the permitted assumption by the
indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party
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<PAGE>
shall not be liable to such indemnified party under subsection (a) or (b) for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof (other than reasonable costs of
investigation) unless (i) the indemnified party shall have employed separate
counsel in connection with the assertion of legal defenses in accordance with
the proviso to the immediately preceding sentence, or (ii) the indemnifying
party and its counsel do not actively pursue the defense of such action. No
indemnifying party shall be liable to an indemnified party for any settlement of
any action or claim without the consent of the indemnifying party and no
indemnifying party may unreasonably withhold its consent to any such settlement.
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim or litigation.
(d) If the indemnification provided for in subsection (a) or (b) of
this Section 7 is held by a court of competent jurisdiction to be unavailable to
a party to be indemnified with respect to any claims, actions, demands, losses,
damages, liabilities, costs or expenses referred to therein, then each
indemnifying party under any such subsection, in lieu of indemnifying such
indemnified party thereunder, hereby agrees to contribute to the amount paid or
payable by such indemnified party as a result of such claims, actions, demands,
losses, damages, liabilities, costs or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such claims, actions, demands, losses, damages,
liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, no Holder of
Registrable Securities shall be obligated hereunder to contribute more than the
net proceeds realized by it upon its sale of Registrable Securities included in
such registration statement.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
hereunder from any person who was not guilty of such fraudulent
misrepresentation.
(e) The Company and the Holders of Registrable Securities agree that
customary indemnification arrangements relating to any underwriter (as defined
in the Securities Act) involved in the Public Offering and any controlling
Person of such
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<PAGE>
underwriter shall be set forth in the underwriting agreement executed by the
Company and such Holder in connection with the registration of Registrable
Securities in accordance herewith.
8. Future Registration Rights. Except (i) as expressly permitted by this
--------------------------
Agreement, (ii) for an underwriting agreement between the Company and one or
more professional underwriters of securities, and (iii) with respect to a
registration of Class A Shares of the Company issued to individual stockholders
of OpenTV as described in the Step Summary attached to the Investor Purchase
Agreement, the Company shall not enter into any agreement to register any Equity
Securities with any holder or prospective holder of any securities of the
Company which provides for registration rights more favorable than those granted
to the Holders without the prior written consent of Investors holding at least
sixty percent (60%) of the Registrable Securities held by the Investors.
9. Rule 144 Reporting. With a view to making available to the Investors
------------------
and Existing Holders the benefits of certain rules and regulations of the
Commission which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 at all times after the initial Public
Offering of the Company;
(b) File with the Commission, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and
(c) So long as an Investor or Existing Holder owns any Registrable
Securities, furnish to such Holder forthwith upon request: a written statement
by the Company as to its compliance with the reporting requirements of Rule 144,
and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
it to sell any such securities without registration.
10. "Market Stand-Off" Agreement.
----------------------------
(a) Each Holder hereby agrees that such Holder shall not sell, offer
to sell, contract to sell (including, without limitation, any short sale), grant
any option to purchase or otherwise transfer or dispose of any Equity Securities
of the Company held by such Holder (other than those included in the applicable
registration; provided that the restrictions therein shall not limit or restrict
the exercise of the Warrants) for a period
-24-
<PAGE>
specified by the Company and the managing underwriter of a Public Offering of
Class A Shares which period shall not exceed (x) one hundred eighty (180) days,
in the case of the Company's initial Public Offering, and (y) ninety (90) days
in the case of a subsequent Public Offering for which the registration statement
of the Company relating thereto is filed under the Securities Act before the
first anniversary of the date of consummation of the Company's initial Public
Offering, in each case under clause (x) or (y) following the effective date of a
registration statement of the Company filed under the Securities Act relating to
a Public Offering of Class A Shares, unless, in the case of clause (y),
Investors holding a majority of the Issued Number agree to a longer period, not
to exceed 180 days (such period of restriction on sales or transfers being
referred to herein as the "Lock-Up Period"); provided, however, that in
--------------
connection with the initial Public Offering of Class A Shares of the Company,
each Holder agrees to enter into such arrangements restricting such transfers
and dispositions on such terms and conditions as are required by the
underwriters of such Public Offering and as are acceptable to the Existing
Holders, which arrangements are to be substantially in the form of the agreement
set forth on Annex D hereto, provided that the obligations of any Holder
contained therein shall expire in the event that the registration statement
relating to such Public Offering is not declared effective within five days of
the date of such agreement or the Public Offering related thereto is not
consummated within seven days of the date of such agreement, and, provided,
further, that such restrictions shall not prohibit any Investor or Existing
Holder from Transferring any Equity Securities to any Permitted Transferee
thereof or to any other party to this Agreement in accordance herewith. The
obligations described in this Section 10(a) shall not apply to a registration
relating solely to employee benefit plans on Form S-8 or a registration relating
solely to a Rule 145 transaction on Form F-4 or a registration filed in
connection with the sale by individual stockholders of OpenTV of Class A Shares
received by them upon exchange of their shares in OpenTV. The Company may impose
stop-transfer instructions with respect to the Equity Securities subject to the
foregoing restrictions until the end of said period.
(b) If the Company effects a listing of its Ordinary Shares on the
Amsterdam Stock Exchange, each Holder agrees that if such Holder owns more than
five percent (5%) of the issued and outstanding capital stock of the Company, at
the request of the Amsterdam Stock Exchange such Holder shall enter into an
agreement or arrangement with the Amsterdam Stock Exchange, meeting the minimum
requirements of the Amsterdam Stock Exchange whereby such Holder shall agree not
to sell, offer to sell, contract to sell (including, without limitation, any
short sale), grant any option or purchase (other than through exercise of a
Warrant) or otherwise transfer or dispose of any securities of the Company held
by it as may be required or necessitated by the Amsterdam Stock Exchange. MIH
and its Subsidiaries agree that, in the event any other Holder is subject to
such an agreement with the Amsterdam Stock Exchange, to the extent necessary to
enable such Holder to transfer securities of the Company permitted by
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<PAGE>
such agreement, MIH and its Subsidiaries shall not, during the term of such
agreement and except as permitted under such agreement, effect any Transfer of
Equity Securities which would result in MIH and its Subsidiaries holding less
than: (i) that aggregate number of shares of capital stock of the Company that
are subject to the transfer restrictions of such Holder's agreement, after
giving effect to such transfer by MIH or its Subsidiaries, and (ii) that number
of shares of capital stock of the Company held by MIH and its Permitted
Transferees as of the date of such Holder's agreement with the Amsterdam Stock
Exchange.
(c) The restrictions set forth in this Section 10 shall not be
applicable to a Transfer to a Permitted Transferee or a Transfer to another
party to this Agreement or such other party's Permitted Transferee pursuant to
this Agreement, an exchange pursuant to Section 21 of this Agreement, or in a
transaction subject to Section 22.
11. Stockholder Information. The Company may request each Holder of
-----------------------
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement to furnish the Company with such information with respect to
such Holder and the distribution of such Registrable Securities as the Company
may from time to time reasonably request in writing and as shall be required by
law or by any securities commission (including the Commission), stock exchange
or self-regulatory agency in connection therewith, and each Holder of
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement agrees to furnish the Company with such information.
12. Forms. All references in this Agreement to particular forms of
-----
registration statements are intended to include, and shall be deemed to include,
references to all successor forms which are intended to replace, or to apply to
similar transactions as, the forms herein referenced and to references to all
forms available to a foreign registrant where any referenced form of
registration statement is only available to a domestic registrant or vice versa.
13. Nonsolicitation. Each party hereto (other than the Company and SSI)
---------------
hereby agrees that, for so long as such party holds any Equity Securities of the
Company and for a period of one (1) year thereafter, (x) it shall not knowingly
contact or solicit for employment any management or other professional person
known to be employed by the Company or any of its Subsidiaries, without the
prior written consent of the Company, and (y) it shall notify promptly following
the date of this Agreement each of its Controlled Affiliates of the requirements
of this Section 13 and shall use its commercially reasonable efforts to cause
its Controlled Affiliates not to knowingly contact or solicit for employment any
management or other professional person known to be employed by the Company or
any of its Subsidiaries without the prior written consent of the Company. If
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<PAGE>
any such employee inquires as to employment with a party to this Agreement or
any of its Affiliates (x) without any solicitation by such party or any of its
applicable Affiliates or (y) in response to general advertising or similar
general solicitation, such party or its applicable Affiliate may employ such
person without restriction.
14. Covenants of the Company.
------------------------
(a) Financial Information and Reporting. The Company shall deliver to
-----------------------------------
each Investor who holds Shares equal to not less than twenty-five percent (25%)
of such Investor's Original Issued Amount, the following:
(i) as soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, a balance
sheet of the Company as at the end of such fiscal year, and a statement of
income and a statement of cash flows of the Company for such year, all prepared
in accordance with U.S. generally accepted accounting principles consistently
applied. Such financial statements shall be accompanied by a report and opinion
thereon by independent public accountants of national standing selected by the
Board;
(ii) as soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, and
in any event within forty five (45) days thereafter, a balance sheet of the
Company as of the end of each such quarterly period, and a statement of income
and a statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared in accordance with U.S. generally accepted
accounting principles consistently applied, with the exception that not all
notes required by U.S. generally accepted accounting principles need be attached
to such statements and year-end audit adjustments may not have been made; and
(iii) as soon as practicable following approval by the Board,
an annual budget and operating plan for such fiscal year and, as promptly as
practicable during each fiscal year, all material amendments to such budgets and
operating plans.
(b) Inspection Rights. So long as each Investor holds Shares equal to
-----------------
not less than twenty-five percent (25%) of such Investor's Original Issued
Amount, such Investor shall have the right to visit and inspect the properties
of the Company, and to discuss the affairs, finances and accounts of the Company
with its officers, and to obtain and review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
-------- -------
Section 14(b) to provide any competitor (as determined in good faith by the
Board) of the Company with any confidential or proprietary information of
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<PAGE>
the Company or to permit any such competitor to have access to any such
information. The Company shall provide the inspection right set forth in this
Section 14(b) to an Investor which may have an Affiliate which is engaged in
activities which are competitive with the Company so long as such Investor holds
Shares equal to not less than twenty-five percent (25%) of its Original Issued
Amount and so long as the persons given such information or inspection right are
not employed in such competitive businesses and such Investor agrees not to
share or disclose or permit any Affiliate of such Investor to share or disclose
such information with Affiliates of such Investor that are or become so engaged
in such competitive businesses.
(c) Confidentiality of Records. Each Investor agrees to keep
--------------------------
confidential and not use, and to cause its authorized representatives to keep
confidential and not use all information relating to the Company furnished to it
(so long as such information is not in the public domain), except that such
Investor may disclose such information to any Affiliate of such Investor
(provided that such Affiliate is not a competitor of the Company (as determined
in good faith by the Board)) for the purpose of evaluating its investment in the
Company as long as such Affiliate is advised of the confidentiality provisions
of this Section 14(c) and agrees to be bound thereby.
(d) Termination. The covenants set forth in this Section 14 shall
-----------
terminate as to each Investor and be of no further force or effect immediately
prior to the Automatic Conversion Date. The rights contained in this Section 14
are personal to the Investors; notwithstanding anything to the contrary
contained herein, the rights in this Section 14 shall not accrue to the benefit
of any successor or assignee of any Investor other than a Permitted Transferee.
15. Board of Director Issues. So long as the Investors have the right to
------------------------
designate two (2) directors for election to the Board pursuant to this Agreement
and at least one director designated by the Investors for election to the Board
is then serving on the Board, the Company, shall not (i) increase the number of
Class A Shares issuable upon exercise of options granted under the Stock Option
Plan, (ii) adopt any other stock option plan or equity based plan, other than
the Stock Purchase Plan, or (iii) make any material amendment to, or grant any
material waiver under, the Stock Option Plan or any such stock option plan or
other equity based plan which amendment, waiver or new plan results in the
acceleration of the vesting of rights thereunder or expands the scope of
participants covered thereby, without the approval of the Board, including the
affirmative vote of at least one director designated for election to the Board
by the Investors pursuant to this Agreement.
16. Board Observer Rights. For so long as (i) the Investors collectively
---------------------
own Shares equal to at least thirty percent (30%) of the Issued Number, and (ii)
an Investor
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<PAGE>
owns Shares equal to at least fifty percent (50%) of such Investor's Original
Issued Amount (each such Investor holding such amount of its Original Issued
Amount, an "Eligible Investor") and such Eligible Investor does not then have a
-----------------
designee serving on the Board, such Eligible Investor shall be permitted to
designate from time to time one representative to attend all meetings of the
Board in a non-voting observer capacity, provided that such Investor and such
representative enter into a confidentiality agreement with the Company on terms
and conditions reasonably acceptable to the Company and such Investor. Any
observer designated by an Investor may be excluded from access to any material
or meeting or portion thereof if the Board reasonably determines in good faith
that such observer's presence would result in a potential conflict of interest
regarding the subject matter to be discussed or involved, including based on
competitive concerns.
17. Specified Corporate Action.
--------------------------
(a) For purposes of this Section 17, the Investors have designated
LDIG OTV to serve as the Representative. The Company agrees that all Specified
Corporate Actions shall be presented to the Board prior to executing any
agreement or taking any binding action in respect thereof; it being understood
and agreed that the Company may engage in discussions and negotiations regarding
the terms and conditions of any Specified Corporate Action prior to presenting
such Specified Corporate Action to the Board. If the Company intends to propose
any Specified Corporate Action to its Board, the Company shall provide written
notice (the "SCA Notice") to the Representative not more than twenty (20) nor
----------
less than ten (10) days prior to the proposed date the Specified Corporate
Action is to be presented to the Board. The SCA Notice shall include a
description of such Specified Corporate Action, the material terms and
conditions relating to such Specified Corporate Action and the date and time at
which the Representative's opportunity to object expires. The Representative
shall have until the close of business (California time) on the tenth day
following receipt of the SCA Notice to object to such Specified Corporate
Action, such objection to be made, if at all, by the Representative's delivery
of written notice to the Company (addressed to its President) describing such
objection prior to the time specified in the SCA Notice. If the Representative
objects to a Specified Corporate Action in accordance with this Section 17, a
nominated senior executive of the Company and each Investor shall promptly meet
to attempt to resolve the objection by mutual agreement within a period not to
exceed ten (10) days. The Company shall not enter into or undertake a Specified
Corporate Action described in an SCA Notice if the Representative objects
thereto in accordance with this Section 17 and such objection is not resolved
through mutual agreement in accordance with this Section 17.
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<PAGE>
(b) If the Company does not receive written notice from the
Representative objecting to the proposed Specified Corporate Action within the
period specified in the SCA Notice, the Company shall be permitted, subject to
Board approval to proceed with, pursue, enter into, or undertake such Specified
Corporate Action described in the SCA Notice, regardless of whether the Company
receives any notice of objection to any Specified Corporate Action from any
Investor or any group of Investors (other than notice from an Investor acting as
the Representative).
(c) If any event, action or transaction would constitute a Specified
Corporate Action which would give rise to the right of the Representative to
receive notice thereof and to object thereto in accordance with this Section 17
and the same event, action or transaction requires approval by the Required Vote
of the C-1 Convertible Preference Shares under Section 6(b) of the Company's
Memorandum, then, notwithstanding anything to the contrary contained herein, the
Company shall seek to obtain the Required Vote of the C-1 Convertible Preference
Shares under Section 6(b) of the Company's Memorandum, and (i) the Company shall
not be required to give the Representative any SCA Notice with respect thereof,
(ii) the Representative shall not have any right to object thereto (other than
to vote its C-1 Convertible Preferred Shares on such matter), and (iii) subject
to receipt of the Required Vote of the C-1 Convertible Preference Shares, the
Company shall not be required to comply with this Section 17 with respect to
such specified event, action or transaction, regardless of whether the Company
receives any notice of objection to such event, action or transaction from the
Representative pursuant to this Section 17, provided that the Company receives
the Required Vote of the C-1 Convertible Preference Shares with respect to the
taking of such action.
(d) The rights and obligations of the Representative under this
Section 17 shall not be assignable or delegable without the prior written
consent of the Company; provided, however, that the Investors may select another
-------- -------
Investor to serve as Representative in lieu of the then serving Representative
by delivery to the Company of written notice of the selection of such
replacement Representative duly executed by each Investor which replacement
shall be effective upon receipt by the Company of such executed notice.
(e) Notwithstanding anything to the contrary contained herein, the
obligations of the Company under this Section 17 and the objection right of the
Representative provided in this Section 17 shall terminate and be of no further
force and effect with respect to the Specified Corporate Action specified in
clause (iv) of the definition thereof, upon the earlier to occur of (i) a Change
of Control, or (ii) the Investors ceasing to own Shares equal to at least fifty
percent (50%) of the Issued Number. The obligation of the Company under this
Section 17 and the objection right of
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the Representative provided in this Section 17 shall terminate and be of no
further force and effect with respect to the Specified Corporate Action (other
than the Specified Corporate Action set forth in clause (iv) of the definition
thereof), upon the earliest to occur of (i) the Investors ceasing to own Shares
equal to at least fifty percent (50%) of the Issued Number, (ii) the second
anniversary of the Automatic Conversion Date, and (iii) a Change of Control.
18. Rights of Participation.
-----------------------
(a) Subsequent Offerings. If the Board proposes to issue or sell any
--------------------
Company Securities to one or more of its existing stockholders, then each
Investor, for so long as it owns Shares equal to at least fifty percent (50%) of
its Original Issued Amount, OTVH and SSI (each, a "Participant") shall have a
-----------
right of participation to purchase its pro rata share of all Company Securities
that the Company proposes to sell or issue to its stockholders after the date of
this Agreement, other than the Company Securities excluded by Section 18(d).
Such Participant's pro rata share is equal to the ratio of (A) the number of
issued and outstanding Shares held by such Participant immediately prior to the
issuance of such Company Securities to (B) the total number of issued and
outstanding Shares held by all Participants immediately prior to the issuance of
such Company Securities.
(b) Exercise of Rights. The Company shall give each Participant
------------------
written notice of its intention to issue Company Securities subject to this
Section 18, describing the Company Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Participant
shall have fifteen (15) days from the giving of such notice to agree to purchase
its pro rata share of the Company Securities for the price and upon the terms
and conditions specified in the notice by giving written notice to such effect
to the Company and stating therein the quantity of Company Securities to be
purchased. Such notice given by a Participant shall constitute its binding
agreement (subject to receipt of the consents and approvals and expiration of
the waiting period provided in Section 23) to purchase such Company Securities
at such price and upon such terms and conditions. It shall be a condition to
the issuance and sale of any Company Securities to any Participant pursuant to
this Section 18 that such Participant provide all information reasonably
requested by the Company to ensure compliance with applicable securities laws
with respect to the offer and sale of such Company Securities to such
Participant.
(c) Termination of Rights of Participation . The rights of
---------------------------------------
participation granted in this Section 18 to the Investors shall terminate upon
the Automatic Conversion Date.
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<PAGE>
(d) Excluded Securities. The rights of participation granted in this
-------------------
Section 18 shall not apply to the issuance or grant of any of the following
Equity Securities:
(i) up to an aggregate amount of 22,000,000 Ordinary Shares
(as adjusted to reflect any stock dividends, combinations, splits, reverse
splits, recapitalizations or similar events affecting such Class A Shares after
the date hereof) (and/or options, warrants or other Ordinary Shares purchase
rights issued pursuant to such options, warrants or other rights) to be issued
to employees, officers or directors of, or consultants or advisors to, the
Company or any subsidiary, pursuant to the Stock Option Plan, the Stock Purchase
Plan or other equity-based arrangements that are approved by the Board in
accordance with this Agreement;
(ii) Ordinary Shares issued pursuant to any rights, agreements,
options or warrants outstanding as of the date of this Agreement in each case
which are described in the Investor Purchase Agreement (and the Schedule of
Exceptions thereto) and the schedules thereto, and stock issued pursuant to any
such rights, agreements, options or warrants granted after the date of this
Agreement, provided that the rights of participation established by this Section
18 applied with respect to the initial sale or grant by the Company of such
rights, or agreements, options or warrants;
(iii) Ordinary Shares of the Company issued in connection
with any stock split, reverse split, stock dividend or recapitalization by the
Company in accordance with the Memorandum;
(iv) Class A Shares of the Company or other securities issued
upon conversion of any Preference Shares or Class B Shares;
(v) Convertible Preference Shares to be issued to the
Investors and SSI and Warrants and warrant shares issuable upon exercise thereof
pursuant to the Purchase Agreements;
(vi) Class B Shares issuable to SSI pursuant to the Exchange
Agreement and issuable to individual shareholders of OpenTV as described in the
Step Summary and any Class A Shares of the Company or other securities issuable
upon conversion thereof;
(vii) any distribution to all stockholders of the Company of
rights as contemplated in clause (v) of the definition of Specified Corporate
Action; and
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(viii) warrants for up to 3.5 million shares proposed to be
issued to GI and the Class A Shares of the Company issuable upon exercise
thereof (the "GI Warrants").
-----------
19. Right of Offer by OTVH. Subject to the rights of SSI under the
----------------------
Shareholders' Agreement (and its Permitted Transferees as defined in the
Shareholders' Agreement as in effect on the date hereof), and -subject to the
terms and conditions specified in this Section 19, OTVH hereby grants to each
Investor a right of offer with respect to Transfers by OTVH of its Equity
Securities, other than (i) a Transfer to a Permitted Transferee, (ii) in
connection with a Transfer pursuant to which Investors have the right to
participate through tag-along rights in accordance with Section 22, (iii) a
Transfer of Class A Shares to any third party to which the Company had proposed
to issue Equity Securities in a transaction which would have been a Specified
Corporate Action but with respect to which the Representative objected in
accordance with Section 17, up to, in the aggregate, that number of Class A
Shares representing not more than twenty percent (20%) of the fully diluted
Equity Securities of the Company as of the date of this Agreement (after giving
effect to the issuance and sale of Preference Shares and Warrants and the deemed
issuance of Warrant Shares thereunder) to the Investors and the issuance of
Preference Shares to SSI pursuant to the Purchase Agreements, provided that such
Class A Shares are sold on terms no more favorable to such third party than the
terms set forth in the SCA Notice, or (iv) a sale of Class A Shares pursuant to
a registered Public Offering or pursuant to Rule 144; provided, that OTVH
--------
acknowledges and agrees that if SSI does not elect to purchase Equity Securities
owned by OTVH which are offered to SSI under the Shareholders' Agreement, such
Equity Securities will become subject to this Section 19. Each time OTVH
proposes to Transfer any Equity Securities (other than as contemplated in the
preceding sentence), subject to compliance with the rights of SSI and its
permitted transferees under the Shareholders' Agreement, OTVH shall make an
offering of such Equity Securities to the Investors in accordance with the
following provisions:
(a) OTVH shall deliver a notice by certified mail ("Notice") to the
------
Investors stating (i) its bona fide intention to Transfer such Equity
Securities, (ii) the number of such Equity Securities proposed to be Transferred
and (iii) the price and terms, if any, upon which it proposes to offer such
Equity Securities.
(b) Within thirty (30) calendar days after delivery of the Notice,
each Investor may elect, by the delivery of written notice to such effect, to
purchase, at the price and on the terms specified in the Notice, up to that
portion of such Equity Securities which equals the proportion that the number of
Ordinary Shares issued and held, or issuable upon conversion of Preference
Shares then held, by such Investor bears to the total number of Ordinary
Shares then issued (including deemed issuance upon conversion
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<PAGE>
of Preference Shares) and held by all Investors electing to purchase. Each
Investor shall be entitled to designate an additional amount of Equity
Securities which it would agree to purchase should the offer not be fully
subscribed by Investors, and if not so fully subscribed then such designation
shall constitute an offer to purchase up to such additional designated amount,
subject to pro rata reduction as described above in case such offer is
oversubscribed. Such notices given by the Investors shall constitute their
binding respective agreements to purchase the Equity Securities covered thereby
at the price and on the terms and conditions set forth in the Notice (subject to
receipt of consents and approvals and expiration of waiting periods as provided
in Section 23).
(c) If the Investors do not subscribe for all of the Equity Securities
proposed to be sold by OTVH in accordance with Section 19(b), OTVH may, during
the one hundred and twenty (120) day period following the expiration of the
thirty (30)-day period provided in subsection 19(b) hereof, agree to Transfer
the offered Equity Securities to any Person at a price not less than, and upon
terms no more favorable to the transferee than those specified in the Notice.
If OTVH does not enter into an agreement for the sale of such Equity Securities
within such period, or if such agreement is not consummated within sixty (60)
days of the execution thereof, the right provided hereunder shall be deemed to
be revived and such Equity Securities shall not be Transferred unless, subject
to compliance with the rights of SSI (and its Permitted Transferees as defined
in the Shareholders' Agreement), first reoffered to the other Investors and OTVH
in accordance herewith.
(d) OTVH agrees that if it proposes to Transfer any Equity Securities
held by it and it is required by the terms of the Shareholders' Agreement to
offer SSI (including for purposes of this Section 19(d), Permitted Transferees
of SSI as defined in the Shareholders' Agreement as of the date hereof) the
right to purchase such Equity Securities, it shall make such offer, and if not
accepted in full (with respect to all shares so offered) by SSI in accordance
with the terms of the Shareholders' Agreement, then OTVH shall not sell any
shares to SSI, but shall offer such Equity Securities to the Investors in
accordance with this Section 19.
(e) The rights of first offer granted in this Section 19 to any
particular Investor shall terminate upon, and be of no further force and effect
after the date on which such Investor ceases to own Shares equal to at least
fifty percent (50%) of its Original Issued Amount.
20. Right of Offer by the Investors. Subject to the terms and conditions
-------------------------------
specified in this Section 20, each Investor hereby grants to each other
Investor, first, and OTVH second a right of first offer with respect to future
Transfers by such Investor of its Equity Securities; provided, however, that
-------- -------
the Warrants shall only be transferable (i) to a
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<PAGE>
Permitted Transferee of an Investor pursuant to Section 2(b)(i), and (ii) to any
Other Investor pursuant to Section 20(e), and the provisions of Section 20(a),
(b), (c) and (d) shall not be applicable thereto. Each time an Investor (the
"Selling Investor") proposes to Transfer any Equity Securities, the Selling
----------------
Investor shall first offer to sell Equity Securities to the other Investors (the
"Other Investors") and OTVH in accordance with the following provisions:
--------------
(a) The Selling Investor shall deliver a notice by certified mail
("Notice") to the Other Investors and OTVH stating (i) its bona fide intention
- --------
to Transfer such Equity Securities, (ii) the amount and description of such
Equity Securities to be transferred and (iii) the price and terms, if any, upon
which it proposes to Transfer such Equity Securities.
(b) Within thirty (30) calendar days after delivery of the Notice,
each Other Investor may elect, by the delivery to the Selling Investor of
written notice to such effect, to purchase, at the price and on the terms
specified in the Notice, up to that portion of such Equity Securities which
equals the proportion that the number of Equity Securities held by such Other
Investor bears to the total number of Equity Securities held by all Other
Investors accepting the offer. During the five (5)-day period commencing on the
expiration of such thirty (30)-day period, the Selling Investor shall provide
written notice to OTVH of the number of Shares which the Other Investors have
not elected to purchase in accordance with this Section 20(b). During the ten
(10)-day period commencing upon receipt of such notice from the Selling
Investor, OTVH may elect, by the delivery to the Selling Investor of written
notice to such effect, to purchase, at the price and on the terms specified in
the Notice, all of Equity Securities proposed to be Transferred by the Selling
Investor with respect to which the Other Investors have not made a valid
election to purchase in accordance herewith. A notice given by an Other
Investor or OTVH pursuant to this Section 20 shall constitute its binding
agreement to purchase such Equity Securities on the terms and conditions
applicable to such sale (subject to receipt of consents and approvals and
expiration of waiting periods as provided in Section 23).
(c) If the Investors and OTVH do not subscribe for all of the Equity
Securities proposed to be sold by the Selling Investor in accordance with
Section 20(b), the Selling Investor may, during the one hundred twenty (120)-day
period following the expiration of the forty five (45)-day period provided in
subsection 20(b) hereof, enter into an agreement to Transfer the offered Equity
Securities to any Person at a price not less than, and upon terms no more
favorable to the transferee than those specified in the Notice. If the Selling
Investor does not enter into an agreement for the sale of the Equity Securities
within such period, or if such agreement is not consummated within sixty (60)
days of the execution thereof, the right provided hereunder shall be deemed to
be revived
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<PAGE>
and such Equity Securities shall not be Transferred unless first reoffered to
the Other Investors and OTVH in accordance herewith.
(d) Notwithstanding anything herein to the contrary: (i) the
provisions of this Section 20 shall not apply to any Transfer (x) by an Investor
to a Permitted Transferee of such Investor, or (y) pursuant to any registered
Public Offering of Class A Shares, or (z) pursuant to Rule 144; and (ii) no
Investor shall Transfer any Preference Shares other than to any Other Investor.
If an Investor desires to Transfer any Preference Shares and the Other Investors
do not subscribe for all of such shares pursuant to this Section 20, the Selling
Investor shall convert such shares (other than shares transferred to any Other
Investor) into Class A Shares in accordance with the Memorandum prior to any
such Transfer.
(e) If an Investor desires to Transfer a Warrant issued to it pursuant
to the Investor Purchase Agreement, other than to a Permitted Transferee in
accordance with Section 2(b)(i), such Selling Investor shall give written notice
of such proposed transfer to the Other Investors comparable to that notice
described in Section 20(a). Within thirty (30) days calendar days after
delivery of such notice, each Other Investor may elect, by the delivery to the
Selling Investor of written notice to such effect, to purchase, at the price and
the terms specified in the Notice up to that portion of the Warrant which equals
the proportion that the number of Equity Securities held by such Other Investor
bears to the total number of Equity Securities held by all Other Investors
accepting the offer (or in such other proportions as the Investors may agree).
A notice given by an Other Investor pursuant to this Section 20(e) shall
constitute its binding agreement to purchase such Warrant on the terms and
conditions applicable to such sale, subject to receipt of consents and approvals
and expiration of waiting periods as provided in Section 23. If the Other
Investors do not subscribe for all of the Warrants proposed to be sold by the
Selling Investor in accordance with this Section 20(e), the Selling Investor may
not thereafter Transfer the Warrant except in accordance with this Section
20(e).
21. Right to Exchange.
-----------------
(a) Notwithstanding anything in this Agreement to the contrary,
neither OTVH, SSI or any Investor owning Class B Shares (each, a "B Holder")
--------
shall Transfer any Class B Shares to any Person other than (i) pursuant to this
Section 21, (ii) a Transfer to a Permitted Transferee of such B Holder, (iii) if
the B Holder proposing to Transfer is an Investor to an Other Investor pursuant
to Section 20 hereof, (iv) in a Change in Control transaction in which the
Investors have the right to participate pursuant to Section 22, or (v) if the B
Holder proposing to Transfer is OTVH or SSI, pursuant to the Shareholders'
Agreement. Prior to any Transfer other than as provided in the immediately
preceding sentence, each B Holder shall be required to convert the
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<PAGE>
Class B Shares proposed to be Transferred into Class A Shares in accordance with
the Memorandum prior to such Transfer.
(b) Subject to the terms and conditions specified in this Section 21,
if a B Holder proposes to convert any Class B Shares held by it into Class A
Shares or would be required to convert any Class B Shares held by it into any
Class A Shares (a "Converting Holder"), such Converting Holder hereby grants to
-----------------
each Investor (other than such Converting Holder, if such Converting Holder is
also an Investor) (an "Other Holder") a right to exchange Class A Shares owned
------------
by such Other Holder (for Class B Shares which such Converting Holder proposes
to (or which such Converting Holder would be required to) convert to Class A
Shares. Each time a Converting Holder proposes to (or would be required to)
convert any Class B Shares held by it into Class A Shares, the Converting Holder
shall first grant an exchange right with respect to such Class B Shares to the
Other Holders in accordance with the following provisions:
(i) The Converting Holder shall deliver a notice by certified mail (an
"Exchange Notice") to each Other Holder (A) stating its bona fide intention to
---------------
convert Class B Shares into Class A Shares, (B) stating the number of such Class
B Shares to be converted and (C) containing an irrevocable offer by the
Converting Holder to exchange all of such Class B Shares for an equal number of
Class A Shares subject to the terms and conditions of this Section 21.
(ii) Within five (5) days after receipt of the Exchange Notice, each
Other Holder may elect to exchange a number of Class A Shares, on a one-for-one
basis, up to the total number of Class B Shares proposed to be converted by the
Converting Holder, by the delivery, within five (5) days following such Other
Holder's receipt of the Exchange Notice, of written notice of (A) such Other
Holder's desire to exercise such exchange right and (B) the number of Class A
Shares such Other Holder elects to exchange for an equal number of Class B
Shares, up to the aggregate number of Class B Shares proposed or required to be
converted by the Converting Holder (an "Exchange Election"). Subject to the
-----------------
provisions below, each Other Holder who validly delivers an Exchange Election
shall be entitled to exchange the number of Class A Shares set forth in such
Other Holder's Exchange Election for an equal number of Class B Shares. An
Exchange Election validly delivered by an Other Holder shall constitute the
binding agreement of such Other Holder to exchange the Class A Shares set forth
therein on the terms and conditions of this Section 21 (subject to receipt of
consents and approvals and expiration of waiting periods as provided in Section
23).
(iii)If the Other Holders as a group validly deliver Exchange
Elections to exchange a total number of Class A Shares that is greater than the
total number of Class B Shares proposed to be converted by the Converting
Holder, then each
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<PAGE>
Other Holder shall only be entitled to exchange a number of Class A Shares equal
to the lesser of (A) the number of Class A Shares set forth in such Other
Holder's Exchange Election, or (B) a number of Class A Shares equal to the
product of (1) the number of Class B Shares proposed to be converted by the
Converting Holder, multiplied by (2) a fraction, the numerator or which is equal
to the number of Equity Securities held by such Other Holder, and the
denominator of which is equal to the aggregate number of Equity Securities held
by all Other Holders who validly delivered Exchange Notices.
(iv) If the calculation in clause (iii) results in (A) one or more
Other Holders being entitled to exchange a number of Class A Shares that is less
than the number set forth in such Other Holder's Exchange Election, and (B) any
of the Class B Shares set forth in the Exchange Notice not being subject to
exchange, then each Other Holder described in clause (A) of this sentence shall
be entitled to exchange an additional number of Class A Shares equal to the
lesser of (x) the number of Class A Shares set forth in such Other Holder's
Exchange Election which such Other Holder was not entitled to exchange pursuant
to the calculation in clause (iii), and (y) a number of Class A Shares equal to
the product of (1) the number of Class B Shares proposed to be converted by the
Converting Holder which are not subject to exchange pursuant to the calculation
in clause (iii), multiplied by (2) a fraction, the numerator of which is equal
to the number of Equity Securities held by such Other Holder, and the
denominator of which is equal to the aggregate number of Equity Securities held
by all Other Holders who are described in clause (A) of this sentence. The
calculation in this clause (iv) shall be repeated until such time as either all
Class B Shares proposed to be converted by the Converting Holder have been
allocated among the Other Holders for exchange or all Other Holders who validly
delivered Exchange Notices are entitled to exchange all Class A Shares set forth
in their respective Exchange Notices. Other Holders who validly deliver
Exchange Notices pursuant to this Section 21 in accordance herewith shall
surrender the certificates representing the Class A Shares properly exchangeable
for Class B Shares to the Converting Holder and the Converting Holder shall
surrender certificates representing the Class B Shares so converted, in each
case with duly executed stock powers attached thereto, within three days
following the conclusion of the five day period following receipt of the
Exchange Notice by all Other Holders.
(c) To the extent that any Class B Shares designated in a validly
delivered Exchange Notice are not subject to exchange pursuant to this Section
21, the Converting Holder shall be permitted to convert those Class B Shares
into Class A Shares in accordance with the terms of the Memorandum upon the
conclusion of the five (5)-day period following receipt of the Exchange Notice
by all Other Holders.
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<PAGE>
(d) The rights of exchange established by this Section 21 shall
terminate with respect to any Investor when such Investor ceases to own Shares
equal to at least fifty percent (50%) of such Investor's Original Issued Amount.
22. Tag-Along Rights.
-----------------
(a) If MIH or its Controlled Affiliates (including, but not limited
to, OTVH, the "MIH Group") proposes to enter into an agreement with an
---------
unaffiliated third party to Transfer Shares (including by merger, consolidation
or other business combination) owned by MIH or its Controlled Affiliates in one
transaction or a series of related transactions which result in a Change of
Control (a "Tag-Along Sale"), then each Investor shall have the right to
--------------
participate in such Tag-Along Sale by selling up to the number of Shares (the
"Maximum Tag-Along Shares") equal to the product of (i) the total number of
- -------------------------
Shares proposed to be Transferred by the MIH Group, multiplied by (ii) a
fraction, the numerator of which shall equal the aggregate number of Shares
owned by such Investor immediately prior to the Tag-Along Sale and the
denominator of which shall equal the sum of (A) the aggregate number of Shares
owned by the Investors who are eligible to participate in such Tag-Along Sale as
provided in Section 22(i), plus (B) the aggregate number of Shares owned by the
MIH Group immediately prior to the Tag-Along Sale. Any such sale by any
Investor shall be on the same economic terms and conditions as the proposed Tag-
Along Sale by the MIH Group. Without limiting the foregoing, and by way of
example all Selling Holders shall share pro rata, based upon the number of
Shares being sold by each (x) in all transaction expenses, (y) in any joint
indemnity liabilities of the sellers to the proposed transferee or purchaser in
the Tag-Along Sale relating to representations concerning the OpenTV business,
and (z) in any escrow for the purpose of satisfying any such indemnity
liabilities. If required by the purchaser, each Investor shall, as a condition
to its participation in the Tag-Along Sale, agree to become a party to each
agreement proposed to be executed by any member of the MIH Group in connection
with the sale of such Shares; provided, however, that notwithstanding the
-------- -------
foregoing, it is understood and agreed that no participating Investor shall be
required to agree to be bound by any covenant, agreement or restriction which
survives the execution and delivery of such agreement or the closing of such
Tag-Along Sale which restricts or limits the right of the participating Investor
to conduct its business (including investments by such Investor) as determined
in good faith by such participating Investor or prohibits such participating
Investor from entering into or engaging in any business or which would require
it to sell or dispose of any of its assets or business including, but not
limited to, non-competition agreements, exclusivity agreements, agreements
relating to carriage or distribution, and other agreements and arrangements
similar to the foregoing; provided, however, that the foregoing shall not
-------- -------
include, by way of example, and a participating Investor shall be obligated to
perform any covenant obligating it to keep confidential and not disclose
confidential information
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<PAGE>
relating to the Company. No party to any such agreement shall be liable for the
breach of any representation, warranty or covenant made by another party as to
itself. If the Tag-Along Sale constitutes a series of transactions which result
in a Change of Control, then the price per Share to be paid in connection with
such Tag-Along Sale shall equal the weighted average purchase price per Share
with respect to those sales of Shares sold in such transaction or series of
transactions. MIH shall not and shall cause its Controlled Affiliates not to
take any actions or enter into any agreements other than as specified herein in
order to avoid or seek to avoid the performance of their obligations under this
Section 22 but will at all times act in good faith in connection with any Tag-
Along Sale. MIH shall not and shall cause its Controlled Affiliates not to
engage in any Transfer subject to this Section 22 unless each Investor which is
then an Eligible Investor is permitted to participate in such Tag-Along Sale in
accordance with the terms hereof.
(b) MIH shall provide each Investor with written notice (the "Sale
----
Notice") not less than ten (10) days prior to executing any agreement with
- ------
respect to a Change or Control. Each Sale Notice shall set forth (i) the name
and address of each proposed transferee or purchaser of Shares and, if known,
such transferee's or purchaser's equity interest in the Company; (ii) the number
of Shares proposed to be transferred or sold by the MIH Group; (iii) the
proposed amount and form of consideration to be paid for such Shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser; (iv) the aggregate number of Shares held of record as of the date of
the Sale Notice by the MIH Group; (v) the maximum number of Shares that the
Investor to whom the notice is sent is entitled to include in the proposed sale
if it constitutes a Tag-Along Sale; (vi) the proposed date of consummation of
the proposed sale; and (vii) whether MIH believes that the proposed sale
constitutes a Tag-Along Sale; the Investors hereby agree that MIH, provided that
it reasonably believes the proposed transferee is acting in good faith, shall be
entitled to rely on any representation it receives from the proposed transferee
regarding the transferee's equity interest in the Company. MIH agrees to provide
each Investor, upon its request, all other relevant information concerning the
proposed transferee or purchaser of Shares to the extent known by MIH.
(c) If the proposed sale constitutes a Tag-Along Sale, then each
Investor shall provide written notice (the "Tag-Along Notice") to MIH of its
----------------
decision to participate in the Tag-Along Sale, such notice to be delivered, if
at all, within 10 days following receipt of the Sale Notice. The Tag-Along
Notice shall set forth the number of Shares, if any, that such Investor desires
to include in the Tag-Along Sale (which shall not exceed such Investor's Maximum
Tag-Along Shares).
(d) MIH shall determine the aggregate number of Shares to be sold by
each participating Investor in any given Tag-Along Sale in accordance with the
terms hereof, and a Tag-Along Notice given by an Investor shall constitute its
binding
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<PAGE>
agreement to sell such Shares on the terms and conditions applicable to such
sale (subject to receipt of consents and approvals and expiration of waiting
periods as provided in Section 23). In the event that the proposed purchaser or
transferee of Shares, the Transfer of which is subject to this Section 22, does
not agree to purchase Shares which a participating Investor has requested be
included in the Tag-Along Sale directly from such Investor, then, in order to
complete such sale to such third party, MIH, either by itself or through one or
more of its Controlled Affiliates, shall have the right to purchase such Shares
directly from such Investor simultaneous with the consummation of the Tag-Along
Sale as though it were the purchaser or transferee in connection with the Tag-
Along Sale (and for the same price and form of consideration as would be
received in such Tag-Along Sale) and in order to complete such transaction and
comply with the requirements of this Section 22, and the selling Investor shall
otherwise comply with all of its obligations hereunder as if it were selling
Shares directly to such third party, including, without limitation, entering
into all such agreements and bearing all such liabilities as set forth in
Section 22(a) as though it were selling Shares directly to the purchaser or
transferee in the Tag-Along Sale, identified in the Sale Notice, except that MIH
or one or more of its Controlled Affiliates, as the case may be, shall be the
purchaser or transferee thereunder. In the event a sale by a participating
Investor to MIH pursuant to this paragraph (d) would have adverse tax
consequences to such Investor, such Investor shall be entitled to withdraw its
Shares from such Tag-Along Sale, provided that such withdrawing Investor shall
be deemed to have had the right to participate in the Tag-Along Sale for
purposes of this Section 2.2
(e) If a Tag-Along Notice is not received by MIH from an Investor
within the period specified above, MIH and its Controlled Affiliates shall have
the right to Transfer the number of Shares specified in the Sale Notice (less
the amount of Shares to be Transferred by electing Investors) to the proposed
purchaser or transferee without any participation by such non-electing Investor,
but only on the terms and conditions stated in such Sale Notice and only if such
sale is consummated within one hundred twenty (120) days of the date of delivery
of the Sale Notice.
(g) The provisions of this Section 22 shall apply regardless of the
form of consideration received in the Tag-Along Sale, provided that non-cash
consideration is allocated proportionately among MIH and the participating
Investors.
(h) The provisions of this Section 22 shall not apply to (i) any
Transfer (x) by OTVH to any Permitted Transferee of OTVH, or (y) in connection
with any registered Public Offering involving the Class A Shares, or (ii) any
transaction or series of transactions which do or does not result in a Change of
Control. No transferee which acquires Shares in a Tag-Along Sale in accordance
with this Section 22 shall be bound by the provisions of this Section 22. If
any Investor who is then eligible to participate in a
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Tag-Along Sale has the right to participate in such Tag-Along Sale in accordance
herewith and such Tag-Along Sale is consummated, then regardless of whether or
not such Investor so participates, no Investor thereafter shall have the right
to participate in any other transaction or series of related transactions which
would result in a Change of Control or constitute a Tag-Along Sale.
(i) The tag-along rights established by this Section 22 shall
terminate with respect to an Investor when such Investor ceases to own Shares
equal to at least fifty percent (50%) of such Investor's Original Issued Amount.
23. Governmental Consents to Transfer. Notwithstanding anything to the
---------------------------------
contrary set forth herein, a party's obligation to purchase Equity Securities
pursuant to Sections 18, 19, 20, 21 and 22 shall be subject to (x) receipt of
all governmental approvals, consents or waivers required for such purchase, and
(y) the expiration or termination of the waiting period under the HSR Act if
such transaction requires the filing of notice under the HSR Act. As promptly
as practicable following receipt by the Company or other transferor of a notice
from a proposed transferee of its desire to exercise a right of participation,
purchase or exchange pursuant to Sections 18, 19, 20, 21 or 22, the transferor
and the transferee shall make (or cause to be made) 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 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 any such
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; provided, however, that no transferee or transferor shall be
-------- -------
required to submit to any restriction or modification relating to its business,
or agree to sell any assets, in order to obtain such consent or approval or
waiver or the expiration of any waiting period under the HSR Act. Upon receipt
of such consents, approvals or waivers or the expiration or termination of such
waiting period, as the case may be, the transferor and the transferee, as the
case may be, shall notify the other of such receipt, expiration or termination.
If the transferee or the transferor are not able to obtain any such approval,
consent or waiver within ninety (90) days following delivery of the transferee's
binding agreement to purchase such Equity Securities, then the transferor shall
be released from its obligation to sell such Equity Securities to such
transferee and such transferee shall be released from its obligation to purchase
such Equity Securities and such transferor shall be permitted to Transfer such
Equity Securities to an unaffiliated third party in accordance with the
applicable Section hereof.
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24. Limited Non-Competition Covenant.
--------------------------------
(a) During the period commencing on the date hereof and ending upon
the earlier to occur of (i) the first anniversary of the date of consummation of
the initial Public Offering of the Company's Class A Shares, and (ii) the date
upon which MIH ceases to beneficially own Shares having a majority of the
outstanding voting power of the Company (the "Restricted Period"), MIH agrees,
-----------------
for the benefit of the Investors, that it will not, directly or indirectly
through its Controlled Affiliates, engage or participate in, or acquire an
equity interest in any Person which engages or participates in, a Restricted
Business (as defined below), other than in accordance with the provisions in
this Section 24. The term "Restricted Business" shall mean those areas of the
Company's business described in the Amendment No. 1 to the Registration
Statement on Form F-1 of Company, filed with the Commission on October 7, 1999,
under the caption "Business -- the OpenTV System -- OpenTV Runtime", "--Open
Streamer", "-- Application Development Tools", and "-- Applications", as well as
upgrades, modifications and improvements reasonably related thereto created
during the Restricted Period and consistent with the business areas described
therein.
(b) Notwithstanding the foregoing, the restrictions set forth herein
shall not be applicable to: (A) OTVH's investment in the Company, (B) Restricted
Businesses which are currently engaged in by MIH and its Controlled Affiliates,
provided that in doing so it will not cause the Company's ability to develop
applications to be materially and adversely affected thereby; (C) application
development activities of MIH and its Controlled Affiliates relating to
interactive television primarily for the use of cable and satellite television
platforms owned by MIH or any entity that MIH Controls or over which it has
significant management influence, which may or may not be sold to unaffiliated
third parties; (D) any acquisition of an interest in a Person which is engaged
in a Restricted Business so long as the Restricted Business conducted by such
other Person does not constitute fifteen percent (15%) or more of the aggregate
business (as measured by its assets or revenues) of such Person, or (E) the
acquisition by MIH or its Controlled Affiliates of an equity interest in any
Person engaged in the Restricted Business so long as (1) such equity interest is
less than 20% of the fully diluted equity interests of such Person and (2) MIH
and its Controlled Affiliates are not actively involved in the management of the
business of such Person (provided, that MIH's participation in the management of
--------
such Person through representation on such Person's board of directors or other
governing body which is proportionate to its equity and voting interest in such
Person shall not be deemed active management in such Person's business).
(c) In the event MIH desires to acquire an equity interest in a
Person engaged in a Restricted Business or otherwise engage or participate in a
Restricted
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Business, in each case which would otherwise be prohibited by the
terms of this Section (a "Restricted Opportunity"), then MIH shall,
----------------------
notwithstanding the provisions of this Section 24, be permitted to make such
investment or engage or participate in such Restricted Business, provided that
MIH shall first have (i) notified the Board of such Restricted Opportunity and
provided the Board with full disclosure regarding such Restricted Opportunity
(to the extent of material information possessed by MIH) and (ii) the Board
(with all directors which are affiliated with or employed by MIH or its
Controlled Affiliates abstaining from voting thereon) shall not have determined
to proceed with or pursue such Restricted Opportunity within twenty (20) days of
receipt of such notice from MIH.
(d) No Person which acquires any Shares from MIH or any member of the
MIH Group in accordance with the terms of this Agreement (other than any
Controlled Affiliate of MIH) shall be bound by the restrictions contained this
Section 24.
25. Voting of Shares for Election of Directors.
------------------------------------------
(a) From and after the Automatic Conversion Date, at each annual
meeting of the stockholders of the Company, or at any meeting of the
stockholders of the Company of which members of the Board are to be elected or
whenever members of the Board are to be elected by written consent, each
Existing Holder and each Investor agrees to vote or act with respect to all of
the Shares owned by it, and to cause each director designated by it (whether
individually or as a member of a group) to the extent possible to vote or act in
favor of the following:
(i) (x) so long as the Investors own that number of Ordinary
Shares, in the aggregate, equal to at least sixty percent (60%) of the Issued
Number, two (2) directors designated by the Investors; or (y) if the Investors
own less than the amount specified in clause (x) above, then so long as the
Investors own that number of Shares, in the aggregate, equal to at least thirty
percent (30%) of the Issued Number, one (1) director designated by the
Investors;
(ii) so long as SSI owns either that number of Shares or that
number of shares of OpenTV, in the aggregate, equal to at least thirty percent
(30%) of the number of Class B Shares issuable to it pursuant to the exercise in
full of its rights under the Exchange Agreement, one member of the Board
designated by SSI; and
(iii) a majority of the members of the Board designated by OTVH.
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(b) The Investors covenant and agree with MIH that the director
nominees to be designated pursuant to Section 25(a)(i), if any, shall be persons
which (i) are not involved in the business (as members of the board of directors
or other governing body, officers, partners, employees or any similar capacity)
of a Person which is engaged in a Restricted Business and (ii) are of
appropriate expertise relating to the activities of the Company and its
customers and appropriate seniority within the corporate structure of the
applicable Investor (or in the event the Investor's principal asset is its
interest in the Company, the appropriate parent entity of such Investor) such
that such person is capable of adequately representing the interests of the
Investors and providing a meaningful contribution on behalf of the Investors to
determinations by the Board. The Investors agree that prior to proposing any
designee to the Board pursuant to Section 25(a)(i), the Investors will consult
with representatives of MIH with respect to such proposed designee and his
qualifications and will act in good faith in proposing such Investor designees.
MIH acknowledges that Craig Enenstein and Peter Smith are appropriate designees
of the Investors to join the Board as of the date of this Agreement.
(c) Any director designated by the Investors may be excluded from
access to any material or meeting or portion thereof if the Board reasonably
believes that such director's presence would be a potential conflict of interest
regarding the subject matter to be discussed, including based on competitive
concerns.
(d) Notwithstanding Section 25(a), if at any time the Investors or SSI
hold less than that number of Shares required to entitle it to designate that
number of directors which it is then so designating, the Investors' or SSI's
right, as the case may be, to designate such director or directors shall
terminate and such director or directors designated by the Investors or SSI, as
the case may be, then serving on the Board shall be removed by action of a
majority of the remaining members of the Board or by the stockholders of the
Company.
(e) In the event of the resignation, death, removal or
disqualification of a director designated by OTVH, the Investors or SSI, OTVH,
the Investors or SSI, whichever Person designated such director pursuant to
Section 25(a) shall promptly designate a new director to fill such vacancy, and,
after written notice of the designation has been given by OTVH, the Investors or
SSI, as the case may be, to the Company and each of the other parties hereto,
the Company shall as promptly as practicable hold a meeting of its Board or, if
the Board is not permitted to fill such vacancy, a meeting of its shareholders
to fill such vacancy, and each party hereto shall vote their Shares, or cause
any director designated by it (whether individually or as a member of a group)
to the extent possible to vote or act, in favor of such designee to the Board.
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(f) OTVH, the Investors or SSI, as the case may be, may remove their
designated directors at any time and from time to time, with or without cause
(subject to the Memorandum and any requirements of law), in their sole
discretion, and after written notice to the Company and each of the parties
hereto of the new designee to replace such director, the Company shall as
promptly as practicable hold a meeting of its Board or, if the Board is not
permitted to fill such vacancy, a meeting of its shareholders to fill such
vacancy, and each party hereto shall promptly vote its Shares, or cause any
director designated by it (whether acting individually or as a group) to the
extent possible to vote or act, in favor of such designee to the Board.
(g) Concurrently with the execution of this Agreement, there shall be
imprinted or otherwise placed, on certificates representing Shares the following
restrictive legend (the "Legend"):
------
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF AN INVESTORS' RIGHTS AGREEMENT, DATED OCTOBER 23,
1999 WHICH PLACES CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES
REPRESENTED HEREBY. A COPY OF SUCH INVESTORS' RIGHTS AGREEMENT WILL
BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE
UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS."
No Person which acquires any Shares from any party hereto in accordance with
the terms of this Agreement (other than any party to this Agreement or any
Permitted Transferee of such party) shall be bound by the restrictions contained
in this Section 25, and upon any such Transfer, the Company shall be instructed
to remove the Legend described in Section 25(g) with respect to such Shares.
(h) Except as provided by this Section, OTVH, each Investor and SSI
shall exercise the full rights of a stockholder with respect to the Shares held
by it.
(i) The provisions of this Section 25 as to the Investors and SSI's
right to nominate designees to the Board in accordance herewith, shall become
effective immediately upon the Automatic Conversion Date or, if earlier, the
date upon which the holders of Convertible Preference Shares cease to have the
right (as a class) to elect any directors, provided that the Investors then own
---
the sufficient Ordinary Shares to be entitled to any directors pursuant to
Section 25(a)(i). If on such date, a designee or designees of the Investors or
a designee of SSI is then serving on the Board and such
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<PAGE>
party or parties then hold that number of Shares required to designate such
nominee(s) in accordance with Section 25(a), such directors may continue to
serve on the Board, subject to the provisions of this Section 25, including,
without limitation, Sections 25(a) and (d).
(j) The rights and obligations of the parties under this Section 25
shall terminate upon (x) with respect to any designee nominated by the
Investors, on the date on which the Investors cease to own Ordinary Shares equal
to at least thirty percent (30%) of the Issued Number and (y) with respect to
the designee nominated by SSI, on the date on which SSI ceases to own Shares or
shares of OpenTV equal to at least thirty percent (30%) of the number of Class B
Shares issuable to it upon exercise in full of its rights under the Exchange
Agreement and in no event shall the rights and obligations of the parties under
this Section 25 continue after October 1, 2009.
26. Miscellaneous.
-------------
(a) Waivers and Amendments. Except as otherwise expressly provided,
----------------------
in this Agreement may be amended or modified only upon the written consent of
the Company, each Existing Holder for so long as it has any rights or
obligations hereunder and each Investor for so long as it has any rights or
obligations hereunder. Except as otherwise expressly provided in this Agreement,
the rights of an Existing Holder under this Agreement may be waived only with
the written consent of such Existing Holder. Except as otherwise expressly
provided in this Agreement, the rights of an Investor under this Agreement may
be waived only with the written consent of such Investor. Except as otherwise
provided in this Agreement, the rights of the Company under this Agreement may
be waived only with the written consent of the Company. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated orally
or by course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 26(a). Specifically, but
without limiting the generality of the foregoing, the failure of any party at
any time or times to require performance of any provision hereof by another
party shall in no manner affect the right of such first party at a later time to
enforce the same. No waiver by any party of the breach of any term or provision
contained in this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
(b) 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 telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) three (3) days after
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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, to the Representative at 12312 West
Olympic Boulevard, Los Angeles, California 90064, facsimile (310) 979-5003,
Attention: Craig Enenstein and to each Existing Holders at its address set forth
on Annex B attached hereto and to each Investor at its address set forth on
Annex A attached hereto or at such other address as the Company or an Existing
Holder or Investor may designate by ten (10) days advance written notice to the
other parties hereto.
(c) Severability. In the event of any conflict between the provisions
------------
of this Agreement and the provisions of the Company's Memorandum of Association
or Articles of Association then, subject to the provisions of British Virgin
Islands law, the provisions of this Agreement shall prevail as between the
parties hereto, and the parties hereto shall exercise all voting and other
rights and powers legally available to them (whether as shareholders or
otherwise) to give effect to the provisions of this Agreement. If there is an
irreconcilable conflict between a provision of this Agreement and a mandatory
provisions of British Virgin Islands law, the parties shall use their respective
best efforts to agree on an alternative mechanism or provision which is as close
as reasonably possible to the provisions of this Agreement and the conflicting
provisions contained in this Agreement shall be invalid (but only to the extent
necessary), provided that such invalidity shall not affect the other provisions
of this Agreement. Except as provided in the preceding sentence, 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.
(d) Assignment of Rights. The rights to cause the Company to register
--------------------
Registrable Securities pursuant to Sections 3 and 4, and all related rights and
benefits hereunder, including, without limitation, rights of indemnification
under Section 7, may be assigned by a Holder to a transferee or assignee of
Registrable Securities which (i) is a Permitted Transferee of a Holder, or (ii)
in the case of an Investor, acquires at least twenty percent (20%) of such
Investor's Original Issued Amount or in the case of OTVH or SSI acquires at
least 5,000,000 Registrable Securities (appropriately adjusted for any stock
dividends, combinations, splits, reverse splits, recapitalizations and similar
events affecting such shares occurring after the date hereof); provided,
however, that (A) the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such
transferee or assignee and the securities with
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respect to which such rights are being assigned, and (B) such transferee shall
agree in writing to be subject to all restrictions set forth in this Agreement.
Except as provided in the preceding sentence this Agreement and the rights and
benefits hereunder shall not be assignable, except with the prior written
consent of the Company, the Existing Holders and the Investors. The rights set
forth in Sections 14 through 25 are personal to the Investors, the Company, MIH
and its Controlled Affiliates, including OTVH, and SSI and may be transferred or
assigned by any such party (or its Permitted Transferee to which such rights
have previously been assigned) only to a Permitted Transferee in accordance with
this Agreement, provided, that no such assignment shall release any such party
from its obligations hereunder as provided in Section 2(b), and the rights set
forth in Sections 14 through 25 shall not otherwise be assignable or
transferable.
(e) Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the parties hereto.
Subject to the immediately preceding sentence, and except as set forth
specifically in this Agreement, including, without limitation, in Section 7
hereof, this Agreement shall not run to the benefit of or be enforceable by any
Person other than a party to this Agreement and its successors and permitted
assigns.
(f) Headings. The headings of the sections, subsections and
--------
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
(g) Choice of Law. 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.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, 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.
(i) 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.
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<PAGE>
(j) No Other Agreements. Except for (i) this Agreement, (ii) the
-------------------
Shareholders Agreements, (iii) the letter agreement, dated as of the date
hereof, among each of the Investors, a true and complete copy of which has been
provided to OTVH, the Company and SSI, (iv) the Purchase Agreements, (v) the
letter agreement dated as of the date hereof between OTVH and News America
Incorporated, a true and complete copy of which has been provided to the other
Investors, the Company and SSI, (vi) the letter agreement, dated as of the date
hereof among MIH, Sun and SSI, a true and complete copy of which has been
provided to the Investors and Company, and except as expressly permitted or
contemplated by this Agreement or under the Shareholders Agreements or in
connection with the exercise of any right of any party hereunder or thereunder,
none of MIH, SSI, the Company or any Investor is a party to any contract,
agreement or arrangement with any other party to this Agreement relating to the
voting of Equity Securities of the Company or otherwise relating to the rights
and obligations of the parties under this Agreement. Each of the Company, MIH,
SSI and each Investor agrees that it will not assign or transfer any of its
rights under or delegate any of its duties under this Agreement, other than as
expressly provided herein, without the prior written consent of the other
parties to this Agreement.
(k) 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
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
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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 26(b), ANNEX A AND ANNEX B, AS THE CASE MAY BE, 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.
(l) 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, 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 26(l) 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.
(m) SSI Purchase Agreement. The Company and SSI have duly executed
----------------------
that certain C-2 Convertible Preference Shares Purchase Agreement dated as of
the date hereof, pursuant to which SSI has agreed to purchase from the Company
4,504,504 C-2 Convertible Preference Shares, for an aggregate purchase price of
$4,999,999.00. The only condition precedent to the closing of such transaction
(other than the payment of the purchase price and the delivery of certificates
in connection therewith) is the lapse or early termination of the appropriate
waiting period with respect to the filings required under the HSR Act as
provided therein. The Company and SSI agree that they shall perform their
respective obligations under such agreement with
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respect to making a filing under the HSR Act and seeking to obtain the
expiration or early termination of the waiting period under the HSR Act in
accordance with such agreement (as in effect on the date hereof).
(n) 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.
(o) Amendment of Other Documents. Each of the Company, Sun and MIH
----------------------------
agrees that it will not, and will not permit any of its Controlled Affiliates
to, (i) enter into any amendment or modification of a Covered Agreement (as
defined below), (ii) terminate any Covered Agreement (other than in accordance
with the terms thereof (including in connection with the breach thereof) or
(iii) grant any waiver of a material right thereunder, in each case where such
amendment, modification, termination or waiver would have a material adverse
effect upon the rights of an Investor hereunder; provided, however, that the
-------- -------
parties acknowledge and agree that the foregoing shall not be deemed to restrict
or limit the right of any party to a Covered Agreement to exercise to the
fullest extent its rights under and in accordance with such Covered Agreement
(as in effect on the date hereof and not including any amendment or modification
thereof), except as otherwise provided herein. "Covered Agreement" means the
Exchange Agreement and the Stockholders' Agreements.
27. Sun Consent. Sun, for itself and its Affiliates, hereby (i) consents
-----------
to the transactions contemplated by the Purchase Agreements, including, but not
limited to, the reorganization of OpenTV and the various actions referred to in
the Step Summary attached to the Investor Purchase Agreement (the "Specified
---------
Transactions"), and (ii) agrees that it will not (x) terminate, cancel,
- ------------
restrict, require any amendment or modification of, or claim any breach or
violation in connection with, any material agreement (including any license
agreements or agreements relating to intellectual property rights) between Sun
and its Affiliates, on the one hand, and the Company, OpenTV or any predecessor-
in-interest thereof, on the other, or seek or attempt to do any of the
foregoing, (y) not assert any appraisal or similar right under the Delaware
General Corporation Law in connection with the Specified Transactions, or (z)
waive any right to dividends or distributions on the shares of OpenTV owned by
it which are declared or made in connection with the Specified Transactions, or
seek or attempt to do any of the
-52-
<PAGE>
foregoing, solely as a result of the consummation of the Specified Transactions
in a manner which is, in all material respects, consistent with the provisions
in the Step Summary, provided that in connection therewith each license
agreement to which SSI or Sun is a party is assigned or sublicensed only to the
Company or to a wholly-owned Subsidiary thereof, which assignee or sublicensee
consents in a written document delivered to SSI to be bound by all of the
provisions of each such license agreement.
28. Representation Regarding Ownership. The Company and MIH represent and
----------------------------------
warrant to each Investor that, as of the date hereof: (a) Mindport Holdings,
Ltd. owns 100% of the total equity interests and voting power in OTVH, each on a
fully diluted basis; (b) MIH Limited owns in excess of 80% of the total equity
interests and voting power in Mindport Holdings, Ltd., each on a fully diluted
basis; (c) MIH owns in excess of 50% of the total equity interests and voting
power in MIH Limited, each on a fully diluted basis; (d) Naspers Limited
indirectly owns in excess of 50% of the total equity interests and voting power
in MIH, each on a fully diluted basis; and (e) before giving effect to the sale
of the Convertible Preference Shares under the Purchase Agreements and without
regard to (x) the assignment of the OpenTV Stock Option Plan to the Company and
(y) the exercise by SSI of its rights under the Exchange Agreement, OTVH owns
100% of the total equity interests and voting power in the Company, each on a
fully diluted basis.
-53-
<PAGE>
[INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by a duly authorized representative thereof as of the day and year
first above written.
COMPANY: OpenTV Corp.
By:_____________________________
Name:___________________________
Title:__________________________
INVESTORS: America OnLine, Inc.
By:_____________________________
Name:___________________________
Title:__________________________
General Instrument Corporation
By:______________________________
Name:____________________________
Title:___________________________
LDIG OTV, Inc.
By:______________________________
Name:____________________________
Title:___________________________
News America Incorporated
By:______________________________
Name:____________________________
Title:___________________________
-54-
<PAGE>
[INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE]
TWI-OTV Holdings Inc.
By:______________________
Name:____________________
Title:___________________
EXISTING HOLDERS: OTV Holdings Limited
By: ____________________
Name:____________________
Title:___________________
Sun TSI Subsidiary, Inc.
By:______________________
Name:____________________
Title:___________________
MIH: MIH (BVI) LTD.
By:______________________
Name:____________________
Title:___________________
For purposes of Section 17 only:
REPRESENTATIVE:
________________________________
________________________________
-55-
<PAGE>
[INVESTORS' RIGHTS AGREEMENT SIGNATURE PAGE]
For purposes of Section 27 only:
SUN MICROSYSTEMS, INC.:
By:________________________________
Name: Michael H. Morris
_____________________________
Title:_____________________________
-56-
<PAGE>
ANNEX A
INVESTORS
---------
<TABLE>
<CAPTION>
CONVERTIBLE C-2
PREFERENCE WARRANT
NAME and ADDRESS SHARES SHARES
---------------- ------ ------
<S> <C> <C>
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Attn: General Counsel/Legal Department 4,504,504 4,504,504
General Instrument Corporation
101 Tournament Drive
Horsham, PA 19044
Attn: General Counsel/Legal Department 2,252,252 2,252,252
LDIG OTV, Inc.
9197 South Peoria
Englewood, CO 80112
Attn: General Counsel/Legal Department 5,630,630 5,630,630
News America Incorporated
1211 Avenue of the Americas
New York, NY 10036
Attn: General Counsel/Legal Department 5,630,630 5,630,630
TWI-OTV Holdings Inc.
75 Rockefeller Plaza
New York, NY 10019
Attn: General Counsel/Legal Department 5,630,630
5,360,630
Total 23,648,646 23,648,646
</TABLE>
<PAGE>
ANNEX B
EXISTING HOLDERS
----------------
NUMBER OF
NAME and ADDRESS SHARES
- ---------------- --------------
OTV Holdings Limited 153,158,733
c/o Myriad International Holdings BV B Shares
Jupiterstraat 13-15
2132 HC Hoofddorp
The Netherlands
Sun TSI Subsidiary, Inc. 4,504,504
c/o Sun Microsystems, Inc. C-2 Convertible Preference Shares
901 San Antonio Road
Mail Stop PAL1-S21
Palo Alto, California 94303
<PAGE>
ANNEX C
INVESTMENT BANKING FIRMS
------------------------
BancBoston Robertson Stephens Inc.
Banc of America Securities LLC
Bear Stearns & Co. Inc.
Brown Brothers Harriman & Co.
Credit Suisse First Boston Corporation
Deutsche Bank Group
Donaldson, Lufkin & Jenrette, Inc.
Hambrecht & Quist Group
J.P. Morgan & Co. Incorporated
Merrill Lynch & Co.
Morgan Stanley Dean Witter & Co.
Salomon Smith Barney Inc.
The Goldman Sachs Group, Inc.
Thomas Wiesel Partners
<PAGE>
EXHIBIT 10.15
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
dated October 23, 1999
among
OPENTV CORP.
and
OTV HOLDINGS LIMITED
and
SUN MICROSYSTEMS, INC.
and
SUN TSI SUBSIDIARY, INC.
and
OPENTV, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. RECITALS...............................................................
2. DEFINITIONS AND INTERPRETATION.........................................
3. BUSINESS OF THE COMPANY................................................
4. FUNDAMENTAL BUSINESS DECISIONS.........................................
5. RESTRICTIONS ON SSI TRANSFER OF SHARES.................................
6. INTELLECTUAL PROPERTY RIGHTS AS TO SUN AS SSI..........................
7. GOVERNING LAW, ARBITRATION AND LIMITATION
ON DAMAGES.............................................................
8. DURATION AND TERMINATION...............................................
9. WAIVERS................................................................
10. ASSIGNMENT.............................................................
11. ENTIRE AGREEMENT.......................................................
12. CONFIDENTIALITY........................................................
13. NOTICES................................................................
14. RELATIONSHIP OF THE STOCKHOLDERS.......................................
15. COUNTERPARTS...........................................................
16. PARENT UNDERTAKING.....................................................
i
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement")
---------
is entered into as of this 23rd day of October, 1999, by and among OpenTV Corp.,
a company incorporated in the British Virgin Islands ("OTV"), OTV Holdings
---
Limited, a company incorporated in the British Virgin Islands ("OTVH"), Sun
----
Microsystems, Inc., a Delaware corporation ("Sun"), Sun TSI Subsidiary, Inc., a
---
Delaware corporation ("SSI"), and OpenTV, Inc., a Delaware corporation (the
---
"Company").
- --------
1. RECITALS
1.1 The Company, Myriad International Holdings BV ("MIH"), MIH Limited,
Sun and SSI (the "Prior Stockholders") entered into that certain
Amended and Restated Stockholders' Agreement, dated March 18, 1999
(the "Prior Stockholders' Agreement").
1.2 MIH has transferred its interest in the Company to OTV.
1.3 Pursuant to that certain Termination Agreement, dated of even date
herewith, by and among the Prior Stockholders, the Prior Stockholders'
Agreement was terminated as to MIH and MIH Limited.
1.4 In connection with the termination of the Prior Stockholders'
Agreement, the Company, OTV, Sun and SSI desire to amend and restate
the Prior Stockholders' Agreement in its entirety pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
2. DEFINITIONS AND INTERPRETATION
2.1 The Article, Section and subsection headings used herein are inserted
for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
<PAGE>
2.2 As used in this Agreement, the masculine, feminine or neuter gender,
and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
2.3 Unless the context otherwise requires, the terms defined in this
Section 2.3 shall have the meanings herein specified for all purposes
of this Agreement.
"Affiliate" - any Person which directly or indirectly
Controls, is Controlled by, or is under
common Control with, the indicated
Person.
"Agreement" - this Amended and Restated Stockholders'
Agreement and the Schedules hereto.
"Assignment
Agreements" - shall mean the following agreements: (a)
the Assignment and Bill of Sale dated as
of July 1, 1996, by and between SSI and
the Company's predecessor-in-interest,
Thomson-Sun Interactive LLC (the "LLC");
---
(b) the Assignment and Bill of
Sale dated as of July 1, 1996, by and
between Sun and SSI; and (c) the
Assignment Agreement dated as of July 1,
1996, by and between Sun and the LLC.
"Board" - the Board of Directors of the Company.
"BVI Fundamental
Business Decisions" - (i) any business combination (whether by
merger, sale of substantially all assets
or stock purchase) involving a Change of
Control of OTV (unless such business
combination has been approved by a
representative on the OTV Board
designated by SSI); (ii) any amendment of
the Memorandum of Association of OTV that
(a) materially and adversely affects
SSI's exchange rights under the Exchange
Agreement or the rights, preferences or
privileges of the B Ordinary Shares into
which SSI's Shares of the Company are
convertible, (b)
2
<PAGE>
effects SSI in a manner more adversely than OTV
Holdings Limited, or (c) would impact the
Intellectual Property Rights licensed by SSI and
Sun pursuant to the License Agreements, but
excluding any proposed change to any such
Memorandum of Association which (u) increases
the authorized Ordinary Shares or increases the
authorized Preference Shares or creates a new
class or series of Preferred Shares, (v)
implements antitakeover or change of control
provisions, (w) changes the number of directors,
(x) implements or changes the indemnification
provisions for officers, directors or agents,
(y) is necessary to implement any acquisition by
OTV or (z) is approved by a representative on
the OTV Board designated by SSI; and (iii) any
assignment or sublicensing by OTV of the
Intellectual Property Rights licensed by SSI and
Sun pursuant to the License Agreements (either
alone or with other Intellectual Property
Rights), outside the ordinary course of business
or in connection with the liquidation of OTV.
"BVI Shareholders" - SSI (for purposes of this Agreement, treating
SSI as though it had exercised in full its
rights under the Exchange Agreement and had
exchanged all of its shares of the Company for
shares of OTV as provided in the Exchange
Agreement at the then applicable exchange rate),
OTVH and their permitted transferees from time
to time in accordance with that certain
Shareholders Agreement dated of even date
herewith by and among SSI, OTVH and other
parties thereto.
"BVI Shares" - Shares in OTV of whatever class.
"Change of Control" - with respect to the Company or OTV, a business
combination resulting in shareholders of such
entity immediately prior to such combination
ceasing to hold in excess of 50% of the voting
power of the other entity
3
<PAGE>
succeeding to, or continuing to hold or
conduct the business of such entity.
"Confidential
Information" - all information and materials of a Person,
patentable or otherwise, including, without
limitation, computer programs, code,
technical information, data, reports, know-
how, patent positioning, financial
information and business plans, including any
negative developments, whether disclosed on,
before or after July 1, 1996.
"Control" - having a direct or indirect ownership
interest in capital or profits exceeding
fifty percent (50%) in a Person or 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 of such Person.
"Delaware Fundamental
Business Decision - (i) any business combination (whether by
merger, sale of substantially all assets or
stock purchase) involving a Change of
Control of the Company (unless such business
combination has been approved by a
representative on the OTV Board designated by
SSI); (ii) any amendment of the Certificate
of Incorporation of the Company that (a)
materially and adversely affects SSI's
exchange rights under the Exchange Agreement,
(b) effects SSI in a manner more adversely
than the Company, or (c) would impact the
Intellectual Property Rights licensed by SSI
and Sun pursuant to the License Agreements,
but excluding any proposed change to the
Certificate of Incorporation which (u)
increases the authorized Common Stock or
increases the authorized Preferred Stock or
makes a new class or series of Preferred
Stock, (v) implements antitakeover or change
of control provisions, (w) changes the number
of directors, (x) implements or changes the
indemnification provisions for officers,
directors or agents, (y) is
4
<PAGE>
necessary to implement any acquisition by the
Company or (z) is approved by a representative
on the OTV Board designated by SSI; and (iii)
any assignment or sublicensing by the Company of
the Intellectual Property Rights licensed by SSI
and Sun pursuant to the License Agreements
(either alone or with other Intellectual
Property Rights), outside the ordinary course of
business or in connection with the liquidation
of the Company.
"Derivative Works" - (i) for material subject to copyright or mask
work right protection, any work which as a
whole, represents an original work of
authorship, and is based upon one or more pre-
existing works, such as a revision,
modification, translation, abridgment,
condensation, expansion, collection, compilation
or any other form in which such pre-existing
works may be recast, transformed or adapted,
(ii) for patentable materials, any adaptation,
subset, addition, improvement or combination of
such materials, and (iii) for material subject
to trade secret protection, any new material,
information or data relating to and derived from
such material, including new material which may
be protectable by copyright, patent or other
proprietary rights, and, with respect to each of
the above, the preparation, use and/or
distribution of which, in the absence of the
License Agreements or other authorization from
the owner, would constitute infringement under
applicable law.
"Exchange Agreement - that certain Exchange Agreement, dated as of the
date hereof, by and among SSI and OTV.
"Intellectual
Property Rights" - all of the following worldwide legal rights: (i)
patents, patent applications, and patent rights;
(ii) rights associated with works of authorship
(including audiovisual works), including
copyrights, copyright
5
<PAGE>
applications, and copyright registrations; (iii)
rights relating to the protection of trade
secrets and confidential information; (iv) Moral
Rights; (v) design rights; (vi) any rights
analogous to those set forth in the preceding
clauses and any other proprietary rights
relating to intangible property other than
trademarks, trademark registrations and
applications therefor, trade names, rights in
trade dress and packaging; and (vii) divisions,
continuations, renewals, reissues, and
extensions of the foregoing (as applicable),
whether existing on July 1, 1996 or thereafter
filed, issued, or acquired.
"License Agreements" - all of the following agreements: (i) the
Technology License Agreement dated as of July 1,
1996, by and between Sun and SSI; (ii) the
Technology Sublicense Agreement dated as of July
1, 1996, by and between SSI and the Company;
(iii) the Trade Name License Agreement dated as
of July 1, 1996, by and between Sun and SSI; and
(iv) the Trade Name Sublicense Agreement dated
as of July 1, 1996, by and between SSI and the
Company.
"Lien" - any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind,
including, without limitation, any conditional
sale or other title retention agreement, any
lease in the nature thereof and the filing of or
agreement to give any financing statement under
the Uniform Commercial Code or any jurisdiction
and including any lien or charge arising by
statute or other law.
"Moral Rights" - any rights of paternity or integrity, any right
to claim authorship, to object to or prevent any
distortion, mutilation or modification of, or
other derogatory action in relation to the
subject work whether or not such would be
prejudicial to the author's honor or reputation,
6
<PAGE>
to withdraw from circulation or control the
publication or distribution of the subject work,
and any similar right, existing under judicial
or statutory law of any country in the world, or
under any treaty, regardless of whether or not
such right is denominated or generally referred
to as a "moral" right.
"OpenTV" - all (i) technology and software assigned,
transferred or licensed to the Company by
Thomson, TCE or any of their respective
Affiliates, (ii) technology and software,
including confidential information and know-how
contributed by Thomson, TCE, Sun and SSI to the
Company up to the creation of the Company on
July 1, 1996 and (iii) successive versions and
Derivative Works of any of the foregoing
technology and software of the Company, Thomson
and TCE created by any or all of them and of the
Shared Technology created by the Company since
its creation on July 1, 1996 and which fall
within the scope of the Existing Business
Objectives. OpenTV includes libraries, methods
of accessing and downloading distributor code
and data modules and the O-Code interpreter, to
the extent included within the foregoing
description. OpenTV does not, however, include
any of Sun's JAVA technology or any portion
thereof, except to the extent that JAVA
technology may be incorporated therein by the
Company pursuant to and in accordance with the
terms of a JAVA license entered into between the
Company and Sun.
"OTV Board" - the Board of Directors of OTV.
"Permitted
Transferees" - a Person to whom Shares are transferred in
accordance with Section 5.2.
"Person" - any natural person, corporation, limited
liability company, trust, association, company,
partnership, joint
7
<PAGE>
venture or other entity and any governmental
agency, instrumentality or political
subdivision.
"Share" - stock in the capital of the Company of
whatever class.
"Shared Technology" - shall have the meaning as that term is defined
in the Technology Sublicense Agreement by and
between SSI and the LLC entered into as of
July 1, 1996.
"Stockholders" - SSI, OTV and their respective Permitted
Transferees from time to time in accordance
herewith.
"Transfer" - in relation to any Share or any legal or
beneficial interest in a Share, includes,
whether voluntarily or involuntarily, (i) the
sale, transfer, lease, assignment, grant,
renunciation, alienation, or disposal of such
Share or of any right or interest which a
Person may have in the Company as a result of
such right or interest in that Share; (ii)
entering into any agreement in respect of the
votes attached to such Share; (iii) creating
or granting any Lien over or in respect of
such Share; and (iv) any agreement (whether or
not subject to conditions) to do or create or
grant any of the foregoing.
3. BUSINESS OF THE COMPANY
3.1 The Stockholders and the Company agree that solely for the purposes of
the License Agreements, the business objectives of the Company (the
"Existing Business Objectives") are to -
-----------------------------
3.1.1 design, develop, commercialize and promote OpenTV in the
interactive systems and service market place ("OpenTV
------
Solutions");
---------
3.1.2 identify market opportunities and seek and be selected for
contracts for the OpenTV Solutions on a worldwide basis;
3.1.3 develop and promote open, standard interfaces for the OpenTV
Solutions;
8
<PAGE>
3.1.4 license the OpenTV Solutions as an operating system for
interactive services;
3.1.5 port pieces of the OpenTV Solutions to Sun, SSI and other
platforms; and
3.1.6 provide support for the OpenTV Solutions.
Notwithstanding anything to the contrary contained in any License
Agreement, the Existing Business Objectives as defined in this
Agreement shall be deemed the business objectives for all purposes of
the License Agreements, including, without limitation, as that term is
used in the defined term "Licensed Field of Use" in the License
Agreements. The parties acknowledge and agree that the definition of
Existing Business Objectives as provided herein is for the sole
purpose of providing a definition for incorporation into the License
Agreements and such definition shall in no way be construed as
defining or limiting the business, scope or objectives of the Company,
other than as expressly provided in the License Agreements.
4. FUNDAMENTAL BUSINESS DECISIONS
4.1 If the OTV Board approves of a BVI Fundamental Business Decision or
the Board approves of a Delaware Fundamental Business Decision, the
OTV Board or the Board, as the case may be, shall submit such matters
to the Stockholders, in the case of a Delaware Fundamental Business
Decision, or the BVI Shareholders, in the case of a BVI Fundamental
Business Decision for approval. No resolution shall be validly
adopted nor shall any action be taken by the Company if the resolution
or the action relates to a Delaware Fundamental Business Decision,
unless Stockholders representing 95% of the votes exercisable by all
Stockholders shall have voted in favor thereof or consented thereto,
and no resolution shall be validly adopted nor shall any action be
taken by OTV if the resolution or the action relates to a BVI
Fundamental Business Decision, unless BVI Shareholders representing
95% of the votes exercisable by all BVI Shareholders shall have voted
in favor thereof or consented thereto. For purposes of this
Agreement, SSI shall be treated as though it had exercised in full its
rights under the Exchange Agreement and had exchanged all of its
shares of the Company for shares of OTV as provided in the Exchange
Agreement at the then applicable exchange rate.
Subject to the provisions of Sections 4.2, 4.3, 4.4, and 4.5 if the
requisite percentage in interest of Stockholders or BVI Shareholders,
as the case may be, as required under this Section 4.1 do not vote in
favor of a resolution, then solely for the purposes of
9
<PAGE>
determining whether any action or matter contemplated by such
resolution shall be effective under applicable law, no vote will be
deemed to have been made in favor of such resolution.
4.2 This Section 4.2, as it relates to (i) the interest in the Company
held by SSI as of the date of this Agreement, applies to SSI in the
context where OTV shall have voted in favor of a resolution proposed
in respect of a Delaware Fundamental Business Decision in accordance
with Section 4.1 and SSI shall not have voted in favor of such
resolution in accordance therewith or to (ii) the interest in OTV held
and/or deemed held by SSI as if SSI had exercised in full its rights
under the Exchange Agreement and had exchanged all of its shares of
the Company for shares of OTV as provided in the Exchange Agreement at
the applicable exchange rate, applies to SSI in the context where OTVH
shall have voted in favor of a resolution proposed in respect of a BVI
Fundamental Business Decision in accordance with Section 4.1 and SSI
shall not have voted in favor of such resolution in accordance
therewith (either clause (i) or clause (ii) above being deemed an "SSI
---
Deadlock"). In the event of an SSI Deadlock, a nominated senior
--------
executive of SSI and OTV shall promptly meet to attempt to resolve the
SSI Deadlock by mutual agreement. If such SSI Deadlock shall not have
been resolved within fifteen (15) days after the date on which such
SSI Deadlock first arose, SSI and OTV shall refer the matter to a
nominated senior executive of Sun and MIH, respectively, who shall
promptly meet to attempt to resolve the deadlock by mutual agreement.
If such a deadlock shall not have been resolved within fifteen (15)
days after the date on which such SSI Deadlock first arose, then the
matter shall not be deemed approved by the Stockholders in the case a
Delaware Fundamental Business Decision or by the BVI Shareholders in
the case of a BVI Fundamental Business Decision. If an SSI Deadlock
cannot be resolved through the procedures set forth above within
thirty-one (31) days after the date on which such SSI Deadlock first
arose, then (i) unless the BVI Shares are then traded on a U.S.
national securities exchange and there is an unaffiliated public float
of at least 5% of the issued and outstanding BVI Shares, OTV shall
cause to be conducted a valuation of the Fair Market Value (as defined
herein) of the BVI Shares held and/or deemed held by SSI, within forty
(40) days following the expiration of such thirty-one (31) day period
or (ii) if the BVI Shares are then traded on a national securities
exchange and there is an unaffiliated public float of at least 5% of
the issued and outstanding BVI Shares the Fair Market Value of the BVI
Shares shall mean, the average of the per share closing prices of the
BVI Shares on such exchange over the ten (10)-day period ending on the
date on which the SSI Deadlock giving rise to this provision first
arose.
10
<PAGE>
4.3 As used herein, the Fair Market Value of the BVI Shares held and/or
deemed held by SSI, if the BVI Shares are not then traded on a U.S.
national securities exchange and there is not an unaffiliated public
float of at least 5% of the issued and outstanding BVI Shares, shall
mean the fair value of the BVI Shares as of the date on which the SSI
Deadlock giving rise to this provision first arose, without taking
into account a discount to reflect the minority interest held and/or
deemed held by SSI in OTV and shall be determined as follows. OTV
shall cause a valuation of the Fair Market Value of the BVI Shares
that SSI holds and/or is deemed to hold to be conducted by an
independent investment banking firm selected by OTV, which is not then
otherwise retained by OTV and which has recognized experience in the
valuation of technology companies. Upon the completion of such
valuation, OTV shall distribute a copy of the report of such valuation
to each Stockholder. SSI may elect to cause OTV to conduct a second
valuation of the Fair Market Value of the BVI Shares that SSI holds
and/or is deemed to hold to be conducted by an independent investment
banking firm selected by SSI, which is not then otherwise retained by
SSI and which has recognized expertise in the valuation of technology
companies. Such election of SSI shall be exercised, if at all, by the
delivery of written notice to such effect to OTV, which shall include
the identity of the independent investment banking firm as described
in the preceding sentence and which shall be delivered to OTV within
five (5) business days following receipt by SSI of the report of the
first valuation. Such second valuation shall be completed within
thirty (30) days following the delivery of such written notice from
SSI to OTV in accordance with the preceding sentence. If SSI does not
so elect to cause OTV to conduct a second valuation, then the Fair
Market Value of the BVI Shares held and/or deemed to be held by SSI
shall be determined from the valuation conducted by the independent
investment banking firm selected by OTV, and all the parties hereto
shall be bound by the decision of such investment banking firm. If SSI
does so elect to cause OTV to conduct a second valuation, then the
Fair Market Value of the BVI Shares held and/or deemed to be held by
SSI shall be determined by the average of the two valuations conducted
by such investment banking firms, and the parties hereto shall be
bound by the decision of such investment banking firms. OTV shall pay
all of the fees and expenses of the first valuation, and OTV and SSI
will each pay one-half (1/2) of the fees and expenses of the second
valuation.
4.4 If an SSI Deadlock is not resolved by the date on which the valuation
of the Fair Market Value of the BVI Shares held and/or deemed to be
held by SSI is completed as described in Section 4.3, then SSI may
resolve such SSI Deadlock by voting in favor of such resolution within
five (5) days following the completion of such valuation, and, if SSI
11
<PAGE>
does not so vote in favor of such resolution within such five (5) day
period, then OTV shall have the right, but not the obligation, to purchase
all of the Shares of the Company and BVI Shares then held by SSI at the
Fair Market Value of such Shares determined as provided in Section 4.3
(treating all Shares as exchanged for BVI Shares) not later than ten (10)
days following the completion of such valuation, and such right shall be
exercised, if at all, by the delivery of written notice to such effect to
SSI within ten (10) days following the completion of such valuation. If OTV
is not able or does not elect to so purchase such Shares and BVI Shares in
accordance with the preceding sentence, then OTV shall provide written
notice (the "OTV Notice") to the BVI Shareholders within such ten (10)-day
----------
period, and OTVH shall have the right, but not the obligation, to purchase
the Shares and BVI Shares at the Fair Market Value determined as provided
in Section 4.3, such right to be exercised, if at all, by the delivery of
written notice to such effect to SSI within five (5) days following receipt
of the OTV Notice. The closing of any purchase of Shares and BVI Shares
(including the transfer of certificates therefor) by OTV or OTVH, as the
case may be, in accordance herewith shall occur within fifteen (15) days
following receipt of the OTV Notice subject to the receipt of all necessary
governmental consents and approvals. The parties hereby agree to use their
respective reasonable best efforts to make all filings necessary to obtain
all necessary governmental consents and approvals and the expiration or
early termination of all waiting periods imposed by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Any Shares purchased by
OTVH pursuant to this Section 4.4 shall be immediately exchanged for BVI
Shares in accordance with the terms set forth in the Exchange Agreement.
4.5 Any sale of Shares or BVI Shares pursuant to the provisions set out
above shall be subject to the following additional terms and
conditions -
4.5.1 the Shares or BVI Shares in question shall be sold with all
accrued but unpaid dividends and without any Lien;
4.5.2 the purchase price for the Shares or BVI Shares in question
shall be paid in immediately available funds, in United States
Dollars, to a bank account (designated in writing by the
selling Stockholder) as soon as practicable, but in any event
within fifteen (15) days, after the completion of the appraisal
or appraisals, if applicable, described in Section 4.3 against
receipt by the purchaser of all certificates representing such
Shares or BVI Shares, duly endorsed in blank or with duly
executed stock powers with respect thereto;
12
<PAGE>
4.5.3 in connection with any sale pursuant to provisions set out
above, the terms of the License Agreements to which SSI or any
of its Affiliates is a party shall not be effected by such sale
and shall survive such sale in accordance with their terms
where applicable.
5. RESTRICTIONS ON SSI TRANSFER OF SSI SHARES
5.1 SSI undertakes that it will not Transfer any of its Shares other than
in exchange for shares of OTV pursuant to the Exchange Agreement, or
as otherwise expressly permitted in Section 5.2.
5.2 SSI may, at any time and on any terms (including as to price),
Transfer all (but not part only) of its Shares to any of its
Affiliates, provided that -
5.2.1 the transferor shall remain a party to this Agreement and
hereby agrees to guarantee the performance by the transferee of
its obligations pursuant to the provisions of this Agreement
and to indemnify the other Stockholder from and against a
breach by such transferee of any of its obligations under this
Agreement;
5.2.2 it shall be a condition precedent to any such Transfer (and any
registration thereof) that the transferee agrees in writing
with the other Stockholder 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;
5.2.3 if the transferee ceases to be an Affiliate of SSI, as the case
may be, then the transferor shall cause the transferee to
Transfer to the transferor or another Affiliate of SSI, as the
case may be, all its Shares prior to the date of such cessation
in accordance with this Section 5.2.
5.3 Any attempted Transfer by SSI other than in accordance with this
Agreement shall be void ab initio, and the Company shall not give
---------
effect to any Transfer made in contravention of the provisions of this
Section 5 or any other express provision of this Agreement and shall
not reflect on its records any change in record ownership of the
Shares pursuant to any such attempted Transfer.
6. INTELLECTUAL PROPERTY RIGHTS AS TO SUN AS SSI
13
<PAGE>
6.1 The Company shall promptly notify SSI of any known or suspected
infringement or misappropriation of any Intellectual Property Rights
licensed to the Company by SSI or by SSI's Affiliates which comes to
the attention of the Company. If SSI or its Affiliates do not take
active steps to enforce such Intellectual Property Rights within sixty
(60) days after the giving of such notice, then the Company may
request that SSI and/or its Affiliates enforce such Intellectual
Property Rights against the known or suspected infringer at the
Company's expense. In the event that the Company makes such a
request, the Company shall explain to SSI and/or its Affiliates why
the Company believes that SSI and/or its Affiliates should enforce
such Intellectual Property Rights. SSI and/or its Affiliates shall
consider such request in good faith, but shall have no obligation to
take the requested enforcement action. In the event that SSI and/or
its Affiliates decide to enforce such Intellectual Property Rights in
response to the Company's request, then (i) SSI and/or its Affiliates
shall have sole control over the prosecution and settlement of any
such action, although the Company may if it so desires have counsel of
its own choosing participate in any such action, (ii) the Company
shall pay or reimburse SSI and/or its Affiliates all costs of any such
action (including reasonable attorneys' fees, expert witness fees and
court costs), and (iii) all damages and settlement amounts recovered
as a result of any such action shall be paid first to the Company to
the extent of all costs and expenses incurred by or on behalf of the
Company in connection with such action and the balance, if any, shall
be paid to Sun.
6.2 In the event that at any time during the term of this Agreement, the
Company determines that it believes that any item of Shared Technology
was omitted from Exhibit B of the Technology Sublicense Agreement,
then SSI agrees to negotiate in good faith with the Company with
respect to the amendment of such Exhibit B to include the omitted item
in the definition of Shared Technology.
7. GOVERNING LAW, ARBITRATION AND LIMITATION ON DAMAGES
7.1 This Agreement shall be governed by and construed in all respects in
accordance with the laws (without regard to the laws of conflicts of
law) of the State of California.
7.2 If any dispute arises between the parties in connection with -
7.2.1 the formation or existence of, the implementation of or the
interpretation or application of, the provisions of the
parties' respective rights and obligations in terms of or
arising out of this Agreement or its breach or termination; or
14
<PAGE>
7.2.2 the validity, enforceability, rectification, termination or
cancellation, whether in whole or in part, of this Agreement,
or
7.2.3 any matter affecting the interests of the parties in terms of
this Agreement,
and the parties are unable to resolve their dispute, then any party
shall be entitled to refer the dispute in the first instance, to the
respective nominated senior officers of the Stockholders for
resolution.
7.3 If the matter in dispute shall not have been resolved within thirty
(30) days of it having been so referred under Section 7.2, any
Stockholder may refer the matter in dispute for determination by final
arbitration in Los Angeles, California in accordance with the Rules of
the London Court of International Arbitration ("LCIA") (which Rules
----
are deemed to be incorporated by reference into this clause) by a
neutral arbitrator which shall be selected by the Stockholders
involved in the dispute. If such Stockholders have not selected an
arbitrator acceptable to such Stockholders within fifteen (15) days
after the expiration of the thirty-day period referred to in the
preceding sentence, then each such Stockholder involved in the dispute
shall select an arbitrator (a "Party Arbitrator") within five (5) days
----------------
after expiration of such fifteen (15)-day period. An additional
arbitrator, who shall be the chairman of the tribunal, shall be
appointed by agreement between the Party Arbitrators within thirty
(30) days after the date on which the Party Arbitrators were selected,
failing which, such arbitrator shall be appointed by the relevant
appointing authority under the Rules of the LCIA. The arbitrators
shall establish the procedural rules applicable to the proceedings.
The arbitration shall be governed by the substantive laws of the State
of California, except that matters relating to Section 4 of this
Agreement shall be governed by the substantive laws of the State of
Delaware. The Arbitration shall be conducted in the English language.
Any award of such arbitration shall be final and binding upon the
parties and this Agreement places no restriction on the jurisdiction
in which such award shall be enforced.
7.4 Section 7.3 shall not preclude any party from obtaining interim
injunctive relief on an urgent basis from a court of competent
jurisdiction, pending any decision of the arbitrators under Section
7.3. In addition, the parties hereto acknowledge and agree that they
have no adequate remedy at law for any breach or threatened breach of
any covenant or agreement contained in Section 12 and that any party
may, in addition to the other remedies that may be available to it,
commence proceedings in equity for an injunction preliminarily or
permanently enjoining any other party from breaching or
15
<PAGE>
threatening any such breach of any covenant or agreement contained in
Section 12 hereof. With respect to any such proceeding in equity, it
shall be presumed that the remedies at law or otherwise available to
any party would be inadequate and that it would suffer irreparable
harm as a result of the violation of any provision hereof by any other
party.
7.5 The provisions of this Section -
7.5.1 constitute an irrevocable consent by the parties to any
proceedings in terms hereof and no party shall be entitled to
withdraw therefrom or claim at any such proceedings that it is
not bound by such provisions;
7.5.2 are severable from the rest of this Agreement and shall remain
in effect despite the termination of or invalidity for any
reason of this Agreement.
7.6 In connection with any injunctive relief sought under Section 7.4,
each party to this Agreement, by its execution hereof, (i) hereby
irrevocably submits to the exclusive jurisdiction of the state courts
of the State of Delaware or the United States District Court located
in the State of Delaware, and (ii) 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, any claim that
it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or
execution, that any such proceeding brought in one of the above-named
courts is improper, or that this Agreement or the subject matter
hereof may not be enforced in or by such court. Each party hereto
hereby consents to service of process in any such proceeding in any
manner permitted by Delaware law, and agrees that service of process
by registered or certified mail, return receipt requested, at its
address specified pursuant to Section 13 hereof is reasonably
calculated to give actual notice.
7.7 No Stockholder shall be liable for any indirect, special, incidental
or consequential loss or damage (including, without limitation, loss
of profits or loss of use) suffered by any other Stockholder arising
from or relating to a Stockholder's performance, non-performance,
breach of or default under a covenant, warranty, representation, term
or condition hereof. Each Stockholder waives and relinquishes claims
for indirect, special, incidental or consequential damages.
16
<PAGE>
7.8 No Stockholder shall have the right to recover punitive damages from
the other Stockholder, and each Stockholder hereby waives and
relinquishes any and all punitive damage claims.
7.9 The limitations on liability and damages set forth in Section 7.7 and
7.8 apply to all causes of action that may be asserted under this
Agreement, whether sounding in breach of contract, breach of warranty,
tort, product liability, negligence or otherwise.
8. DURATION AND TERMINATION
8.1 Except as otherwise provided herein, this Agreement shall continue in
full force and effect without time limit until all of the Stockholders
agree in writing to terminate this Agreement or SSI exchanges all of
its Shares for shares of OTV pursuant to the Exchange Agreement.
9. WAIVERS
9.1 No delay in exercising or failure to exercise any right or remedy
under this Agreement shall operate as a waiver thereof nor shall any
single or partial exercise of any right or remedy preclude either the
further exercise thereof or the exercise of any other right or remedy
provided in this Agreement.
9.2 In the event that any party shall expressly waive any breach, default
or omission hereunder, without the prior written consent of the other
parties hereto, no such waiver shall apply to, or operate as, a waiver
of similar breaches, defaults or omissions or be deemed to be a waiver
of any other breach, default or omission hereunder.
10. ASSIGNMENT
No party hereto shall be entitled to transfer this Agreement or any of its
rights and obligations hereunder without the prior written consent of the
other parties, except to a transferee of Shares in accordance with this
Agreement.
11. ENTIRE AGREEMENT
17
<PAGE>
11.1 Effective upon the execution of this Agreement by the parties hereto,
the Prior Stockholders' Agreement shall terminate and cease to have
any further force or effect, and this Agreement shall supercede the
provisions of the Prior Stockholders' Agreement.
11.2 This Agreement constitutes the entire agreement between the parties
hereto concerning the subject matter hereof and supersedes all prior
agreements between the parties concerning the subject matter hereof.
Except as provided herein, no amendment, change or additions hereto
shall be effective or binding on any party unless reduced to writing
and executed by all of the parties hereto.
11.3 Each of the parties acknowledges that in entering into this Agreement
it is not relying on any representation or other statement which is
not set out in this Agreement.
11.4 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Subject to the immediately preceding sentence, this Agreement shall
not run to the benefit of or be enforceable by any Person other than
a party to this Agreement and its successors and permitted assigns.
12. CONFIDENTIALITY
12.1 Each of the parties hereto hereby agrees that it (and its Affiliates)
will maintain in confidence the other parties' Confidential
Information and will not disclose, divulge or otherwise communicate
such Confidential Information to others, or use it for any purpose,
except as otherwise provided or permitted under the terms of the
License Agreements or the Assignment Agreements, and hereby agrees to
exercise reasonable precautions including, without limitation, use of
written agreements to prevent and restrain the unauthorized
disclosure of such Confidential Information by any of its directors,
officers, employees, consultants, subcontractors, sublicensees or
agents. The provisions of this Section 12 will survive termination of
this Agreement. Notwithstanding the foregoing, nothing in this
Section 12.1 is intended to, nor shall it be deemed to, in any way
alter, enlarge or diminish the rights granted to the Company in any
of the License Agreements or Assignment Agreements.
12.2 The provisions of Section 12.1 shall not apply to any Confidential
Information disclosed pursuant to the License Agreements or
Assignment Agreements in accordance therewith or otherwise which:
18
<PAGE>
(a) was rightfully known or used by the receiving entity or its
Affiliates (unless known on account of research or development
done by or on behalf of the disclosing entity and distributed to
the receiving entity or its Affiliates pursuant to
confidentiality restrictions) prior to its date of disclosure to
the receiving entity, as evidenced by the written records of the
receiving entity or its Affiliates;
(b) either before or after the date of the disclosure to the
receiving entity is lawfully disclosed without restriction to the
receiving entity or its Affiliates by an independent,
unaffiliated third party rightfully in possession of the
Confidential Information (but only to the extent of the rights
received from and limitations imposed by such third party);
(c) either before or after the date of the disclosure to the
receiving entity becomes published or available to the public
through no fault or omission on the part of the receiving entity
or its Affiliates;
(d) is required to be disclosed by the receiving entity or its
Affiliates to comply with applicable laws, to defend or prosecute
litigation or to comply with governmental regulations, provided
that the receiving entity provides prior written notice of such
disclosure to the other entities and takes reasonable and lawful
actions to minimize the degree of such disclosure; or
(e) is independently developed by the receiving entity (other than on
account of research or development done on behalf of the
disclosing entity pursuant to confidentiality restrictions)
without reference to the Confidential Information, as evidenced
by written records.
13. NOTICES
13.1 All notices and communications 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 Section 13.2. Unless otherwise
specified herein, each notice or other communication shall be deemed
effective (i) on the date received, if personally delivered, (ii)
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.
19
<PAGE>
13.2 Notices and communications shall be addressed as follows:
if to MIH: Myriad International Holdings BV
Jupiterstraat 13-15
2132 HC Hoofddorp
The Netherlands
Attention: Mr. Allan Rosenzweig
Telecopy No.: 31-23-568-6880
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071-2371
Attention: Siobhan McBreen Burke, Esq.
Telecopy No.: (213) 627-0705
if to OTV: c/o: Myriad International Holdings BV
Jupiterstraat 13-15
2132 HC Hoofddorp
The Netherlands
Attention: Mr. Allan Rosenzweig
Telecopy No.: 31-23-568-6880
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071-2371
Attention: Siobhan McBreen Burke, Esq.
Telecopy No.: (213) 627-0705
if to Sun: Sun Microsystems, Inc.
901 San Antonio Road
Mail Stop PAL1-521
Palo Alto, California 94303
Attention: Laura Fennell, Esq.
20
<PAGE>
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 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, Inc.
401 E. Middlefield Road
Mountain View, California 94043
Attention: President
Telecopy No.: (650) 237-0808
With a copy to:
Davis, Graham & Stubbs, LLP
410 Arapahoe Avenue
Boulder, Colorado 80301
Attention: Jacqueline L. Studer, Esq.
Telecopy No.: (303) 544-5599
21
<PAGE>
or such other address of a party, Person and/or fax number as that
party shall have notified in writing to all other parties in
accordance with Section 13.1
13.3 All notices and communications shall be given and made in the English
language.
14. RELATIONSHIP OF THE STOCKHOLDERS
It is expressly agreed that the relationship of any Stockholders shall be
that of joint venturers and not that of partners. Accordingly, the
business of the Company shall be conducted as the business of the Company,
and no Stockholder shall represent to any Person that such Stockholder is
authorized to act on behalf of any of the other Stockholder or that any
partnership, agency, employment or joint liability exists among the
Stockholders in respect of any Person who is not a party to this Agreement.
15. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, 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.
16. PARENT UNDERTAKING
As inducement to the execution of this Agreement by the parties hereto,
each of Sun and OTVH has executed an unconditional and irrevocable guaranty
in substantially the forms as attached hereto as Schedule 1 and Schedule 2,
---------- ----------
respectively.
[SIGNATURE PAGES FOLLOW]
22
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized representative as of the date first set forth
above.
SUN MICROSYSTEMS, INC.
By: _______________________________________
Title: ____________________________________
SUN TSI SUBSIDIARY, INC.
By: _______________________________________
Title: ____________________________________
OPENTV, INC.
By: _______________________________________
Title: ____________________________________
OPENTV CORP.
By: ________________________________________
Title: _____________________________________
OTV HOLDINGS LIMITED
By:________________________________________
Title:_____________________________________
23
<PAGE>
SCHEDULE 1: Form of Guaranty
GUARANTY
--------
For good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, Sun Microsystems, Inc., a Delaware corporation
("Sun") hereby unconditionally and irrevocably guarantees the full, complete and
- -----
timely performance of all obligations, covenants and agreements of Sun TSI
Subsidiary, Inc., a Delaware corporation ("SSI"), contained in or made pursuant
---
to that certain Amended and Restated Stockholders Agreement (the "Stockholders
------------
Agreement") among OpenTV Corp. a company incorporated in the British Virgin
- ---------
Islands ("OTV"), OTV Holdings Limited, a company incorporated in the British
---
Virgin Islands ("OTVH"), Sun, SSI and OpenTV, Inc., a Delaware corporation (the
----
"Company").
-------
This Guaranty shall be construed in accordance with and governed by
the laws of the State of California. Guarantor (i) hereby irrevocably submits to
the exclusive jurisdiction of the state courts of the State of California or the
United States District Court located in the State of California for the purpose
of any action, claim, cause of action or suit (in contract, tort or otherwise),
inquiry, proceeding or investigation arising out of or based upon this Guaranty
or relating to the subject matter hereof, (ii) 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, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Guaranty or the
subject matter hereof may not be enforced in or by such court and (iii) hereby
agrees not to commence or maintain any action, claim, cause of action or suit
(in contract, tort or otherwise), inquiry, proceeding or investigation arising
out of or based upon this Guaranty or relating to the subject matter hereof
other than before one of the above-named courts nor to make any motion or take
any other action seeking or intending to cause the transfer or removal of any
such action, claim, cause of action or suit (in contract, tort or otherwise),
inquiry, proceeding or investigation to any court other than one of the above-
named courts whether on the grounds of inconvenient forum or otherwise.
Guarantor hereby consents to service of process in any such proceeding in any
manner permitted by California law, and agrees that service of process by
registered or certified mail, return receipt requested, at its address specified
below is reasonably calculated to give actual notice.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
by its duly authorized officer as of this 23rd day of October 1999.
GUARANTOR
SUN MICROSYSTEMS, INC.
By:__________________________
Title:_______________________
-2-
<PAGE>
SCHEDULE 2: Form of Guaranty
GUARANTY
--------
For good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, MIH Limited, a British Virgin Islands corporation
("MIH Ltd.") hereby unconditionally and irrevocably guarantees the full,
--------
complete and timely performance of all obligations, covenants and agreements of
OpenTV Corp., a British Virgin Islands corporation ("OTV"), contained in or made
---
pursuant to that certain Amended and Restated Stockholders Agreement (the
"Stockholders Agreement") among OTV, OTVH, Sun Microsystems, Inc., a Delaware
- -----------------------
corporation ("Sun"), Sun TSI Subsidiary, Inc. ("SSI") and OpenTV, Inc., a
--- ---
Delaware corporation (the "Company").
-------
This Guaranty shall be construed in accordance with and governed by
the laws of England. Guarantor (i) hereby irrevocably submits to the exclusive
jurisdiction of the courts of England for the purpose of any action, claim,
cause of action or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation arising out of or based upon this Guaranty or relating to the
subject matter hereof, (ii) 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, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is improper, or that this Guaranty or the subject matter
hereof may not be enforced in or by such court and (iii) hereby agrees not to
commence or maintain any action, claim, cause of action or suit (in contract,
tort or otherwise), inquiry, proceeding or investigation arising out of or based
upon this Guaranty or relating to the subject matter hereof other than before
one of the above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such action, claim,
cause of action or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation to any court other than one of the above-named courts whether on
the grounds of inconvenient forum or otherwise. Guarantor hereby consents to
service of process in any such proceeding in any manner permitted by English
law, and agrees that service of process by registered or certified mail, return
receipt requested, at its address specified below is reasonably calculated to
give actual notice.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
by its duly authorized officer as of this 23rd day of October 1999.
GUARANTOR
MIH LIMITED
By:__________________________
Title:_______________________
2
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement for OpenTV
Corp. on Form F-1 of our report dated October 23, 1999, except as to the stock
split described in Note 2 which is as of November 15, 1999, relating to the
financial statements of OpenTV Corp. and our reports dated August 9, 1999,
except as to the stock split described in Note 10 which is as of November 15,
1999, relating to the consolidated financial statements and financial statement
schedule of OpenTV, Inc. and our report dated October 29, 1999 relating to the
balance sheet of OpenTV Corp., which appear in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
November 17, 1999
