<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
Com-mission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
Spyglass, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value per share, of Spyglass, Inc. ("Spyglass")
________________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
19,145,579 shares of Spyglass common stock (giving effect to the
exercise of all vested options and warrants to purchase Spyglass common stock as
of December 31, 2000)
________________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$41.375 (the average of the high and low sale prices of the Spyglass
common stock on May 11, 2000 as reported on The Nasdaq National Market)
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
$792,148,331.13
________________________________________________________________________________
(5) Total fee paid:
$158,429.67
________________________________________________________________________________
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
- --------------------------------------------------------------------------------
<PAGE>
________________________________________________________________________________
(1) Amount previously paid:
$209,128.00
________________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
F-4
________________________________________________________________________________
(3) Filing Party:
OpenTV Corp.
________________________________________________________________________________
(4) Date Filed:
5/15/2000
________________________________________________________________________________
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
OPENTV CORP./SPYGLASS, INC. MERGER
To the Stockholders of OpenTV Corp. ("OpenTV") and Spyglass, Inc.
("Spyglass"):
After careful consideration, the boards of directors of OpenTV and Spyglass
have unanimously approved a merger between OpenTV and Spyglass.
In the merger, each share of Spyglass will be exchanged for 0.7236 of an
OpenTV Class A Ordinary Share. OpenTV Class A Ordinary Shares are traded on
the Nasdaq National Market ("NASDAQ") and on the Official Segment of Amsterdam
Exchanges N.V.'s Stock Market ("AEX") under the trading symbol "OPTV", and on
, 2000, the closing price of OpenTV Class A Ordinary Shares was $ per
share on NASDAQ and $ per share on the AEX.
Following the merger Jan Steenkamp will continue as president and chief
executive officer of OpenTV. Doug Colbeth, the chairman of the board and chief
executive officer of Spyglass, will become an executive vice president of
OpenTV. Marty Leamy, the president and chief operating officer of Spyglass,
will become general manager of a newly formed Consulting Services business
unit of OpenTV.
The merger cannot be completed unless a quorum of the outstanding shares of
OpenTV and Spyglass are represented in person or by proxy at each of the
stockholder meetings described below, and the holders of shares representing a
majority of the votes represented by the shares present and entitled to vote
at the OpenTV meeting and the holders of a majority of the outstanding shares
of Spyglass vote in favor of the proposals presented relating to the merger.
The attached joint proxy statement/prospectus provides detailed information
concerning OpenTV, Spyglass, the merger, proposals related to the merger and
other proposals related to OpenTV's annual meeting. Please give all of the
information contained in the joint proxy statement/prospectus your careful
attention. In particular, you should carefully consider the discussion in the
section entitled "Risk Factors" beginning on page 6 of this joint proxy
statement/prospectus.
After careful consideration, the boards of directors of both OpenTV and
Spyglass have unanimously determined the merger to be fair to the respective
stockholders of their companies and in their best interests. The boards of
directors of both companies have approved the merger agreement and unanimously
recommend its adoption to the respective stockholders of their companies.
Stockholders of Spyglass and OpenTV are cordially invited to attend one of
two stockholder meetings to vote on the merger:
. The special meeting of Spyglass stockholders will be held on , 2000
at 10:00 a.m. local time at the offices of Hale and Dorr LLP, 26th
Floor, 60 State Street, Boston, MA 02109. Only stockholders who hold
shares of Spyglass at the close of business on , 2000 will be
entitled to vote at this special meeting.
. The annual meeting of OpenTV stockholders will be held on , 2000 at
9:00 a.m. local time at OpenTV's offices at 401 East Middlefield Road,
Mountain View, CA 94043. Only stockholders who hold shares of OpenTV at
the close of business on , 2000 will be entitled to vote at this
annual meeting.
Please use this opportunity to take part in the affairs of OpenTV and
Spyglass by voting on the merger. Whether or not you plan to attend the OpenTV
or Spyglass meeting, please complete, sign, date and return the accompanying
proxy in the enclosed self-addressed stamped envelope. Returning the proxy
does NOT deprive you of your right to attend the appropriate meeting and to
vote your shares in person. YOUR VOTE IS VERY IMPORTANT.
We appreciate your consideration of this matter.
Jan Steenkamp Douglas P. Colbeth
President and Chief Executive Officer
Chairman of the Board and Chief Executive
OpenTV Corp. Officer
Spyglass, Inc.
Neither the Securities and Exchange Commission nor any State
Securities Commission has Approved or Disapproved of These
Securities or Passed Upon the Adequacy or Accuracy of This Joint
Proxy Statement/Prospectus. Any Representation to the Contrary is
a Criminal Offense.
This joint proxy statement/prospectus is dated , 2000 and was first
mailed to stockholders on or about , 2000
<PAGE>
Sources of Additional Information
This joint proxy statement/prospectus incorporates important business and
financial information about Spyglass that is not included or delivered with
this document. This information is available without charge to holders of
OpenTV ordinary shares and holders of Spyglass common stock upon written or
oral request. Contact Spyglass at Naperville Corporate Center, 1240 East Diehl
Road, Naperville, Illinois 60563, Attention: Bruce Beerbower, Manager of
Investor Relations. Spyglass' telephone number is (630) 245-6500.
To obtain timely delivery of requested documents prior to the special
meeting of Spyglass stockholders and annual meeting of OpenTV stockholders,
you must request them no later than , 2000, which is five business days
prior to the date of the meetings.
Also see "Where You Can Find More Information" on page 130 of this joint
proxy statement/prospectus.
<PAGE>
SPYGLASS, INC.
Naperville Corporate Center
1240 East Diehl Road
Naperville, Illinois 60563
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000 AT 10:00 A.M.
To Our Stockholders:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Spyglass,
Inc. ("Spyglass") will be held on , 2000, at 10:00 a.m., Eastern time, at
the offices of Hale and Dorr LLP, 60 State Street, 26th Floor, Boston, MA
02109 to:
1. Consider and vote on the proposed merger of Spyglass with OpenTV
Corp. ("OpenTV"), to be effectuated by the merger of Sonnet Acquisition
Corp., a wholly-owned subsidiary of OpenTV, with and into Spyglass, as
contemplated by the Agreement and Plan of Merger and Reorganization dated
as of March 26, 2000, among OpenTV, Sonnet Acquisition Corp. and Spyglass.
In the merger, OpenTV will issue 0.7236 of an OpenTV Class A Ordinary Share
in exchange for each outstanding share of Spyglass common stock.
2. Transact such other business as may properly come before the special
meeting or any adjournment thereof.
The accompanying joint proxy statement/prospectus describes the proposed
merger in more detail. You are encouraged to read the entire document
carefully.
The board of directors has fixed the close of business on , 2000, as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting.
By Order of the Board of Directors
of Spyglass, Inc.,
Douglas P. Colbeth
Chairman of the Board and Chief
Executive Officer
Naperville, Illinois
, 2000
Whether or not you expect to be present at the meeting, to assure that
your shares are represented at the meeting, please mark, date and sign the
enclosed proxy and return it in the envelope which has been provided. No
postage is required for mailing in the United States. In the event you are
able to attend the meeting, you may revoke your proxy and vote your shares
in person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS FOR OPENTV STOCKHOLDERS AND SPYGLASS STOCKHOLDERS... 1
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS........................... 3
Forward-Looking Statements.............................................. 3
The Companies........................................................... 3
Summary of the Merger................................................... 4
RISK FACTORS.............................................................. 6
General risks relating to the proposed merger........................... 6
Risks relating to the combined company.................................. 9
Risks relating to the OpenTV business................................... 11
Risks relating to the Spyglass business................................. 18
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA..................... 25
COMPARATIVE PER SHARE DATA................................................ 31
MARKET PRICE AND DIVIDEND INFORMATION..................................... 32
THE OPENTV MEETING........................................................ 34
THE SPYGLASS MEETING...................................................... 37
THE MERGER................................................................ 40
Background of the merger................................................ 40
Spyglass' reasons for the merger........................................ 42
Recommendation of the Spyglass board of directors....................... 44
OpenTV's reasons for the merger......................................... 44
Recommendation of OpenTV's Board of Directors........................... 46
Opinion of Spyglass' financial advisor.................................. 46
Opinion of OpenTV's financial advisor................................... 53
Interests of certain persons in the merger.............................. 57
Structure of the merger and conversion of Spyglass common stock......... 61
Completion and effectiveness of the merger.............................. 61
Exchange of Spyglass stock certificates for OpenTV stock certificates... 61
No dividends; Surrender of Certificates ................................ 61
Material United States federal income tax considerations of the merger.. 62
Accounting treatment of the merger...................................... 65
Regulatory filings and approvals required to complete the merger........ 65
Certain securities laws considerations.................................. 66
No appraisal or dissenters' rights...................................... 66
Listing on NASDAQ of OpenTV Class A Ordinary Shares to be issued in the
merger................................................................. 66
Delisting and deregistration of Spyglass common stock after the merger.. 66
THE MERGER AGREEMENT...................................................... 67
General................................................................. 67
The exchange ratio and treatment of Spyglass common stock............... 67
Treatment of restricted stock of Spyglass............................... 67
Treatment of Spyglass stock options and warrants........................ 67
Exchange of certificates................................................ 68
Representations and warranties.......................................... 68
Spyglass' conduct of business before completion of the merger........... 70
OpenTV's conduct of business before completion of the merger............ 71
No solicitation by Spyglass............................................. 71
Spyglass stockholder meeting............................................ 73
Employee benefits matters............................................... 73
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Conditions to completion of the merger.................................. 73
Termination of the merger agreement..................................... 74
Payment of termination fee.............................................. 75
Operations after the merger............................................. 76
Extension, waiver and amendment of the merger agreement................. 76
AGREEMENTS RELATED TO THE MERGER.......................................... 77
Company stockholder agreements.......................................... 77
Parent voting agreement................................................. 77
Lock-up agreement....................................................... 78
Spyglass affiliate agreements........................................... 78
COMPARISON OF STOCKHOLDER RIGHTS AND CORPORATE GOVERNANCE MATTERS......... 79
Description of ordinary shares or common shares......................... 79
Description of preferred stock.......................................... 80
Annual meeting of stockholders.......................................... 80
Special meeting of stockholders......................................... 81
Action by written consent in lieu of a stockholder's meeting............ 81
Record date for determining stockholders................................ 81
Advance notice provisions for board nomination and other stockholders'
business at any stockholder annual meetings determining stockholders... 82
Number of directors..................................................... 83
Classified board of directors........................................... 83
Removal of directors.................................................... 83
Board of directors vacancies............................................ 84
Indemnification......................................................... 84
Amendment of corporate documents........................................ 85
Limitation of liability of directors.................................... 85
CERTAIN INFORMATION REGARDING OPENTV...................................... 86
Forward-looking statements.............................................. 86
Overview of OpenTV's business........................................... 86
Strategy................................................................ 86
Customers and industry relationships.................................... 87
Network operators....................................................... 88
Set-top box manufacturer................................................ 89
Conditional access vendors.............................................. 90
Independent application developers...................................... 90
Digital television set manufacturers.................................... 90
Strategic partners...................................................... 90
The OpenTV system....................................................... 92
OpenTV Runtime.......................................................... 92
Hardware Porting Kit.................................................... 94
OpenStreamer............................................................ 94
Application development tools........................................... 94
Applications............................................................ 95
Customer service and support............................................ 96
Sales and marketing..................................................... 96
Principal investors..................................................... 97
Competition............................................................. 97
Intellectual property................................................... 97
Employees............................................................... 97
Facilities.............................................................. 98
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Legal proceedings...................................................... 98
OPENTV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 99
OPENTV'S MANAGEMENT...................................................... 107
OPENTV'S PRINCIPAL SHAREHOLDERS.......................................... 120
OPENTV'S TRANSACTIONS WITH RELATED PARTIES............................... 122
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF OPENTV STOCKHOLDERS...... 127
LEGAL MATTERS............................................................ 129
EXPERTS.................................................................. 129
STOCKHOLDER PROPOSALS.................................................... 129
WHERE YOU CAN FIND MORE INFORMATION...................................... 130
CONSOLIDATED FINANCIAL STATEMENTS........................................ F-1
</TABLE>
<TABLE>
<C> <S> <C>
ANNEX A The Merger Agreement
ANNEX B Opinion of OpenTV's Financial Advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Opinion of Spyglass' Financial Advisor, FleetBoston Robertson
ANNEX C Stephens Inc.
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS FOR OPENTV STOCKHOLDERS
AND SPYGLASS STOCKHOLDERS
Q: Why are the companies proposing to merge?
A: OpenTV and Spyglass are proposing to merge because we believe the
resulting combination will create a stronger, more competitive company
capable of achieving greater financial strength, operational
efficiencies, earning power and growth potential than either company
would have on its own.
We also believe that Spyglass' complementary technology offerings,
professional services capabilities, and United States geographical
presence, would provide an opportunity for OpenTV to accelerate its
revenue growth and extend its leadership in the interactive television
industry. We also believe that Spyglass will be able to leverage
OpenTV's global presence, international sources of revenue, customer
base and distribution channels to accelerate Spyglass' revenue growth
for its products and services.
Q: What will be the effect of the merger on the stockholders of OpenTV and
Spyglass? (See page 61)
A: Upon consummation of the merger Spyglass will become a wholly-owned
subsidiary of OpenTV. After the merger, and as if the merger occurred on
March 31, 2000, on a fully-diluted basis, the current stockholders of
OpenTV would own approximately 82% of the economic interests in OpenTV
and the former stockholders of Spyglass would own approximately 18% of
the economic interests in OpenTV.
Q: What will Spyglass common stockholders receive in the merger?
A: When the merger is completed, holders of Spyglass common stock will
receive 0.7236 of an OpenTV Class A Ordinary Share in exchange for each
share of Spyglass common stock. No fractional shares will be issued.
Spyglass common stockholders that otherwise would receive fractional
shares will instead receive cash in an amount based on the average
closing price, as reported on NASDAQ, of OpenTV Class A Ordinary Shares
for the five trading days immediately preceding the last full trading
day prior to the effective date of the merger.
OpenTV will also assume all options and warrants to purchase shares of
Spyglass common stock in connection with the merger. The number of
OpenTV Class A Ordinary Shares purchasable under each post-merger option
or warrant will be calculated using the merger exchange ratio of 0.7236
of an OpenTV Class A Ordinary Share for each share of Spyglass.
Q: Does the board of directors of OpenTV recommend voting in favor of the
issuance of OpenTV shares in the merger?
A: Yes. After careful consideration, OpenTV's board of directors
unanimously recommends that its stockholders vote in favor of the
issuance of OpenTV Class A Ordinary Shares to the stockholders of
Spyglass in the merger.
Q: Does the board of directors of Spyglass recommend voting in favor of the
merger?
A: Yes. After careful consideration, Spyglass' board of directors
unanimously recommends that its stockholders vote in favor of the merger
agreement and the proposed merger.
Q: Are there risks I should consider in deciding whether to vote for the
merger?
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors" beginning on page 6.
1
<PAGE>
Q: What do I need to do now? (See pages 35 and 37)
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at your meeting.
If you do not include instructions on how to vote your properly signed
proxy your Spyglass common stock will be voted "FOR" approval of the
merger.
If you do not include instructions on how to vote your properly signed
proxy your OpenTV ordinary shares will be voted "FOR" approval of the
merger and of the other proposals described in this joint proxy
statement/prospectus to be considered at the meeting of OpenTV
stockholders.
Spyglass stockholders, please do not send your Spyglass stock
certificates at this time.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me? (See pages 35 and 38)
A: Your broker cannot vote your shares without instructions from you on how
to vote. Therefore, it is important that you follow the directions
provided by your broker regarding how to instruct your broker to vote
your shares. If you fail to provide your broker with instructions, it
will have the same effect as a vote against the merger agreement and the
merger and for OpenTV stockholders, the same effect as a vote against
the other proposals to be considered at the meeting of OpenTV's
stockholders.
Q: What do I do if I want to change my vote? (See pages 35 and 38)
A: If you want to change your vote, send the secretary of OpenTV or
Spyglass, as applicable, a later-dated, signed proxy card before your
meeting or attend the meeting in person. You may also revoke your proxy
by sending written notice to the applicable secretary before the
meeting. If you have signed a stockholder voting agreement in connection
with the merger agreement, you have agreed not to revoke your proxy.
Q: As a Spyglass stockholder, should I send in my Spyglass stock certificates
now? (See page 68)
A: No. After the merger is completed, OpenTV will send you written
instructions for exchanging your Spyglass stock certificates for OpenTV
stock certificates.
Q: When do you expect the merger to be completed? (See page 61)
A: OpenTV and Spyglass are working toward completing the merger as quickly
as possible. We hope to complete the merger as early as during the
second calendar quarter of 2000.
Q: Will I recognize an income tax gain or loss on the merger? (See page 62)
A: For both OpenTV stockholders and Spyglass stockholders, we expect that
if the merger is completed, you will not recognize gain or loss for
United States federal income tax and British Virgin Islands tax purposes
in connection with the merger, except that Spyglass stockholders will
recognize gain or loss with respect to cash received instead of
fractional shares. However, all stockholders are urged to consult their
own tax advisor to determine their particular tax consequences.
Q: Are the Spyglass or OpenTV stockholders entitled to dissenters' or
appraisal rights? (See page 66)
A: No.
Q: Whom should I call with questions?
A: OpenTV stockholders should call OpenTV's Investor Relations department,
at (650) 429-5500, with any questions about the merger.
Spyglass stockholders should call Bruce Beerbower, Manager of Investor
Relations, at (630) 245-6656, with any questions about the merger.
2
<PAGE>
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus pertains to the merger of a wholly-
owned subsidiary of OpenTV with and into Spyglass, and it is being sent to the
holders of Spyglass common stock and holders of OpenTV ordinary shares. Such
holders are referred to as "Stockholders" in this joint proxy
statement/prospectus. This summary may not contain all of the information that
is important to you. You should read carefully this entire document, including
the merger agreement and other documents attached to this joint proxy
statement/prospectus and the other documents referenced in it for a more
complete understanding of the merger. In particular, you should read the
documents attached to this joint proxy statement/prospectus, including the
merger agreement (and the exhibits thereto), which is attached as Annex A.
Forward-Looking Statements
This joint proxy statement/prospectus includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements
involve risks and uncertainties, including, among other things, statements
regarding anticipated costs and expenses, product and service development and
relationships with strategic partners. These forward-looking statements
include, among others, those statements including the words "expects,"
"anticipates," "intends," "believes" and similar language. Actual results may
differ significantly from those projected in the forward-looking statements.
Factors that might cause or contribute to such differences include, but are not
limited to, those discussed in the section entitled "Risk Factors."
The Companies
OpenTV Corp.
401 East Middlefield Road
Mountain View, CA 94043
(phone) 650-429-5500
http://www.opentv.com
OpenTV is a leading worldwide provider of software that enables digital
interactive television. OpenTV provides a complete end-to-end solution for the
development and delivery of interactive services via digital satellite, cable
and terrestrial broadcast. OpenTV set-top box software has been shipped with or
installed in more than 7.8 million digital set-top boxes worldwide. To date,
OpenTV software solutions have been selected by 28 television network operators
worldwide, including British Sky Broadcasting (BSkyB) in the United Kingdom,
TPS and Lyonaise in France, Via Digital in Spain, Multichoice in Africa, Stream
in Italy, Galaxy in Latin America and EchoStar's DISH Network(TM) in the United
States.
Other than specific references to OpenTV, Inc. or any other OpenTV
subsidiary, any reference to OpenTV in this joint proxy statement/prospectus
includes OpenTV Corp. and its direct and indirect subsidiaries.
Spyglass, Inc.
Naperville Corporate Center
1240 East Diehl Road
Naperville, IL 60563
(phone) 630-505-1010
http://www.spyglass.com
Spyglass is a leading provider of strategic Internet consulting, software
and professional services that enable content providers, service operators and
device manufacturers to capitalize on the potential of the Internet. Market-
leading companies using Spyglass solutions include Fujitsu, GTE, Microsoft,
Motorola, NEC, Nokia, Sony, Thomson Consumer Electronics, WorldGate and Xerox.
Spyglass has regional offices in Lexington, Massachusetts, Silicon Valley,
California, and London, England, along with a wholly owned subsidiary in Tokyo,
Japan.
3
<PAGE>
Summary of the Merger
The Merger (see page 67)
In the merger, Spyglass will merge with a wholly-owned subsidiary of
OpenTV, called Sonnet Acquisition Corp. Spyglass will survive the merger as a
wholly-owned subsidiary of OpenTV. Following the merger, Spyglass common
stockholders will receive, in exchange for each of their shares, 0.7236 of an
OpenTV Class A Ordinary Share.
The merger agreement is attached to this joint proxy statement/prospectus
as Annex A. You are encouraged to read it carefully.
Conditions to completion of the merger (see page 73)
OpenTV's and Spyglass' respective obligations to complete the merger are
subject to the satisfaction or waiver of closing conditions.
If either OpenTV or Spyglass waives any conditions, we will each consider
the facts and circumstances at that time and determine whether a
resolicitation of proxies from our respective stockholders is appropriate.
Vote required for approval
The holders of shares representing a majority of the votes represented by
the OpenTV ordinary shares present or represented by proxy at the OpenTV
stockholder's meeting must approve the issuance of OpenTV Class A Ordinary
Shares in the merger. OpenTV stockholders are entitled to cast one vote per
share of OpenTV Class A Ordinary Shares owned as of the record date and ten
votes per share of Class B Ordinary Shares owned as of the record date.
Directors, executive officers and their affiliates, of OpenTV beneficially
hold 17.3% of the outstanding Class A Ordinary Shares and 100.0% of the Class
B Ordinary Shares. An OpenTV stockholder holding shares representing
approximately 95% of the votes represented by outstanding OpenTV ordinary
shares as of the record date has agreed to vote its ordinary shares of OpenTV
in favor of the issuance of Class A Ordinary Shares in the merger.
The holders of a majority of the outstanding shares of Spyglass common
stock must approve the merger agreement and the merger. Directors, executive
officers and their affiliates, of Spyglass hold approximately % of the
outstanding Spyglass common stock. Spyglass stockholders holding approximately
% of the outstanding common stock as of the record date have agreed to vote
all their shares in favor of the merger agreement and the merger.
Termination of the merger agreement (see page 74)
OpenTV and Spyglass each have the right to terminate the merger agreement
under certain circumstances. In certain cases, termination of the merger
agreement will require payment of a termination fee to OpenTV by Spyglass.
Directors and chief executive officer of the combined company following the
merger (see page 60)
Following the merger, the board of directors of the combined company will
consist of the then current members of OpenTV's board of directors.
Following the merger, Jan Steenkamp, the current President and Chief
Executive Officer of OpenTV, will continue to be President and Chief Executive
Officer of the combined company.
Opinions of OpenTV's and Spyglass' financial advisors (see pages 46 and 53)
In connection with the merger, OpenTV's board of directors considered,
among other factors (see pages 44 to 46), the opinion it received from its
financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as to
the fairness, from a financial point of view, to OpenTV, of the exchange ratio
provided for in the merger. Spyglass' board of directors considered, among
other factors (see pages 42 to 43), the opinion it received from its financial
advisor, FleetBoston Robertson Stephens Inc., as to the fairness, from a
financial point of view, to the
4
<PAGE>
holders of Spyglass common stock, of the exchange ratio. The full text of the
written opinions of the financial advisors are attached to the back of this
document as Annex B and Annex C, and should be read carefully in their
entireties to understand the procedures followed, the assumptions made, matters
considered, and qualifications and limitations on the review undertaken in
providing the opinions. The opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated is directed to the OpenTV board and the opinion of FleetBoston
Robertson Stephens Inc. is directed to the Spyglass board, and these opinions
do not address the prices at which OpenTV's common stock will trade after the
proposed merger and do not constitute a recommendation to any stockholder as to
how to vote with respect to any matter relating to the proposed merger.
United States federal income tax and British Virgin Islands tax consequences of
the merger (see pages 62 and 65)
We have structured the merger so that, in general, OpenTV, OpenTV's
stockholders, Spyglass and Spyglass' stockholders will not recognize gain or
loss for United States federal or British Virgin Islands income tax purposes in
the merger, except for taxes payable because of cash received by Spyglass
stockholders instead of fractional shares. It is a condition to the merger that
both OpenTV and Spyglass receive legal opinions to the effect that the merger
will constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code.
Accounting treatment of the merger (see page 65)
OpenTV intends to account for the merger as a "purchase" for financial
accounting purposes, in accordance with accounting principles generally
accepted in the United States. As a result, a significant amount of goodwill is
expected to be created, which will be amortized to expense over five years.
Interests of certain persons in the merger (see page 57)
When considering the recommendations of OpenTV's and Spyglass' boards of
directors, you should be aware that certain OpenTV and Spyglass directors,
officers and stockholders have interests in the merger that are different from,
or are in addition to, yours. These interests include the acceleration of
options held by various Spyglass officers and directors, the employment of
certain Spyglass officers by OpenTV after the merger and the indemnification of
directors and officers of Spyglass and OpenTV against certain liabilities both
before and after the merger.
No appraisal or dissenters' rights (see page 66)
Under Delaware law, stockholders of Spyglass are not entitled to appraisal
rights in connection with the merger.
Stockholders of OpenTV are not entitled to dissenters' rights in connection
with the merger.
Restrictions on the ability of Spyglass stockholders to sell OpenTV stock after
the merger (see page 66)
All OpenTV ordinary shares received by Spyglass stockholders in connection
with the merger will be freely transferable unless the holder is considered an
affiliate of either Spyglass or OpenTV under the Securities Act of 1933, as
amended ("Securities Act"). Shares of OpenTV held by affiliates may only be
sold pursuant to a registration statement or an exemption from the registration
requirements of the Securities Act.
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RISK FACTORS
The merger involves a high degree of risk. By voting in favor of the
merger, current Spyglass stockholders will be choosing to invest in OpenTV
Class A Ordinary Shares, and current OpenTV stockholders will face dilution of
their ownership interest in OpenTV. An investment in OpenTV Class A Ordinary
Shares involves a high degree of risk. In addition to the other information
contained or incorporated by reference in this joint proxy
statement/prospectus, you should carefully consider all of the following risk
factors relating to the proposed merger, the combined company, OpenTV and
Spyglass, in deciding whether to vote for the merger.
General risks relating to the proposed merger
OpenTV and Spyglass may not achieve the benefits they expect from the
merger which may have an adverse effect on the combined company's business,
financial condition and operating results and could result in loss of key
personnel.
The combined company will need to overcome significant issues in order to
realize any benefits or synergies from the merger, including the timely,
efficient and successful execution of a number of post-merger events. Key
events include:
. integrating the operations of the two companies;
. retaining and assimilating the key personnel of each company;
. offering the existing products and services of each company to the other
company's customers;
. retaining the existing customers and strategic partners of each company;
. developing new services that utilize the assets of both companies; and
. maintaining uniform standards, controls, procedures and policies.
The successful execution of these post-merger events will involve
considerable risk and may not be successful. These risks include:
. the potential disruption of the combined company's ongoing business and
distraction of its management;
. the difficulty of incorporating acquired technology and rights into the
combined company's products and services;
. unanticipated expenses related to integration;
. the impairment of relationships with employees and customers as a result
of any integration of new management personnel; and
. potential unknown liabilities associated with the acquired or the
acquiring business.
The combined company may not succeed in addressing these risks or any other
problems encountered in connection with the merger.
Spyglass stockholders will receive a fixed number of OpenTV Class A Ordinary
Shares despite changes in the market value of Spyglass common stock or OpenTV
Class A Ordinary Shares which at the time of the merger may be significantly
less than at the time of the announcement of the merger.
Upon the merger's completion, each share of Spyglass common stock will be
exchanged for 0.7236 of an OpenTV Class A Ordinary Share. There will be no
adjustment for changes in the market price of either Spyglass common stock or
OpenTV Class A Ordinary Shares. In addition, neither Spyglass nor OpenTV may
terminate the merger agreement or "walk away" from the merger solely because
of changes in the market price of OpenTV Class A Ordinary Shares. Accordingly,
the specific dollar value of OpenTV Class A Ordinary Shares that
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Spyglass stockholders will receive upon the merger's completion will depend on
the market value of OpenTV Class A Ordinary Shares when the merger is
completed and may decrease from the date Spyglass stockholders submit their
respective proxies. The share price of OpenTV Class A Ordinary Shares is by
nature subject to the general price fluctuations in the market for publicly-
traded equity securities and has experienced significant volatility. OpenTV
and Spyglass urge you to obtain recent market quotations for OpenTV Class A
Ordinary Shares and Spyglass common stock. OpenTV cannot predict or give any
assurances as to the market price of OpenTV Class A Ordinary Shares at any
time before or after the completion of the merger.
The market price of OpenTV Class A Ordinary Shares may decline as a result of
the merger.
The market price of OpenTV Class A Ordinary Shares may decline as a result
of the merger for a number of reasons including if:
. the integration of OpenTV and Spyglass is unsuccessful;
. the premium offered by OpenTV relative to Spyglass' current stock price
may not be viewed favorably by the market;
. OpenTV does not achieve the perceived benefits of the merger as rapidly
or to the extent anticipated by financial or industry analysts; or
. the effect of the merger on OpenTV's financial results is not consistent
with the expectations of financial or industry analysts.
As a result of the merger, the combined company may not be able to
successfully retain OpenTV's or Spyglass' employees.
The integration of the employees of OpenTV and Spyglass will be a
complicated and disruptive process. As a result during the post-merger period,
the combined company may have difficulties retaining its employees. In
particular, upon the effectiveness of the merger, other than certain Spyglass
executives and employees who will receive a twenty-five percent (25%)
acceleration in their then unvested Spyglass options, substantially all of
Spyglass' employees will receive a fifty percent (50%) acceleration in their
then unvested Spyglass options. After completion of the merger, the
acceleration of these Spyglass' options may significantly limit the combined
company's ability to retain Spyglass' prior employees and if the combined
company is unable to do so, the combined company may not achieve certain
significant combined benefits contemplated by the merger.
Customers of OpenTV and Spyglass, including Microsoft, may delay or cancel
orders, or seek to modify existing relationships, as a result of concerns over
the merger.
The announcement and closing of the merger could cause customers and
potential customers of OpenTV and Spyglass to delay or cancel contracts for
products and services. Moreover, they may seek to modify their relationship
with Spyglass because they deem themselves competitors of OpenTV. In
particular, because Microsoft is a competitor of OpenTV, OpenTV believes that
Microsoft may seek to modify its existing relationship with Spyglass. Such a
delay or cancellation of orders or modification could have an adverse effect
on the business, results of operations and financial condition of the combined
company.
As a result of the merger, Motorola may seek to modify the terms of its
existing Acadia relationship with Spyglass and the combined company may lose
the revenues and employees associated with Acadia.
In fiscal 1999, approximately 12% of Spyglass' revenue came from, and at
March 31, 2000, 36 employees were employed by, its Acadia Digital Integration
Service Center. Acadia was created as a joint venture between Spyglass and
Motorola to provide integration services for third parties developing
applications for Motorola's digital set-top boxes. In accordance with the
terms of the joint venture's existing operating agreement, the consummation of
the merger will enable Motorola to exercise its option to purchase, at fair
market value, Spyglass' 90% interest in Acadia. OpenTV and Spyglass believe
that Motorola, which is currently a large indirect investor in OpenTV through
its acquisition of General Instrument (see "OpenTV's Principal Stockholders"),
may seek to modify the terms of the joint venture after completion of the
merger, including by exercising its option to purchase Acadia. If Spyglass'
relationship with Motorola is modified, the combined company may lose some or
all of the revenues and employees associated with Acadia.
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The merger could adversely affect combined financial results.
OpenTV expects to incur direct transaction costs of approximately $13.0
million in connection with the merger. If the benefits of the merger do not
exceed the costs associated with the merger, including any dilution to
OpenTV's stockholders resulting from the issuance of shares in connection with
the merger, OpenTV's financial results could be adversely affected. In
addition, because this transaction will be treated as a "purchase" for
accounting purposes, OpenTV's future earnings per share, inclusive of goodwill
amortization, will be significantly and adversely affected during the five
years following the closing of the merger.
Failure to complete the merger could negatively impact Spyglass' and/or
OpenTV's stock price, future business or operations.
If the merger is not completed for any reason, Spyglass and OpenTV may be
subject to a number of material risks, including the following:
. Spyglass may be required under certain circumstances to pay OpenTV a
termination fee of $74 million and expenses;
. the price of Spyglass common stock and/or OpenTV Class A Ordinary Shares
may decline to the extent that the relevant current market price
reflects a market assumption that the merger will be completed; and
. costs related to the merger, such as legal, accounting, certain
financial advisory and financial printing fees, must be paid even if the
merger is not completed.
Further, if the merger is terminated and either company's board of
directors determines to seek another merger or business combination, there can
be no assurance that it will be able to find a partner on terms as attractive
as those provided for in the merger agreement. In addition, while the merger
agreement is in effect and subject to very narrowly defined exceptions,
Spyglass is prohibited from soliciting, initiating or encouraging or entering
into certain extraordinary transactions, such as a merger, sale of assets or
other business combination, other than with OpenTV.
Spyglass' and OpenTV's officers and directors have certain interests which may
be different from the interests of Spyglass' and OpenTV's stockholders that
could influence them to support or approve the merger.
The officers and directors of Spyglass and OpenTV participate in
arrangements and have continuing indemnification against liabilities that
provide them with interests in the merger that may be different from, or in
addition to, those of the stockholders of Spyglass and OpenTV, including the
following:
. The terms of Spyglass' existing stock option agreements with its
employees provide for the acceleration of the vesting of 50% of unvested
options upon consummation of the merger. OpenTV has entered into
employment agreements with the following Spyglass executives: Nigel
Bennet, Doug Colbeth, Mark Huttemann, Mike Lambert, Marty Leamy, Randy
Littleson, and Anup Murarka. These employment agreements substitute
existing arrangements with these employees and provide for, among other
things, the acceleration of vesting of 25% of unvested options, the
grant of additional options following the closing and certain severance
benefits in the event of the termination of their employment under
certain circumstances following the merger. Other Spyglass executives
and key employees may also enter into similar employment arrangements
with OpenTV.
. Pursuant to the terms of Spyglass' existing stock option agreements with
its directors, the vesting of the options held by the non-employee
directors of Spyglass will accelerate in full upon consummation of the
merger.
. OpenTV has agreed to cause the surviving corporation in the merger to
indemnify each Spyglass officer and director against liabilities arising
out of such person's service as an officer or director. OpenTV will
cause the surviving corporation to maintain officers' and directors'
liability insurance to cover any such liabilities for the next six
years.
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. Spyglass and OpenTV have agreed that following the merger, OpenTV's
directors will remain directors of the combined company. Spyglass and
OpenTV have also agreed that Jan Steenkamp will continue as president
and chief executive officer of OpenTV and that Doug Colbeth, chairman of
the board and chief executive officer of Spyglass, will become an
executive vice president of OpenTV and Marty Leamy, the president and
chief operating officer of Spyglass, will become general manager of a
newly formed Consulting Services business unit of OpenTV.
For the above reasons, the directors and officers of Spyglass and OpenTV
could be more likely to vote to approve the merger agreement than if they did
not hold these interests. Spyglass and OpenTV stockholders should consider
whether these interests may have influenced these directors and officers to
support or recommend the merger.
Risks relating to the combined company
Unanticipated fluctuations in the combined company's quarterly operating
results could affect the combined company's stock price.
OpenTV and Spyglass believe that quarter-to-quarter comparisons of each of
its financial results are not necessarily meaningful indicators of the future
operating results of the combined company and should not be relied on as an
indication of future performance. If the combined company's quarterly
operating results fail to meet the expectations of analysts, the trading price
of OpenTV Class A Ordinary Shares following the merger could be negatively
affected. Each of OpenTV's and Spyglass' quarterly operating results have
varied substantially in the past and those of the combined company may vary
substantially in the future depending upon a number of factors described below
and elsewhere in this section of this joint proxy statement/prospectus,
including many that are beyond the combined company's control.
The combined company's operating results may vary from quarter to quarter
as a result of a number of factors, including:
. The ability to enter into licensing and services agreements with new and
existing customers;
. The number, size and scope of network operators deploying OpenTV-enabled
interactive services and the associated rollout to subscribers;
. The rate of subscriber growth of network operators offering OpenTV-
enabled interactive services;
. Changes in the historically strong relationships of OpenTV with network
operators;
. Increased competition in general and any changes in the combined
company's pricing policies, relative to the historical policies of
OpenTV and Spyglass individually, that may result from increased
competitive pressures;
. Potential downturns in the combined company's customers' businesses, in
the domestic or international markets;
. Changes in the mix of revenue attributable to domestic and international
sales;
. Changes in the mix of revenue attributable to higher-margin software
license revenue as opposed to substantially lower-margin service
revenue;
. The rate of expansion of the combined company's sales and support
organizations;
. Varying budgeting cycles of the combined company's customers and
potential customers;
. The success of the transition into and management of the combined
company;
. The combined company's ability to develop and introduce on a timely
basis new or enhanced versions of its products that can compete
favorably in the marketplace;
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. The timing of revenue recognition associated with major licensing and
services agreements;
. The timing of upgrades by existing network operators; and
. Software defects and other product quality problems.
OpenTV and Spyglass cannot be certain that the business strategy of the
combined company will be successful or that it will successfully manage these
risks. If the combined company fails to address adequately any of these risks
or difficulties, its business would likely suffer.
Each of OpenTV and Spyglass has experienced significant growth in its
respective businesses in recent periods and the combined company's ability to
manage this growth and any future growth will affect its ability to become
profitable.
OpenTV's and Spyglass' historical growth has placed, and any further growth
is likely to continue to place, a significant strain on its resources. OpenTV
has grown from 117 employees at December 31, 1998 to 283 employees at March
31, 2000. At December 31, 1998, Spyglass had a total of 124 employees, and at
March 31, 2000, Spyglass had a total of 190 employees. The combined company's
productivity and the quality of its products may be adversely affected if it
does not integrate and train its new employees quickly and effectively. OpenTV
and Spyglass also cannot be sure that the combined company's revenues will
grow at a sufficient rate to absorb the costs associated with a larger overall
headcount, as well as recruiting-related expenses. OpenTV and Spyglass expect
that the combined company will need to expand its infrastructure, including
operating and administrative systems and controls, train employees and
coordinate among its executive, engineering, accounting, finance, marketing,
sales, operations and customer support organizations. In addition, the future
growth of the combined company may require significant resources and
management attention. Managing this growth will require substantial resources
that the combined company may not have and, therefore, impede the combined
company's growth.
The combined company may not be able to sustain the revenue growth rates
previously experienced by Spyglass or OpenTV individually.
Although OpenTV's and Spyglass' revenue has grown rapidly in recent years
OpenTV and Spyglass do not anticipate that the combined company will sustain
this rate of revenue growth because of the difficulty of maintaining high
percentage increases as the base of revenue increases. In addition, growing
competition, the incremental manner in which customers convert their existing
set-top boxes to interactive set-top boxes and both companies' relative
inexperience in selling their products to small organizations could also
affect the combined company's revenue growth. If the combined company's
revenue does not increase at or above the rate analysts expect, the trading
price for OpenTV's Class A Ordinary Shares may decline.
Additionally, the combined company's efforts to expand its software product
suites, sales and marketing activities, direct and indirect distribution
channels and maintenance and support functions and to pursue strategic
relationships or acquisitions may not succeed or may prove more expensive than
either company currently anticipates. As a result, OpenTV and Spyglass cannot
predict the combined company's future operating results with any degree of
certainty and the combined company's quarterly operating results may vary
significantly from quarter to quarter. OpenTV and Spyglass also believe that
the combined company's future growth rates will depend on its ability to
expand its penetration of OpenTV's and Spyglass' existing markets, which will
require significant expenses that the combined company may not have sufficient
resources to undertake.
The combined company will need to retain and recruit executive and other
personnel to successfully run and expand its business.
The combined company's success will depend to a significant extent on the
continued service of its executive officers and other key employees, including
key sales, consulting, technical and marketing personnel. If the combined
company loses the services of one or more of its executives or key employees,
this could harm
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the combined company's business and could affect its ability to successfully
implement its business objectives. The combined company's future success will
also depend in large part on its ability to attract and retain experienced
technical, sales, marketing and management personnel.
Each of OpenTV and Spyglass has a history of losses, and the combined company
may experience losses in the future.
OpenTV has incurred significant net losses since its inception and Spyglass
has experienced losses in the past. OpenTV and Spyglass expect that the
combined company will continue to incur significant sales and marketing,
product development and administrative expenses. As a result, the combined
company will need to generate significant revenue to achieve and maintain
profitability. Neither OpenTV nor Spyglass can be certain that the combined
company will achieve, sustain or increase profitability in the future. Any
failure to significantly increase revenue as the combined company implements
its product and distribution strategies would adversely affect its business,
operating results and financial condition.
Risks relating to the OpenTV business
OpenTV's limited operating history and the risks OpenTV encounters as a
relatively new company make the prediction of OpenTV's future results
difficult.
OpenTV began operations as an independent company in July 1996, and the
OpenTV system was first deployed in mid-1997. Accordingly, OpenTV has a
limited operating history, which makes the prediction of future results
difficult. OpenTV 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. OpenTV's
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 OpenTV's technology and operations;
. timely and successful responses to competitive developments;
. the attraction, retention and motivation of qualified employees; and
. the firm establishment of the OpenTV brand.
If OpenTV fails to successfully meet any of these challenges, OpenTV's
financial performance may be adversely affected. OpenTV's failure to gain
broad market acceptance would result in OpenTV being unable to successfully
market and sell its products.
Interactive television is a new and emerging business, and OpenTV cannot
guarantee that it will attract widespread demand or market acceptance.
OpenTV's success 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 United States 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;
and
. 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. These parties may not provide such support. The failure by network
operators to select OpenTV as their interactive software platform will result
in OpenTV's being unable to penetrate new markets.
OpenTV's growth and future success depends substantially upon OpenTV's
ability to penetrate new markets and convince network operators to adopt and
maintain their use of the OpenTV system. OpenTV has 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 OpenTV's 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 OpenTV has an agreement
to deploy the OpenTV Runtime. If the launch of OpenTV's system on EchoStar is
not successful, OpenTV may have a difficult time penetrating the United States
market.
New competitors could emerge and this could impair the combined company's
ability to grow its business and sell its products.
OpenTV faces competition from a number of companies, including many that
have significantly greater financial, technical and marketing resources and a
better recognized brand name than OpenTV does. Current and potential
competitors in one or more aspects of OpenTV's business include interactive
television technology companies, Internet-related companies and broadband
interactive service providers. Among these companies, OpenTV's major
competitors are Microsoft, Liberate Technologies and Canal+ Technologies.
Interactive television technology companies. Several companies have
developed technologies relevant to interactive television. Microsoft 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
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 may potentially give Microsoft influence in the
network operator's choice of interactive software. With its vastly greater
financial, technical and marketing resources, Microsoft will be a strong
competitor in the market for interactive television operating systems.
In addition, certain companies, such as NDS Ltd. may attempt to expand from
the conditional access and/or integration markets to the interactive
television technology market.
Canal+ and Scientific-Atlanta are companies that have vertically integrated
software for interactive television. Canal+ is one of the largest network
operators in Europe. It developed its Mediahighway interactive system for
distribution on its pay-television platforms and has 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. OpenTV faces competition from Internet-related
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 OpenTV. For
example, Real Networks offers technology enabling streaming video over the
Internet. Additionally, interactive programming guides are available over the
Internet
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from several sources. OpenTV believes that the Internet will continue to offer
functionality that competes with OpenTV's products.
Broadband interactive service providers. In the future, OpenTV 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 OpenTV 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 OpenTV.
This rapidly evolving competitive landscape places significant pressure on
OpenTV to properly direct the evolution of its products, industry
relationships and business plan in order to compete effectively. If OpenTV
fails to compete effectively, its business will suffer. Rapid technological
advances or the adoption of incompatible standards could render OpenTV's
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. OpenTV's
ability to anticipate these trends and adapt to new technologies is critical
to its 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 OpenTV does not know
whether OpenTV's product will be compatible with OpenCable. The establishment
of this standard or other similar standards could hurt OpenTV's business,
particularly if OpenTV's products require significant redevelopment in order
to conform to the newly established standards.
Any delay or failure on OpenTV's part to respond quickly, cost-effectively
and sufficiently to these developments could render its existing products and
services obsolete and have an adverse effect on its business, financial
condition and results of operations. OpenTV may have to incur substantial
expenditures to modify or adapt its products or services to respond to these
developments. OpenTV must stay abreast of cutting-edge technological
developments and evolving service offerings to remain competitive, increase
the utility of its services and attract and retain qualified employees. OpenTV
must be able to incorporate new technologies into the products OpenTV designs
and develops in order to address the increasingly complex and varied needs of
its customer base.
The market price of OpenTV's Class A Ordinary Shares has fluctuated
significantly and could fluctuate significantly as a result of:
. variations in OpenTV's operating results which may cause OpenTV 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;
. the announcement and/or consummation of mergers or acquisitions with, or
equity investments in, other entities;
. announcements by OpenTV or its competitors of technological innovations,
new products or services;
. changes in business or regulatory conditions affecting OpenTV;
. sales of substantial amounts of OpenTV's Class A Ordinary Shares by MIH
Limited or Sun Microsystems or any of OpenTV's other large stockholders
in the public market or the perception that such sales could occur (See
"OpenTV's Principal Stockholders"); and
. the trading activity of OpenTV's Class A Ordinary Shares.
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The securities of many technology and Internet-related companies, including
interactive television technology companies, have experienced and continue to
experience extreme price and volume fluctuations, including significant
downturns in their market price, often unrelated to the operating performance
of these companies. In the past, following periods of volatility in the market
price of these securities, stockholders have often instituted securities class
action litigation against these companies. If OpenTV were to be involved in
such a class action suit, it could have an adverse effect on OpenTV's
business, financial condition and results of operations.
OpenTV is a party to certain stock exchange arrangements with OpenTV Inc. and
certain stockholders thereof that may cause OpenTV to record significant non-
cash earnings charges in its future financial statements
OpenTV is a party to an exchange agreement with Sun. Under that exchange
agreement Sun can exchange, at its election, all of its 7,594,796 shares of
OpenTV, Inc. Class B Common Stock into Class B Ordinary Shares of OpenTV,
generally on a one-for-one basis, subject to adjustment under certain
circumstances. See "OpenTV's Transactions with Related Parties--Exchange
agreement," and "OpenTV's Principal Stockholders." OpenTV also has adopted an
exchange plan under which certain individuals, at their election, after May
22, 2000, can exchange 1,470,955 shares of OpenTV, Inc. common stock (and upon
exercise of options, 161,000 additional shares) into shares of OpenTV Corp.
Class A Ordinary Shares, generally on a one-for-one basis, subject to
adjustment under certain circumstances. See "OpenTV's Management--Exchange
Plan." The accounting for the exchanges is mandated by Accounting Principles
Board Opinion 16. As Sun and these individuals exchange their shares in
OpenTV, Inc. for shares in OpenTV, OpenTV will be required to take non-cash
charges to earnings over time that are roughly equal to the fair market value,
at the time of the exchange, of the shares of OpenTV that are received in the
exchange. Once the costs of the exchanges are determined, the costs are
allocated to specific assets of OpenTV, Inc., and are then expensed on
OpenTV's financial statements at the same rate under which the underlying
assets are amortized or expensed.
Since these expenses can commence at different times, depending on when
these stockholders elect to exchange their shares of OpenTV, Inc. to shares of
OpenTV, and since the determination of cost depends on the value of the shares
of OpenTV at the time of each exchange, the amount of the earnings charges is
not currently determinable. However, for illustration purposes, if such
exchanges were to occur when when the fair market value of OpenTV's shares
equalled $62.75 (OpenTV's closing stock price on May 11, 2000), OpenTV would
record an increase of assets of approximately $580 million, of which
approximately $480 million relates to Sun's holding. These assets would be
amortized or expensed over a period of approximately five years. There can be
no assurance that the actual earnings charges that OpenTV records will be at
the aforementioned levels, or when the timing of these earnings charges will
actually occur. These earnings charges may be at significantly higher levels
and may occur at various times in the future. The earnings charges will have a
significant impact on OpenTV's stated future earnings and earnings per share
during at least the five years following May 22, 2000.
OpenTV will need to recruit and retain qualified personnel to successfully run
and expand its business.
OpenTV's future success will also depend in large part on its ability to
attract and retain experienced technical, sales, marketing and management
personnel. New employees will generally require substantial training in the
use of the OpenTV's products, which in turn will require significant resources
and management attention. If OpenTV does not attract and retain such
personnel, this could adversely affect its ability to grow its business.
Moreover, the complexity of distributed computing systems requires highly
trained customer service and support personnel to assist customers with
installation and deployment. OpenTV currently has a small customer service and
support organization and will need to increase its staff to support new
customers and the expanding needs of its existing customers. Hiring customer
service and support personnel is very competitive in OpenTV's industry due to
the limited number of people available with the necessary technical skills and
understanding of the digital interactive television and wireless
communications markets, and OpenTV has experienced difficulty
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in recruiting qualified personnel, especially technical and sales personnel.
There is a risk that even if OpenTV invests significant resources in
attempting to attract, train and retain these qualified personnel, it will not
be successful in its efforts.
To achieve its business objectives, OpenTV may recruit and employ skilled
technical professionals from other countries to work in the United States.
Limitations imposed by federal immigration laws and the availability of visas
could adversely affect OpenTV's ability to attract necessary qualified
personnel. This may have a negative effect on OpenTV's business and future
operating results.
OpenTV's inability to properly manage its growth could adversely affect it.
OpenTV's development activities and operations have expanded rapidly since
1996, and significant further expansion will be necessary to meet its growth
objectives and to take advantage of market opportunities. OpenTV's expansion
to date has placed substantial strain on OpenTV's managerial, operational and
financial resources and systems. To manage its growth, OpenTV must
successfully implement, constantly improve and effectively utilize its
operational and financial systems while aggressively expanding OpenTV's
workforce. OpenTV must also maintain and strengthen the breadth and depth of
its current strategic relationships while rapidly developing new
relationships. OpenTV's existing or planned operational and financial systems
may not be sufficient to support its growth, and OpenTV's management may not
be able to effectively identify, manage and exploit existing and emerging
market opportunities. If OpenTV's potential growth is not adequately managed,
OpenTV's business will suffer.
OpenTV may have difficulty consummating or integrating acquisitions, and
certain consequences of those acquisitions that OpenTV does complete could
adversely affect its operating results.
In addition to the merger with Spyglass, in the future OpenTV may acquire
other businesses or new technologies. As a result of these acquisitions,
OpenTV 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 OpenTV's software products or the software architecture
of OpenTV's customers. These integration efforts may not succeed or may
distract OpenTV's management from operating its existing business. OpenTV's
failure to successfully manage future acquisitions could seriously harm its
operating results.
OpenTV's multinational operations expose OpenTV to certain financial and
operational risks.
OpenTV's revenues are dependent upon OpenTV's marketing efforts in a number
of countries throughout the world, particularly the United Kingdom, France,
Spain, South Africa and Italy. In addition, OpenTV receives revenue
denominated in euro and incurs expenses in euro, Korean won, and Chinese
renminbi. Operations in several different countries exposes OpenTV 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; and
. potentially adverse tax consequences.
Any of these factors could have an adverse effect on OpenTV's business,
financial condition and results of operations.
15
<PAGE>
Because much of OpenTV's success and value lies in its ownership and use of
intellectual property, OpenTV's failure to protect its property and develop
new proprietary technology may negatively affect it.
OpenTV's ability to effectively compete is dependent in part upon the
maintenance and protection of its proprietary intellectual property. OpenTV
relies on patent, trademark, trade secret and copyright law, as well as
confidentiality procedures and licensing arrangements, to establish and
protect its rights in its technology. OpenTV typically enters into
confidentiality or license agreements with its employees, consultants,
customers, strategic partners and vendors, in an effort to control access to
and distribution of OpenTV's software, documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use OpenTV's software and other propietary
information without authorization. Policing unauthorized use of OpenTV's
software and propietary information is difficult. The steps OpenTV takes may
not prevent misappropriation of its intellectual property and the agreements
OpenTV enters 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 OpenTV's intellectual property rights or to determine the validity and
scope of the proprietary rights of others. Such litigation could cause OpenTV
to incur substantial costs and diversion of resources, which in turn could
adversely affect OpenTV's business.
In the future, OpenTV 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 OpenTV to incur significant costs and could
result in the diversion of resources with respect to the defense of any claims
brought, which could adversely affect OpenTV's operating results and financial
condition. As a result of such infringement claims, a court could issue an
injunction preventing OpenTV from distributing certain products, which could
adversely affect OpenTV's business. If any claims or actions are asserted
against it, OpenTV 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 OpenTV's majority owner may differ from yours and may result
in OpenTV's acting in a manner inconsistent with your general interests.
MIH Limited indirectly owns all of OpenTV's outstanding Class B Ordinary
Shares, representing, as of March 31, 2000, approximately 94.8% of the voting
rights with respect to OpenTV's ordinary shares. After giving effect to the
merger, and as if the merger occurred on March 31, 2000, MIH Limited will own
approximately 90.9% of the voting rights with respect to OpenTV's 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 OpenTV's Class B Ordinary Shares, MIH Limited and its parent
companies effectively control OpenTV and have sufficient voting power, without
the vote of any other stockholder, to determine the outcome of any action
requiring approval of the stockholders of OpenTV, including amendments of
OpenTV's memorandum and articles of association for any purpose (which could
include increasing or reducing OpenTV's authorized capital or authorizing the
issuance of additional shares).
MIH Limited has agreed not to cause OpenTV to take specified actions
without the consent of certain of OpenTV's stockholders. Subject to those
limitations, MIH Limited controls how OpenTV votes OpenTV's shares of OpenTV,
Inc. OpenTV engages 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 cause or require OpenTV to act in a way that is
inconsistent with the general interests of the holders of OpenTV's Class A
Ordinary Shares. See "OpenTV's Management", "OpenTV's Transactions with
Related Parties" and "OpenTV's Principal Stockholders."
16
<PAGE>
OpenTV's strategic investors may acquire voting control of OpenTV's 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 OpenTV's 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 stockholders could
acquire the power to determine the outcome of any action requiring approval by
the stockholders of OpenTV.
Government regulations may adversely affect OpenTV's 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 OpenTV's business, market participants
with which OpenTV has 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
adversely affect OpenTV's business.
Because OpenTV is a British Virgin Islands company, you may not be able to
enforce judgments against OpenTV that are obtained in United States courts.
OpenTV is organized under the laws of the British Virgin Islands, which are
sometimes referred to as BVI. Several of OpenTV's directors and executive
officers reside outside the United States, and a portion of OpenTV's 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
United States courts, including judgments predicated upon the civil liability
provisions of the federal securities laws of the United States.
OpenTV has been advised by its counsel, Harney Westwood & Riegels, that
judgments of United States 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 OpenTV is a British Virgin Islands company, you may have difficulty
protecting your interests in respect of decisions made by OpenTV's board of
directors.
OpenTV's corporate affairs are governed by OpenTV's memorandum and articles
of association and by the International Business Companies Act of the British
Virgin Islands. Principles of law relating to such matters as the validity of
corporate procedures, the fiduciary duties of management and the rights of
OpenTV's stockholders may differ from those that would apply if OpenTV was
incorporated in the United States or another jurisdiction. The rights of
stockholders under BVI law are not as clearly established as are the rights of
stockholders in many other jurisdictions. Thus, you may have more difficulty
protecting your interests in the face of actions by OpenTV's board of
directors or OpenTV's principal stockholders than you would have as
stockholders of a corporation incorporated in another jurisdiction. See
"Comparison of Stockholder Rights and Corporate Governance Matters."
Certain provisions contained in OpenTV's charter documents could deter a
change in control of OpenTV.
Certain provisions of OpenTV's memorandum and articles of association may
discourage attempts by other companies to acquire or merge with OpenTV, which
could reduce the market value of OpenTV's Class A
17
<PAGE>
Ordinary Shares. The comparatively low voting rights of OpenTV's Class A
Ordinary Shares as compared to OpenTV's Class B Ordinary Shares, as well as
other provisions of OpenTV's memorandum and articles of association, may
delay, deter or prevent other persons from attempting to acquire control of
OpenTV. See "Comparison of Stockholder Rights and Corporate Governance
Matters."
OpenTV may be unable to raise additional capital in the future to support
OpenTV's growth.
OpenTV expects that its existing capital resources will be sufficient to
meet its cash requirements through at least the next 12 months. However, as
OpenTV continues to grow its business, it may need to raise additional
capital, which may not be available on acceptable terms, if at all. If OpenTV
cannot raise necessary additional capital on acceptable terms, it may not be
able to develop or enhance its products and services, take advantage of future
opportunities or respond to competitive pressures or unanticipated
requirements, any of which could have an adverse effect on its business.
If additional capital is raised through the issuance of equity securities
or by incurring convertible debt, the percentage ownership of OpenTV's
existing stockholders will be reduced and stockholders may experience dilution
in net book value per share. Any debt financing, if available, may involve
covenants limiting or restricting OpenTV's operations or future opportunities.
Risks relating to the Spyglass business
Spyglass has focused on a target market that is relatively new and undeveloped
and it may not be successful in penetrating this market.
During fiscal 1997, Spyglass announced a new strategic focus on the
information appliance market. Spyglass has been focused on the development,
marketing and distribution of its technologies and services to the broader
information appliance market, and since May 1999, has increased its focus on
the interactive television and mobile data markets. Because this is a
relatively new and undeveloped market, there can be no assurance as to the
extent of the demand for Spyglass' products and services or the extent to
which Spyglass will be successful in penetrating this market.
Spyglass' quarterly revenues and operating results are not indicative of
future performance and are difficult to forecast.
Spyglass' quarterly operating results have varied and they may continue to
vary significantly depending on factors such as the timing of significant
license or service agreements, the terms of Spyglass' licensing and service
arrangements with its customers and the timing of new product introductions
and upgrades by Spyglass and its competitors. Spyglass typically structures
its license agreements with customers to require commitments for a minimum
number of licenses, and license revenues are recognized as the committed
licenses are purchased. Additional revenues from a customer will not be earned
unless and until the initial committed levels are exceeded. Spyglass' revenues
in any quarter will depend in significant part on its ability to license
technologies and provide services to new customers in that quarter and the
timing of product or service deployment by its customers. Spyglass typically
structures its professional services agreements with customers to recognize
revenue using the percentage of completion method of accounting. Spyglass'
expense levels are based in part on expectations of future revenue levels and
are difficult to adjust in the short term. Any shortfall in expected revenue
could therefore have a disproportionate adverse effect on Spyglass' operating
results in any given period.
Spyglass' quarterly revenues and operating results may fluctuate significantly
due to its lengthy sales cycle.
The purchase of Spyglass' products and services involves significant
commitment of capital and other resources by its customers. Spyglass may need
to educate potential customers on the use and benefits of its products and
services. Spyglass customers often spend a substantial time performing
internal reviews and
18
<PAGE>
obtaining expenditure approvals as well as time spent considering a wide range
of issues before committing to purchase products and services from Spyglass.
As a result of these and other factors, Spyglass' sales cycle varies
significantly between customers and often extends between six and twelve
months, or longer. Because of the length of the sales cycle with many of its
customers, Spyglass has a limited ability to accurately forecast the timing
and amount of specific sales. Any delay in anticipated sales of its products
and services can cause Spyglass' quarterly revenues and operating results to
fluctuate significantly.
Spyglass derives a significant percentage of its revenue from a limited number
of customers, and the loss of any significant customer could have an adverse
effect on its operating results.
Spyglass derived approximately 63% of its revenue during the quarter ended
December 31, 1999 from four customers. In addition, Spyglass derived
approximately 22% and 40% of its revenues for the fiscal years ended September
30, 1999 and September 30, 1997, respectively from Microsoft. Spyglass derived
approximately 12% of its revenues for the fiscal year ended September 30, 1999
from Motorola Broadband Communications Sector (formerly General Instrument)
and approximately 15% of its revenues for the fiscal year ended September 30,
1998 from Motorola. As the information appliance market develops, Spyglass
expects to continue to derive a significant portion of its revenues from a
relatively limited number of customers. Although Spyglass expects that its
reliance on any particular customer will decline as the information appliance
market develops and its customer base expands, the failure of Spyglass to
enter into a sufficient number of licensing agreements or sustain revenues
from major customers during a particular period could have an adverse effect
on Spyglass' future operating results.
Because the information appliance market is newly emerging, the potential size
of this new market opportunity and the timing of its development are
uncertain.
Because the information appliance market is newly emerging, the potential
size of this new market opportunity and the timing of its development are
uncertain. In addition, the information appliance market is characterized by
rapidly changing technology, evolving industry standards and customer demands,
and frequent product introductions and enhancements, which make it difficult
to predict whether the initial commercial acceptance of Spyglass' solutions
can be sustained over a period of time. Spyglass' future operating results are
largely dependent upon the commercialization and broad acceptance by consumers
and businesses of a wide variety of information appliances including, among
others, television set-top boxes, televisions, gaming devices, wireless smart
phones, navigation devices, Internet screen phones and Web terminals.
Broad acceptance of all information appliances will depend on many factors
such as the willingness of large numbers of consumers to use devices other
than personal computers to access the Internet, the development of content and
applications for information appliance and the continued emergence of industry
standards that facilitate the distribution of content over the Internet to
information appliances. If the market for information appliances does not
develop or develops more slowly than anticipated, Spyglass' revenues may not
grow as anticipated.
The market for Spyglass' products and services is subject to extreme
competition, which could adversely affect its business.
The market for Internet technologies and services is extremely competitive,
and competition is likely to increase in the future. Spyglass currently faces
competition from other information appliance technology vendors and service
providers such as BSQUARE, Liberate Technologies, Microsoft, OpenTV (until
completion of the merger), Oracle, Phone.com, Sun Microsystems, on-line
service companies, Internet access providers and networking software
companies. Spyglass anticipates additional competition from other established
and emerging companies. Additionally, Spyglass considers a significant source
of competition for its Internet solutions to be the prospect company's
internal resources. Spyglass expects competition to persist and intensify as
the information appliance market develops and competitors focus on additional
product and service offerings. Increased competition could result in price
reductions, reduced gross margins, longer sales cycles, fewer customer orders,
reduced revenues and loss of market share, any of which could adversely affect
Spyglass' business.
19
<PAGE>
Spyglass' success is dependent in large part on the ability of its customers
to successfully deploy their products and services.
Spyglass has provided its solutions to content providers, service operators
and device manufacturers within the cable and satellite television, wireless,
telecommunications, office equipment, automotive and industrial control
markets who then deploy products and/or services within these markets. The
success of Spyglass is therefore dependent in large part on the performance of
its customers and the market acceptance of its customers' products and
services, which is outside of Spyglass' control.
International expansion is an important part of Spyglass' growth strategy and
involves specific risks which may limit its ability to grow international
revenues.
International sales of products and services accounted for 20%, 11% and 8%
of Spyglass' total revenues in the years ended September 30, 1999, 1998 and
1997, respectively, and for 18% of Spyglass' revenues in the quarter ended
December 31, 1999. Spyglass expects international sales to continue to account
for a significant portion of Spyglass' revenues, especially as Spyglass
increases its sales and marketing activities with respect to international
licensing of Spyglass' technologies and providing customer development and
support services to international customers. Accordingly, Spyglass' success
will depend, in part, upon international economic conditions and upon
Spyglass' ability to manage international sales and marketing operations. To
successfully expand international revenues, Spyglass must establish additional
foreign operations, hire additional personnel, increase its capacity to
provide customer development and support services and increase its foreign
direct and indirect sales forces. This expansion will require significant
management attention and resources, which could divert attention from other
aspects of Spyglass' business. To the extent Spyglass is unable to expand its
international operations in a timely manner, Spyglass' international revenue
growth, if any, may be limited.
Spyglass may be subject to litigation regarding proprietary rights that could
have an adverse effect on its business.
Spyglass from time to time receives notices alleging that its products
infringe third-party proprietary rights. Patent and similar litigation
frequently is complex and expensive and its outcome can be difficult to
predict. If, as a result of proprietary rights infringements by any of
Spyglass' products, Spyglass is required to discontinue sales of certain
products, eliminate certain features on its products, or pay royalties to
another party, Spyglass' future operating results could be adversely affected.
Spyglass may be unable to adequately protect its proprietary rights.
Spyglass' future success is dependent on its ability to protect its
proprietary rights to the technologies used in its products. If not adequately
protected, Spyglass competitors could use the intellectual property that
Spyglass has developed to enhance their products and services, which could
harm Spyglass' business. Spyglass relies on patent protection, copyright and
trademark laws, trade secrets, confidentiality provisions and other
contractual provision, to protect its proprietary rights, but these legal
means afford Spyglass only limited protection.
Spyglass must attract and retain highly qualified personnel in a competitive
labor market.
Spyglass' future success is dependent on its ability to hire additional
members of its management team and other key employees. Competition for such
personnel is intense. Spyglass has experienced, and it expects to continue to
experience in the future, difficulty in hiring highly skilled employees with
the appropriate qualifications, particularly qualified technical personnel. If
Spyglass does not succeed in attracting new personnel or retaining and
motivating its current personnel, Spyglass' business could be adversely
affected.
In addition, Spyglass provides its customers comprehensive services
including strategic consulting, product design, custom application
development, porting, integration, quality assurance testing, product support
and third party project management services. Spyglass derived 54%, 45%, and
31% of its revenue during the years ended September 30, 1999, 1998 and 1997,
respectively, and 60% of its revenue in the quarter ended December 31, 1999
from providing these services to its customers. Spyglass' ability to attract
new personnel or retain and motivate its current personnel that are skilled in
providing each of these specific categories of services could impact Spyglass'
ability to grow its services revenue as anticipated.
20
<PAGE>
Spyglass may be unable to successfully manage changes in its business.
Spyglass has experienced a period of significant growth. This growth has
placed significant demands on its management and strains on its resources.
Spyglass' ability to manage changes in its business will depend on its ability
to continue to enhance its operating, financial and management information
systems. Spyglass' personnel, systems and controls may not be adequate to
support its growth, if any. If Spyglass is unable to manage change
effectively, maintain the quality of its products and services and retain key
personnel, its operating results and financial condition could be
significantly affected.
Spyglass may be unable to make attractive acquisitions or investments or
integrate acquired companies.
As part of Spyglass' business strategy, Spyglass plans to continue to
acquire or make investments in complementary businesses, products, services or
technologies to increase its product and service offerings and obtain new
technologies. However, Spyglass may not be able to identify suitable
acquisition or investment candidates. Even if Spyglass does identify suitable
candidates, Spyglass may not be able to make such acquisitions or investments
on commercially acceptable terms. If Spyglass buys a business, it could have
difficulty in assimilating that business's personnel, operations, products,
services or technologies into Spyglass' operations. These difficulties could
disrupt Spyglass' ongoing business, distract its management and employees,
increase its expenses and adversely affect its results of operations.
Spyglass has acquired several businesses. Achieving the anticipated
benefits of these acquisitions depends in part upon whether the integration of
these businesses is accomplished in an efficient, effective and timely manner.
In some cases, the difficulty associated with integrating these businesses may
be increased by the necessity of coordinating geographically separated
organizations. There can be no assurance that all of the anticipated benefits
of these acquisitions will be achieved. If Spyglass is unable to successfully
develop and market products and product enhancements as a result of these
acquisitions, Spyglass may not realize new enhanced revenue.
The market price for Spyglass common stock could be extremely volatile and may
result in litigation against Spyglass.
The stock market has experienced significant price and volume fluctuations,
and the market price for Spyglass common stock could be volatile. In the past,
following periods of volatility in the market price of a company's securities,
stockholders have often instituted securities class action litigation.
Litigation could result in substantial costs and a diversion of management's
attention and resources.
Spyglass' charter documents may inhibit a takeover.
Provisions in Spyglass' certificate of incorporation and bylaws may have
the effect of delaying or preventing a change of control or changes in
Spyglass' management that a stockholder might consider favorable. These
provisions include, among others:
. the division of the Board of Directors into three separate classes;
. the establishment of advance notice requirements for director
nominations and actions to be taken at stockholder meetings;
. the right of the Board to elect a director to fill a vacancy created by
the expansion of the Board; and
. the requirement that a special meeting of stockholders be called by the
Board of Directors or the President.
21
<PAGE>
SELECTED HISTORICAL CONDENSED CONSOLIDATED AND
UNAUDITED PRO FORMA FINANCIAL DATA
The following tables present selected historical condensed consolidated
financial data, selected unaudited pro forma condensed combined financial data
and comparative per share data for OpenTV and Spyglass. This information has
been derived from their respective financial statements and notes, certain of
which are included or incorporated by reference in this joint proxy
statement/prospectus.
OpenTV Selected Historical Condensed Consolidated Financial Data
The following selected historical condensed consolidated financial data of
OpenTV should be read in conjunction with, and are qualified by reference to,
OpenTV's consolidated financial statements, including the notes thereto, and
the section entitled "OpenTV's Management's Discussion and Analysis of
Financial Condition and Results of Operations", which are included elsewhere
in this joint proxy statement/prospectus. The consolidated statements of
operations data for the years ended December 31, 1997, 1998 and 1999, and the
consolidated balance sheet data as of December 31, 1998, and 1999 are derived
from, and qualified by reference to, OpenTV's audited consolidated financial
statements included in this joint proxy statement/prospectus. The balance
sheet data as of December 31, 1996 and December 31, 1997 and the statement of
operations data for the period from July 1996 (date of inception) to December
31, 1996 are derived from audited consolidated financial statements not
included in this joint proxy statement/prospectus. Pursuant to a
reorganization that occurred in October 1999, MIH Limited, the majority
stockholder of OpenTV, Inc. exchanged shares of common stock in OpenTV, Inc.
for ordinary shares in OpenTV. The reorganization was accounted for on the
historical cost basis since there was no change in ownership. As of December
31, 1999, OpenTV owned approximately 83% of the common stock of OpenTV, Inc.
The unaudited pro forma information reflects the merger with Spyglass and
has been derived from the unaudited pro forma combined condensed financial
statements included elsewhere in this joint proxy statement/prospectus. The
unaudited pro forma combined condensed statement of operations data is derived
from OpenTV's statement of operations data for the year ended December 31,
1999 combined with the statement of operations data of Spyglass for the year
ended September 30, 1999, giving effect to the merger as if it occurred on
January 1, 1999. The unaudited pro forma combined condensed balance sheet data
presents OpenTV's balance sheet data as of December 31, 1999 combined with the
balance sheet data of Spyglass, as of September 30, 1999, giving effect to the
merger as if it occurred on December 31, 1999. The unaudited pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if the transaction had been consummated at the dates indicated, nor
is it necessarily indicative of the future operating results or financial
position of the combined company.
22
<PAGE>
OpenTV Selected Historical Condensed Consolidated Financial Data (continued)
<TABLE>
<CAPTION>
July 1, 1996 Unaudited
(Date of Pro Forma
Inception) to Year Ended December 31, Year Ended
December 31, ------------------------------------- December 31,
1996 1997 1998 1999 1999
------------- ----------- ----------- ----------- ------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Royalties............. $ -- $ 2,382 $ 2,788 $ 14,782 $ 14,782
License fees.......... 287 1,255 1,578 2,964 16,457
Services and other.... 731 3,322 5,102 8,205 24,322
---------- ----------- ----------- ----------- -----------
Total revenues...... 1,018 6,959 9,468 25,951 55,561
---------- ----------- ----------- ----------- -----------
Operating expenses:
Costs of services and
other revenues
(exclusive of $53
stock-based
compensation in 1999
actual and pro
forma)............... 587 3,290 4,736 5,949 16,078
Research and
development
(exclusive of $662
stock-based
compensation in 1999
actual and pro
forma)............... 2,590 6,219 7,514 13,172 21,142
Sales and marketing
(exclusive of $556
stock-based
compensation in 1999
actual and pro
forma)............... 845 4,323 7,418 11,415 19,633
General and
administrative
(exclusive of $11,827
stock-based
compensation in 1999
actual and pro
forma)............... 1,126 3,929 3,995 5,971 12,543
Amortization of
intangibles.......... -- -- -- 1,210 414,843
Amortization of stock-
based compensation... -- -- 13 13,098 13,098
Non-cash warrant
expense.............. -- -- -- 68,569 68,569
---------- ----------- ----------- ----------- -----------
Total operating
expenses............. 5,148 17,761 23,663 119,384 565,906
---------- ----------- ----------- ----------- -----------
Loss from operations.... (4,130) (10,802) (14,195) (93,433) (510,345)
Interest and other
income (expense), net.. 172 113 (7) 823 2,205
Minority interest....... -- -- -- 2,153 2,153
---------- ----------- ----------- ----------- -----------
Net loss................ (3,958) (10,689) (14,202) (90,457) (505,987)
Preferred stock deemed
dividend............... -- -- -- 31,250 31,250
---------- ----------- ----------- ----------- -----------
Net loss attributable to
ordinary stockholders.. $ (3,958) $ (10,689) $ (14,202) $ (121,707) $ (537,237)
========== =========== =========== =========== ===========
Net loss per share
attributable to
ordinary stockholders,
basic and diluted...... $ (0.43) $ (0.43) $ (0.43) $ (4.19) $ (12.94)
========== =========== =========== =========== ===========
Shares used in computing
net loss per share
attributable to
ordinary stockholders,
basic and diluted...... 9,210,877 24,973,614 33,212,803 29,065,478 41,519,478
</TABLE>
<TABLE>
<CAPTION>
Unaudited
Pro Forma
As of December 31, as of
--------------------------------- December 31,
1996 1997 1998 1999 1999
------ ------- ------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Da-
ta:
Cash and cash equivalents...... $5,357 $ 293 $ 3,324 $186,535 $ 205,148
Working capital (deficit)...... 3,627 (2,272) (1,459) 182,238 204,437
Total assets................... 7,482 4,878 10,038 206,790 2,303,789
Convertible notes payable to
stockholders.................. -- -- 7,000 -- --
Redeemable common stock........ -- -- 117 -- --
Total stockholders' equity
(deficit)..................... 4,677 (158) (4,783) 194,561 2,272,035
</TABLE>
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<PAGE>
Spyglass Selected Historical Condensed Consolidated Financial Data
The following selected historical consolidated financial data of Spyglass
should be read in conjunction with, and are qualified by reference to,
Spyglass' consolidated financial statements, including the notes thereto, and
to Spyglass' "Management's Discussion and Analysis of Financial Condition and
Results of Operations", which are incorporated by reference in this joint
proxy statement/prospectus. The consolidated statement of operations data for
the five years ended September 30, 1995, 1996, 1997, 1998 and 1999, and the
consolidated balance sheet data as of September 30, 1995, 1996, 1997, 1998 and
1999 are derived from, and qualified by reference to, Spyglass' audited
historical consolidated financial statements. Historical results are not
necessarily indicative of the results to be expected in the future. No cash
dividends have been declared or paid on Spyglass common stock.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Revenues:
Internet technology... $ 9,871 $ 19,466 $ 17,194 $ 11,661 $ 13,493
Services and other.... 2,270 2,841 4,101 9,508 16,117
---------- ----------- ----------- ----------- -----------
Total net revenues... 12,141 22,307 21,295 21,169 29,610
---------- ----------- ----------- ----------- -----------
Cost and operating
expenses:
Cost of Internet
technology revenues.. 1,761 1,912 1,535 1,843 1,220
Cost of services and
other revenues....... -- 118 1,493 3,716 8,909
Research and
development.......... 2,756 7,214 16,768 10,670 7,970
Sales and marketing... 3,303 5,963 8,311 9,101 8,218
General and
administrative....... 2,159 3,947 7,965 6,626 6,313
Gain on sale of data
visualization product
line................. (863) -- -- -- --
Restructuring and
other one-time
charges.............. -- -- 900 496 259
---------- ----------- ----------- ----------- -----------
Total costs and
operating expenses
and other........... 9,116 19,154 36,972 32,452 32,889
---------- ----------- ----------- ----------- -----------
Income (loss) from
operations............. 3,025 3,153 (15,677) (11,283) (3,279)
Other income, net....... 566 1,750 1,526 1,251 1,382
---------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... 3,591 4,903 (14,151) (10,032) (1,897)
Income tax provision.... 1,415 1,951 -- -- --
---------- ----------- ----------- ----------- -----------
Net income (loss)....... 2,176 2,952 (14,151) (10,032) (1,897)
Accretion of preferred
stock dividends........ (191) -- -- -- --
---------- ----------- ----------- ----------- -----------
Net income (loss)
available to common
stockholders........... $ 1,985 $ 2,952 $ (14,151) $ (10,032) $ (1,897)
========== =========== =========== =========== ===========
Earnings (loss) per
common and common
equivalent share.... $ 0.21 $ 0.21 $ (1.07) $ (0.69) $ (0.12)
========== =========== =========== =========== ===========
Weighted average number
of common shares and
equivalents
outstanding............ 9,383,000 14,023,000 13,238,000 14,543,000 16,029,000
<CAPTION>
As of September 30,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 34,872 $ 34,201 $ 29,026 $ 22,706 $ 18,613
Working capital......... 35,550 38,598 29,233 25,678 35,199
Total assets............ 43,509 48,908 42,048 34,980 45,773
Long-term deferred
revenues............... 1,100 210 100 50 326
Total stockholders'
equity................. 37,614 43,393 36,162 29,807 39,248
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following Unaudited Pro Forma Combined Condensed Financial Statements
of OpenTV have been prepared to illustrate the estimated effects of the
assumed acquisition by OpenTV of all of the outstanding capital stock of
Spyglass, which will be accounted for as a purchase. In exchange for all of
the outstanding capital stock of Spyglass, OpenTV will issue Spyglass
stockholders approximately 12.5 million Class A Ordinary Shares and will
reserve approximately 2.4 million additional Class A Ordinary Shares for
issuance upon the exercise of stock options and warrants of Spyglass which
will be converted into options and warrants to purchase Class A Ordinary
Shares of OpenTV.
Pro forma amounts have been derived by applying pro forma adjustments to
the historical consolidated financial information of OpenTV and Spyglass.
As required by United States generally accepted accounting principles, the
purchase price of Spyglass has been estimated at $2.1 billion based upon the
average market price of an OpenTV Class A Ordinary Share in a range four
trading days before and four trading days after the merger announcement date
of March 26, 2000, as quoted on the NASDAQ, and includes $13.0 million of
estimated direct acquisition costs. A portion of the acquisition costs are
based upon a percent of the value of the shares exchanged based on the price
per share two days before the acquisition is consummated and were estimated
using a price per share of $141.69. The excess of the purchase price over the
recorded amount of net assets has been allocated to goodwill and intangibles.
The goodwill will be amortized over five years and the intangibles over one
and a half to three years.
The Unaudited Pro Forma Combined Condensed Statement of Operations combines
OpenTV's historical results of operations for the year ended December 31, 1999
with Spyglass' historical results for the year ended September 30, 1999 and
has been prepared as if the Spyglass acquisition had occurred on January 1,
1999. The Unaudited Pro Forma Combined Condensed Balance Sheet combines
OpenTV's historical balance sheet at December 31, 1999 with Spyglass'
historical balance sheet at September 30, 1999 and has been prepared as if the
Spyglass acquisition occurred on December 31, 1999.
The unaudited pro forma financial information should not be considered
indicative of actual results that would have been achieved had the acquisition
been consummated on the dates indicated and does not purport to indicated
balance sheet data or results of operations of any future date of any future
period. The unaudited pro forma financial information should be read in
conjunction with the historical consolidated financial statements of OpenTV
and Spyglass and the related notes thereto included elsewhere herein or
incorporated by reference in this joint proxy statement/prospectus.
25
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(amounts in thousands of US dollars)
<TABLE>
<CAPTION>
Spyglass
OpenTV As of As of
December 31, September 30, Pro Forma Pro Forma
1999 1999 Adjustments Combined
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 186,535 $ 18,613 $ -- $ 205,148
Accounts and other
receivables........... 6,234 9,630 -- 15,864
Short term
investments........... -- 10,735 -- 10,735
Prepaid expenses and
other current assets.. 1,698 2,420 -- 4,118
--------- -------- ---------- ----------
Total current
assets.............. 194,467 41,398 -- 235,865
Property and equipment,
net................... 5,025 3,897 -- 8,922
Goodwill and intangible
assets, net........... 6,678 -- 2,051,226 (A) 2,057,904
Other assets........... 620 478 -- 1,098
--------- -------- ---------- ----------
Total assets......... $ 206,790 $ 45,773 $2,051,226 $2,303,789
========= ======== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 798 $ 2,793 $ -- $ 3,591
Accrued liabilities.... 7,261 1,929 13,000 (A) 23,667
Deferred revenue....... 3,564 1,477 -- 3,564
Related parties
payable............... 606 -- -- 606
--------- -------- ---------- ----------
Total current
liabilities......... 12,229 6,199 13,000 31,428
--------- -------- ---------- ----------
Deferred revenue......... -- 326 -- 326
--------- -------- ---------- ----------
Total liabilities.... 12,229 6,525 13,000 31,754
--------- -------- ---------- ----------
Stockholders' equity:
Ordinary shares........ 224,515 165 (165)(A) 1,989,081
1,764,566 (A)
Additional paid-in-
capital............... 162,794 62,221 (62,221)(A) 476,802
314,008 (A)
Receivable from
stockholder........... (1) -- -- (1)
Deferred compensation.. (42,224) (888) 888(A) (42,224)
Accumulated other
comprehensive income.. 33 -- -- 33
Treasury stock......... -- (56) 56 (A)
Accumulated deficit.... (150,556) (22,194) 22,194 (A) (151,656)
-- -- (1,100)(A)
--------- -------- ---------- ----------
Total stockholders'
equity.............. 194,561 39,248 2,038,226 2,272,035
--------- -------- ---------- ----------
Total liabilities and
stockholders'
equity.............. $ 206,790 $ 45,773 $2,051,226 $2,303,789
========= ======== ========== ==========
</TABLE>
26
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
OpenTV Year Spyglass
Ended Year Ended
December 31, September 30, Pro Forma Pro Forma
1999 1999 Adjustments Combined
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues............. $ 25,951 $29,610 $ -- $ 55,561
Costs of revenues........ (5,949) (10,129) -- (16,078)
Selling, general and
administrative.......... (17,386) (14,790) -- (32,176)
Research and
development............. (13,172) (7,970) -- (21,142)
Amortization of goodwill
and intangibles......... (1,210) -- (413,633)(B) (414,843)
Amortization of stock-
based compensation...... (13,098) -- -- (13,098)
Non-cash warrant
expense................. (68,569) -- -- (68,569)
---------- ------- ---------- ----------
Loss from operations..... (93,433) (3,279) (413,633) (510,345)
Interest and other
income, net............. 823 1,382 -- 2,205
Minority interest........ 2,153 -- -- 2,153
---------- ------- ---------- ----------
Net loss................. (90,457) (1,897) (413,633) (505,987)
Preferred stock deemed
dividend................ 31,250 -- -- 31,250
---------- ------- ---------- ----------
Net loss attributable to
ordinary stockholders... $ (121,707) $(1,897) $ (413,633) $ (537,237)
========== ======= ========== ==========
Net loss per share
attributable to ordinary
stockholders, basic and
diluted................. $ (4.19) $ (0.12) $ (12.94)
========== ======= ==========
Shares used in computing
net loss per share
attributable to ordinary
stockholders, basic and
diluted................. 29,065,478 12,454,000 (C) 41,519,478
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRO FORMA PRESENTATION
The Unaudited Pro Forma Combined Condensed Financial Statements give effect
to OpenTV's acquisition of Spyglass, in a business combination to be accounted
for as a purchase, which is expected to be consummated as early as the second
calendar quarter of 2000. Upon the effective date of the acquisition, all the
outstanding common stock of Spyglass will be converted into OpenTV Class A
Ordinary Shares, and all outstanding stock options and warrants to purchase
shares of Spyglass common stock will be converted into options and warrants to
purchase OpenTV Class A Ordinary Shares. The aggregate OpenTV shares, options
and warrants to be issued to Spyglass stockholders, option holders and warrant
holders will be approximately 14.9 million.
The Unaudited Pro Forma Combined Condensed Financial Statements have been
prepared on the basis of assumptions described in the following notes and
include assumptions relating to the allocation of the consideration paid for
the assets and liabilities of Spyglass based on preliminary estimates of their
fair value. The actual allocation of the consideration to be paid may differ
from those assumptions reflected in the Unaudited Pro Forma Combined Condensed
Financial Statements after final valuations and other procedures to be
performed after the closing of the Spyglass acquisition have been completed.
OpenTV does not expect that the final allocation of the purchase price will
differ materially from the preliminary allocation. In the opinion of OpenTV's
management, all adjustments necessary to present fairly such Unaudited Pro
Forma Combined Condensed Financial Statements have been made based on the
terms and structure of the Spyglass acquisition. The Unaudited Pro Forma
Combined Condensed Statement of Operations for the year ended December 31,
1999 gives effect to this transaction as if it had taken place on January 1,
1999. The Unaudited Pro Forma Combined Condensed Balance Sheet as of December
31, 1999 gives effect to the transaction as if it had taken place on December
31, 1999.
The unaudited pro forma financial information should not be considered
indicative of actual results that would have been achieved had the acquisition
been consummated on the dates indicated and does not purport to indicate
balance sheet data or results of operations as of any future date or any
future period.
OpenTV anticipates issuing approximately 12.5 million Class A Ordinary
Shares in the merger, valued for purposes of this pro-forma presentation at
$141.69 per share, the average market price per share of OpenTV Class A
Ordinary Shares for the four trading days before and four trading days after
the merger announcement date of March 26, 2000. In addition, OpenTV will
reserve approximately 2.4 million additional Class A Ordinary Shares for
issuance upon the exercise of stock options and warrants of Spyglass which
will be converted into options and warrants to purchase Class A Ordinary
Shares of OpenTV. The value of such options and warrants was determined by
estimating their fair value as of March 26, 2000 using the Black-Scholes
option pricing model. The total estimated consideration including acquisition
related expenses is $2.1 billion.
Tangible assets of Spyglass principally include cash and cash equivalents,
short-term investments, accounts receivable, fixed assets and other assets.
Liabilities of Spyglass assumed principally include accounts payable, accrued
liabilities and deferred revenue.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS--(continued)
Below is a table of the estimated acquisition consideration, purchase price
allocation and annual amortization of the intangible assets and goodwill
acquired (in thousands):
<TABLE>
<CAPTION>
Amortization Annual
Period Amortization
------------ ------------
<S> <C> <C> <C>
Purchase price allocation
Tangible net assets acquired............. $ 39,248 $ --
Intangible net assets acquired:
Developed technology.................... 4,950 3 1,650
In-process research and development..... 1,100 -- --
Assembled workforce..................... 12,400 3 4,133
Current contracts....................... 3,550 1.5 1,725
Customer base........................... 450 3 150
Goodwill................................ 2,029,876 5 405,975
---------- --------
Total.................................. $2,091,574 $413,633
========== ========
</TABLE>
To determine the value of the developed technology, the expected future
cash flows attributable to all existing technology was discounted, taking into
account risks related to the characteristics and applications of the developed
technology, existing and future markets, and assessments of the stage of the
technology's life cycle. The analysis resulted in a valuation for developed
technology that had reached technological feasibility and therefore was
capitalizable.
The value allocated to projects identified as in-process research and
development will be charged to expense in the period the acquisition is
consummated but has not been reflected in the OpenTV Unaudited Pro Forma
Combined Condensed Statement of Operations as it is non-recurring in nature.
The write-off will be necessary because the acquired in-process research
and development has not yet reached technological feasibility and has no
future alternative uses. These products under development may not achieve
commercial viability. The nature of the efforts required to develop the
purchased in-process research and development into commercially viable
products principally relate to the completion of all planning, designing,
prototyping, verification and testing activities that are necessary to
establish that the product can be produced to meet its designed
specifications, including functions, features, and technical performance
requirements.
The value of the purchased in-process research and development was
determined by estimating the projected net cash flows related to the products,
including costs to complete the development of the technology and the future
revenue to be earned upon commercialization of the products. The estimated
stage of completion (expressed as a percentage of completion) for each project
was calculated and then the percentage was applied to the expected net cash
flows for each project. These cash flows were then discounted back to their
net present value. The projected net cash flows from the projects were based
on management's estimates of revenues and operating profits related to the
projects.
To determine the revenue attributable to the in-process research
technology, consideration was also given to the contribution of the existing
technology which will be utilized in the development of the in-process
technology, referred to as "core technology". The value allocated to the core
technology was determined by assigning a leverage factor to the estimated
projected net cash flows related to the products under development
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS--(continued)
after analysis of both the effort and work completed as well as the expected
value of the in-process technology. The projected net cash flows from the
products assigned to core technology using the leverage factor were then
discounted back to their net present value.
The value allocated to the assembled workforce is attributable to the
Spyglass workforce in place after the acquisition which eliminates the need to
hire new replacement employees. The value was determined by estimating the
cost involved in assembling a new workforce including costs of salaries,
benefits, training and recruiting.
The present value of the future cash flows attributable to existing
contracts and customer base were allocated to current contracts and customer
base, respectively.
Goodwill is determined based on the residual difference between the amount
of consideration to be paid and the values assigned to identified net tangible
and intangible assets.
NOTE 2--PRO FORMA NET LOSS PER SHARE:
Pro forma basic and diluted net loss per share are based on the weighted
average number of OpenTV ordinary shares outstanding during the period and the
number of OpenTV Class A Ordinary Shares to be issued in connection with the
Spyglass acquisition. Outstanding options and warrants to purchase
approximately 10.9 million OpenTV Class A Ordinary Shares, and options and
warrants to purchase approximately 2.4 million OpenTV Class A Ordinary Shares
to be assumed by OpenTV in connection with the Spyglass merger, were not
included in the computation of pro forma diluted net loss per share herein
because their effect would be antidilutive.
NOTE 3--PRO FORMA ADJUSTMENTS:
A. To record the issuance of OpenTV shares in connection with the Spyglass
merger and to record the estimated acquisition costs and other assets
and liabilities at their fair values.
B. To record the amortization of acquired intangible assets and goodwill.
C. To reflect the number of OpenTV shares to be exchanged for all the
issued and outstanding shares of Spyglass.
30
<PAGE>
COMPARATIVE PER SHARE DATA
The following table reflects (a) the historical net loss and book value
(deficit) per share of OpenTV Class A Ordinary Shares and the historical net
loss and book value per share of Spyglass common stock in comparison with the
unaudited pro forma net loss and book value per share after giving effect to
OpenTV's proposed merger with Spyglass, and (b) the equivalent historical net
loss and book value per share attributable to 0.7236 of an OpenTV Class A
Ordinary Share which will be received for each share of Spyglass common stock.
The historical book value per share is computed by dividing stockholders'
equity (deficit) as of December 31, 1998 and December 31, 1999, respectively,
by the actual ordinary shares/common stock outstanding. The pro forma per
share net loss from continuing operations is computed by dividing the pro
forma net loss from continuing operations by the pro forma weighted average
number of shares outstanding, assuming OpenTV had merged with Spyglass at the
beginning of the earliest period presented. The pro forma combined book value
per share is computed by dividing total pro forma stockholders' equity by the
pro forma number of ordinary shares outstanding at December 31, 1999, assuming
the merger had occurred on that date. The Spyglass equivalent pro forma
combined per share amounts are calculated by multiplying the OpenTV pro forma
combined per share amounts by the exchange ratio of 0.7236.
The following information should be read in conjunction with the separate
audited historical consolidated financial statements and related notes of
OpenTV and Spyglass, the unaudited pro forma condensed combined financial
information and related notes of OpenTV and the selected historical and
selected unaudited pro forma financial data included elsewhere in this joint
proxy statement/prospectus or incorporated by reference herein, including from
the Annual Report on Form 10-K filed by Spyglass for its fiscal year ended
September 30, 1999. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the merger of OpenTV with
Spyglass had been consummated as of the beginning of the earliest period
presented, nor is it necessarily indicative of the future operating results or
financial position of the combined company.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1999
------------- -------------
<S> <C> <C>
HISTORICAL OPENTV:
Basic net loss per share......................... $(0.43) $(4.19)
Diluted net loss per share....................... $(0.43) $(4.19)
Book value (deficit) per share at the end of the
period.......................................... $(0.14) $ 4.31
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1998 1999
------------- -------------
<S> <C> <C>
HISTORICAL SPYGLASS:
Basic net loss per share......................... $(0.69) $(0.12)
Diluted net loss per share....................... $(0.69) $(0.12)
Book value per share at the end of the period.... $ 1.98 $ 2.38
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
OPENTV AND SPYGLASS PRO FORMA COMBINED:
Pro forma net operations per OpenTV share--basic and diluted.... $(12.94)
Pro forma net operations per equivalent Spyglass share--basic
and diluted.................................................... $ (9.36)
Pro forma book value per OpenTV share at December 31, 1999...... $ 39.44
Pro forma book value per equivalent Spyglass share at December
31, 1999....................................................... $ 28.54
</TABLE>
31
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
OpenTV market price information
OpenTV Class A Ordinary Shares have been traded on NASDAQ and the Official
Segment of Amsterdam Exchanges N.V.'s Stock Market under the symbol "OPTV"
since November 23, 1999, the date of OpenTV's initial public offering. Prior
to such date there was no established public trading market for OpenTV's
ordinary shares.
The following table sets forth, for the periods indicated, the high and low
sales prices per share of OpenTV Class A Ordinary Shares as reported on
NASDAQ.
<TABLE>
<CAPTION>
OpenTV Class A
Ordinary
Shares
--------------
High Low
------- ------
<S> <C> <C>
Fiscal 1999
Fourth Quarter (beginning November 23, 1999) ................. $94.125 $50.00
Fiscal 2000
First Quarter................................................. 245.75 72.00
Second Quarter (through May 11, 2000)......................... 113.625 41.25
</TABLE>
Spyglass market price information
Spyglass' common stock has been traded on NASDAQ under the symbol "SPYG"
since June 27, 1995, the date of Spyglass' initial public offering. Prior to
such date, there was no established public trading market for Spyglass' common
stock. The following table sets forth, for the periods indicated, the high and
low sales prices per share of Spyglass common stock as reported on NASDAQ.
<TABLE>
<CAPTION>
Spyglass
Common Stock
-----------------
High Low
-------- --------
<S> <C> <C>
Fiscal Year Ended September 30, 1998:
First Quarter.............................................. $ 12.00 $ 4.0625
Second Quarter............................................. 9.5625 4.25
Third Quarter.............................................. 15.375 8.25
Fourth Quarter............................................. 15.3125 9.625
Fiscal Year Ended September 30, 1999:
First Quarter.............................................. 32.25 9.00
Second Quarter............................................. 20.25 8.875
Third Quarter.............................................. 23.50 8.625
Fourth Quarter ............................................ 20.50 10.375
Fiscal Year Ended September 30, 2000:
First Quarter.............................................. 44.0625 9.6875
Second Quarter............................................. 95.25 33.375
Third Quarter (through May 11, 2000)....................... 74.75 23.625
</TABLE>
32
<PAGE>
Recent share prices
The table below presents the per share closing prices of OpenTV Class A
Ordinary Shares and Spyglass common stock on NASDAQ and the pro forma
equivalent market value of OpenTV Class A Ordinary Shares to be issued for
Spyglass common stock in the merger as of the dates specified. March 24, 2000
was the last trading date before announcement of the merger. , 2000 was
the latest practicable trading day before the printing of this joint proxy
statement/prospectus. The table also sets forth the equivalent per share price
for Spyglass common stock, which was determined by multiplying the closing
prices of the OpenTV Class A Ordinary Shares as of the specified dates by the
exchange ratio of 0.7236.
<TABLE>
<CAPTION>
Spyglass
OpenTV Class A Spyglass Common Stock
Ordinary Shares Common Stock Equivalent Value
--------------- ------------ ----------------
<S> <C> <C> <C>
March 24, 2000.................... $169.000 $69.875 $122.288
, 2000......................
</TABLE>
Spyglass stockholders are advised to obtain current market quotations for
OpenTV Class A Ordinary Shares and Spyglass common stock. No assurance can be
given as to the market prices of OpenTV Class A Ordinary Shares or Spyglass
common stock at any time before the consummation of merger or as to the market
price of OpenTV Class A Ordinary Shares at any time after merger. Because the
exchange ratio is fixed, the exchange ratio will not be adjusted to compensate
Spyglass stockholders for decreases in the market price of OpenTV Class A
Ordinary Shares which have occurred since the date of the merger agreement and
could occur further before the merger becomes effective. In the event the
market price of OpenTV Class A Ordinary Shares decreases or increases prior to
the consummation of the merger, the value of the OpenTV Class A Ordinary
Shares to be received in merger in exchange for Spyglass common stock would
correspondingly decrease or increase.
Dividends
Neither OpenTV nor Spyglass has ever declared or paid cash dividends on its
capital stock. Pursuant to the merger agreement, each of OpenTV and Spyglass
has agreed not to pay cash dividends pending the consummation of merger,
without the written consent of the other. If the merger is not consummated,
the Spyglass board anticipates that it would continue its policy of retaining
all earnings to finance the expansion of its business. OpenTV expects to
retain all earnings for use in the operation and expansion of its business and
does not anticipate paying any cash dividends before or in the forseeable
future after the merger.
33
<PAGE>
THE OPENTV MEETING
Date, time and place of OpenTV annual meeting
The date, time and place of the annual meeting of OpenTV stockholders are
as follows:
, 2000
9:00 a.m. Pacific Time
401 East Middlefield Road
Mountain View, California 94043
Purpose of the annual meeting
OpenTV is furnishing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by OpenTV's board
of directors. The OpenTV board of directors will use the proxies at the annual
meeting of stockholders of OpenTV to be held on , 2000 and at any
adjournment or postponement thereof.
The annual meeting is being held so that OpenTV stockholders may consider
and vote upon the following proposals:
1. To approve the issuance of shares of OpenTV Class A Ordinary Shares in
the merger of Sonnet Acquisition Corp., a wholly owned subsidiary of
OpenTV, with and into Spyglass, as contemplated by the Agreement and
Plan of Merger and Reorganization dated as of March 26, 2000, among
OpenTV, Sonnet Acquisition Corp. and Spyglass. OpenTV will issue 0.7236
of its Class A Ordinary Shares in exchange for each outstanding share of
Spyglass common stock.
2. To approve election of directors to serve until the next annual meeting;
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors for OpenTV in the current year;
4. To approve an amendment to the 1999 Share Option/Share Issuance Plan to
increase the number of shares of Class A Ordinary Shares reserved for
issuance thereunder from 7,200,000 shares to 8,980,000 shares; and
5. To transact any other business that properly comes before the annual
meeting or any adjournments or postponements thereof.
Record date and outstanding shares
OpenTV's board of directors has fixed the close of business on , 2000
as the record date for the annual meeting. Only holders of record of OpenTV's
Class A and Class B Ordinary Shares at the close of business on the record
date are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were OpenTV Class A Ordinary Shares, and
OpenTV Class B Ordinary Shares, outstanding and entitled to vote, held of
record by approximately stockholders and stockholders, respectively,
although OpenTV has been informed that there are in excess of beneficial
owners of Class A Ordinary Shares.
Vote and quorum required
Holders of OpenTV's Class A Ordinary Shares are entitled to one vote and
holders of OpenTV's Class B Ordinary Shares are entitled to ten votes,
respectively, for each share held as of the record date. Approval of each of
the proposals to be voted upon by OpenTV stockholders requires the affirmative
vote of a majority of the total voting power of the outstanding ordinary
shares of OpenTV present in person or represented by proxy at the meeting.
Attendance at the meeting in person or by proxy of the shares representing a
majority of the votes represented by the OpenTV ordinary shares is required
for a quorum.
34
<PAGE>
On the record date, directors and executive officers of OpenTV and their
affiliates as a group owned ordinary shares (excluding any shares issuable
upon the exercise of options), or approximately % of the votes
represented by the shares outstanding on the record date. The majority
stockholder of OpenTV has entered into a stockholder voting agreement with
Spyglass that obligates it to vote a total of approximately 94.8% of the
voting power represented by all of OpenTV's ordinary shares outstanding as of
the record date in favor of approval of the issuance of Class A Ordinary
Shares in connection with the merger.
Abstentions; broker non-vote
Any abstention will be counted for purposes of determining a quorum, but
will have the same effect as a vote AGAINST any proposal considered at the
annual meeting.
The treatment of a broker non-vote, which occurs in the event that a
broker, bank, custodian, nominee or other record holder of OpenTV Ordinary
Shares indicates on a proxy that it does not have discretionary authority to
vote certain shares on a particular matter, is not clearly established under
BVI law and is not treated in OpenTV's memorandum of association or articles
of association. However, if BVI law were to conform in these respects with
Delaware general corporate principles which OpenTV will apply in its annual
meeting, those shares will not be considered for purposes of determining the
number of shares entitled to vote with respect to a particular proposal on
which the broker has expressly not voted, but will be counted for purposes of
determining the presence or absence of a quorum for the transaction of
business.
Dissenters' rights
Holders of OpenTV Class A Ordinary Shares are not entitled to dissenters'
rights in the merger.
Expenses of proxy solicitation
OpenTV will pay the expenses of soliciting proxies to be voted at the
OpenTV annual meeting, except that OpenTV and Spyglass will share equally in
certain expenses incurred in connection with filing and printing this joint
proxy statement/prospectus. Following the original mailing of the proxies and
other soliciting materials, OpenTV will request brokers, custodians, nominees
and other record holders of OpenTV ordinary shares to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
OpenTV ordinary shares and to request authority for the exercise of proxies.
In such cases, upon the request of the record holders, OpenTV will reimburse
such holders for their reasonable expenses.
In addition to solicitation by mail, directors, officers and key employees
of OpenTV may solicit proxies in person or by telephone, telegram or other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-
pocket expenses.
Voting of proxies
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the OpenTV board of directors for use at the OpenTV annual
meeting. Please complete, date and sign the accompanying proxy and promptly
return it in the enclosed envelope or otherwise mail it to OpenTV. All
properly signed proxies that OpenTV receives prior to the vote at the meeting
and that are not revoked will be voted at the meeting according to the
instructions indicated on the proxies or, if no direction is indicated, such
proxies will be voted FOR each of the proposals to be considered at the annual
meeting. You may revoke your proxy at any time before it is exercised at the
meeting by taking any of the following actions:
. delivering a written notice to the secretary of OpenTV by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
. signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting; and
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. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
OpenTV's board of directors does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for
action at the meeting. If any other matters are properly brought before the
meeting, the persons named in the proxies will have discretion to vote on such
matters in accordance with their best judgment.
Recommendation of the OpenTV board of directors
The board of directors of OpenTV has unanimously determined that the terms
of the merger agreement and the issuance of Class A Ordinary Shares in the
merger, as well as the passing of all of the other proposals to be considered
at the annual meeting are in the best interests of OpenTV and the OpenTV
stockholders. Accordingly, the OpenTV board of directors recommends that
OpenTV stockholders vote FOR the proposal to approve the merger agreement and
the issuance of Class A Ordinary Shares in the merger and all of the other
proposals to be considered at the annual meeting.
To assure that your OpenTV shares are represented at the meeting, please
complete, date and sign the enclosed proxy and mail it promptly in the
postage-paid envelope provided, whether or not you plan to attend the OpenTV
meeting. You may revoke your proxy at any time before it is voted.
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THE SPYGLASS MEETING
Date, time and place of the Spyglass special meeting
The date, time and place of the special meeting of the stockholders of
Spyglass are as follows:
, 2000
10:00 a.m. Eastern Time
60 State Street, 26th Floor
Boston, Massachusetts 02109
Purpose of the special meeting
Spyglass is furnishing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by the board of
directors of Spyglass relating to the proposed merger with OpenTV. The
Spyglass board of directors will use the proxies at the special meeting of
stockholders of Spyglass to be held on , 2000 and at any adjournment or
postponement thereof.
The special meeting is being held so that Spyglass stockholders may
consider and vote upon a proposal to approve a merger of OpenTV with Spyglass
whereby each outstanding share of Spyglass common stock will be converted into
the right to receive 0.7236 of an OpenTV Class A Ordinary Share, and to
transact such other business as may properly come before the special meeting.
The merger agreement is included as Annex A to this joint proxy
statement/prospectus.
Record date and outstanding shares
The board of directors of Spyglass has fixed the close of business on
, 2000 as the record date for the special meeting. Only holders of record
of Spyglass common stock at the close of business on the record date are
entitled to notice of and to vote at the meeting. As of the close of business
on the record date, there were shares of Spyglass common stock outstanding
and entitled to vote, held of record by approximately stockholders,
although Spyglass has been informed that there are in excess of beneficial
owners.
Vote and quorum required
Holders of Spyglass common stock are entitled to one vote for each share
held as of the record date. Approval of the merger agreement requires the
affirmative vote of the holders of a majority of the shares of Spyglass common
stock outstanding on the record date. Attendance at the meeting in person or
by proxy of a majority of the outstanding shares of Spyglass common stock is
required for a quorum.
On the record date, the directors and executive officers of Spyglass and
their affiliates as a group owned shares of Spyglass common stock
(excluding any shares issuable upon the exercise of options) or approximately
% of the shares of Spyglass common stock outstanding on the record date.
All directors and executive officers of Spyglass have entered into stockholder
voting agreements with OpenTV that obligate them to vote a total of
approximately % of the Spyglass common stock outstanding as of the record
date in favor of approval of the merger and merger agreement.
Voting of proxies
All properly executed proxies received before the vote at the Spyglass
special meeting, and not revoked, will be voted in accordance with the
instructions indicated on the proxies. If no instructions are indicated, such
proxies will be voted FOR the proposal to approve the merger agreement and the
merger, and the proxy holder may vote the proxy in its discretion as to any
other matter which may properly come before the meeting.
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In the event that a broker, bank, custodian, nominee or other record holder
of Spyglass common stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, which
is called a broker non-vote, those shares will not be considered for purposes
of determining the number of shares entitled to vote with respect to a
particular proposal on which the broker has expressly not voted, but will be
counted for purposes of determining the presence or absence of a quorum for
the transaction of business.
Because approval of the merger agreement and the merger requires the
affirmative vote of a majority of the outstanding shares of Spyglass common
stock, any abstention or broker non-vote will have the same effect as a vote
AGAINST the approval of the merger agreement and the merger. In addition, the
failure of a Spyglass stockholder to return a proxy or vote in person will
have the effect of a vote against the approval of the merger agreement and the
merger. Brokers holding shares for beneficial owners cannot vote on the
approval of the merger agreement and the merger at the Spyglass special
meeting without the beneficial owners' specific instructions. Accordingly,
Spyglass stockholders are urged to return the enclosed proxy marked to
indicate their vote.
Appraisal rights
Holders of Spyglass common stock are not entitled to appraisal rights with
respect to the merger.
Expenses of proxy solicitation
Spyglass will be using the proxy solicitation firm of Georgeson Shareholder
Communications Inc. The fee for Georgeson Shareholder Communications Inc.'s
services is $10,000 plus any costs associated with these services. Spyglass
will pay the expenses of soliciting proxies to be voted at the Spyglass
meeting, except that OpenTV will share equally certain expenses incurred in
connection with filing and printing this joint proxy statement/prospectus.
Following the original mailing of the proxies and other soliciting materials,
Spyglass will request brokers, custodians, nominees and other record holders
of Spyglass common stock to forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of Spyglass common stock and to
request authority for the exercise of proxies. In such cases, upon the request
of the record holders, Spyglass will reimburse such holders for their
reasonable expenses.
In addition to solicitation by mail, directors, officers and key employees
of Spyglass may solicit proxies in person or by telephone, telegram or other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-
pocket expenses.
Proxies
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the Spyglass board of directors for use at the Spyglass meeting.
Please complete, date and sign the accompanying proxy and promptly return it
in the enclosed envelope or otherwise mail it to Spyglass. All properly signed
proxies that Spyglass receives prior to the vote at the meeting and that are
not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, to approve the
merger agreement and the merger. You may revoke your proxy at any time before
it is exercised at the meeting by taking any of the following actions:
. delivering a written notice to the secretary of Spyglass by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
. signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting; and
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
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The board of directors of Spyglass does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for
action at the Spyglass meeting. If any other matters are properly brought
before the meeting, the persons named in the proxies will have discretion to
vote on such matters in accordance with their best judgment.
Recommendation of the Spyglass board of directors
The board of directors of Spyglass has unanimously determined that the
terms of the merger agreement and the merger are in the best interests of
Spyglass and the Spyglass stockholders. Accordingly, the Spyglass board of
directors recommends that Spyglass stockholders vote FOR the proposal to
approve the merger agreement and the merger.
To assure that your shares are represented at the Spyglass meeting,
please complete, date and sign the enclosed proxy and mail it promptly in
the postage-paid envelope provided, whether or not you plan to attend the
Spyglass meeting. You may revoke your proxy at any time before it is voted.
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THE MERGER
This section of the joint proxy statement/prospectus describes the proposed
merger. While OpenTV and Spyglass believe that the description in this section
covers the material terms of the merger and the related transactions, this
summary may not contain all of the information that is important to you. You
should carefully read this entire document and the other documents OpenTV and
Spyglass have referred to in this joint proxy statement/prospectus for a more
complete understanding of the merger.
Background of the merger
Subsequent to OpenTV's initial public offering on November 23, 1999,
OpenTV's management began considering opportunities to further develop
OpenTV's product lines through business partnerships, acquisitions of, or
investments in, complementary products, technologies and businesses. In
December 1999, OpenTV began discussions with Merrill Lynch for the purpose of
advising OpenTV on selected business partnering opportunities. In December
1999 and January 2000, after informal discussions between OpenTV's senior
management and certain of its directors, OpenTV decided to seek a partner with
web browsing technology, and identified a few specific companies that could
provide such technology and potentially complement OpenTV's business strategy.
Spyglass was one of the specific companies that OpenTV chose to investigate
further.
On January 12, 2000, Jan Steenkamp, president and chief executive officer
of OpenTV, telephoned Doug Colbeth, chairman of the board and chief executive
officer of Spyglass, to discuss a range of transactions such as OpenTV
licensing Spyglass software, OpenTV acquiring portions of Spyglass technology
or OpenTV acquiring Spyglass itself. They arranged a meeting at Spyglass'
offices in Naperville, Illinois on January 19, 2000 to allow Spyglass to
demonstrate its technology to OpenTV and for OpenTV and Spyglass to discuss in
more detail a possible combination or other relationship between the two
companies.
On January 19, 2000, Mr. Colbeth and Mr. Steenkamp each provided overviews
of their respective company's products and product strategy, and discussed the
business opportunities and challenges faced by their respective companies, the
complementary nature of their respective businesses, and their personal
philosophies and management styles. They also discussed the idea of combining
the two companies.
On January 20, 2000, Mr. Colbeth communicated with Mr. Steenkamp regarding
a combination of the two companies. Mr. Steenkamp contacted selected OpenTV
board members and OpenTV's financial and outside legal advisors regarding his
recent discussions with Mr. Colbeth.
On January 27, 2000, the board of directors of OpenTV met at a regularly
scheduled meeting to discuss, among other things, the possibility of a merger
with Spyglass. OpenTV management described the rationale for seeking a
business partner with web browsing technology and discussed alternative
partners, including Spyglass. Mr. Steenkamp summarized his discussions with
Mr. Colbeth. The OpenTV board discussed the potential merger, and directed
OpenTV's senior management to continue to pursue the transaction, undertake
full due diligence as quickly as possible, and negotiate appropriate terms.
On January 27, 2000, at a special meeting of the board of directors of
Spyglass, the directors discussed the possible business combination with
OpenTV. Mr. Colbeth summarized his discussions with Mr. Steenkamp, and members
of Spyglass' executive management commented on OpenTV's business, including
its interactive software platform and international sources of revenue,
customer base and distribution channels. After extensive discussion, the
Spyglass board asked management to continue to review a potential business
combination with OpenTV.
Between January 27, 2000 and February 14, 2000, the parties engaged in
negotiations regarding the principal terms of a potential transaction and the
scope of due diligence to be undertaken if OpenTV and Spyglass developed an
agreement in principle.
On February 14, 2000, discussions ceased as the parties failed to reach an
agreement in principle on the potential transaction.
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On March 1, 2000, Mr. Steenkamp communicated with Mr. Colbeth and inquired
as to whether the transaction was still a possibility and if further
negotiations could ensue.
On March 2, 2000, OpenTV management had an informal discussion by telephone
with certain of its directors and, among other things, provided an update on
the status of discussions with Spyglass. The directors strongly urged OpenTV
management to resume negotiations and try to conclude an acquisition.
Later on March 2, 2000, Mr. Colbeth responded to Mr. Steenkamp that the
negotiations could resume.
On March 6, 2000, Spyglass retained FleetBoston Robertson Stephens to act
as its financial advisor.
Between March 2, 2000 and March 14, 2000, the parties continued to discuss
the principal terms of a potential transaction. They reached a consensus
sufficient to convince each party to proceed to more intensive due diligence
and the preparation and negotiation of definitive documentation.
During the week of March 13, 2000, in two separate meetings, the senior
management of each company presented a detailed business overview to the other
company's senior management. Both companies' legal counsel, and financial and
accounting advisors participated in these meetings. Also during this week,
OpenTV's management and accounting advisors undertook detailed due diligence
investigations at Spyglass' headquarters and OpenTV's legal counsel reviewed
Spyglass' responses to the due diligence requests. Spyglass' management,
financial and accounting advisors and legal counsel, during this week, also
conducted their due diligence investigation of OpenTV and reviewed OpenTV's
response to its due diligence request. These investigations continued until
the execution of the definitive merger documents on March 26, 2000.
On March 18, 2000, Mr. Colbeth provided the Spyglass directors with an
update on the status of negotiations with OpenTV.
On the evening of March 20, 2000, OpenTV's senior management held a meeting
with its technical, intellectual property, financial, legal and accounting due
diligence teams and reviewed all aspects of Spyglass' business based on the
investigations and discussions to date.
On March 23, 2000, the board of directors of OpenTV held a telephonic board
meeting and reviewed the status of the diligence relating to the Spyglass
transaction, as well as the status of the definitive merger documents. At the
conclusion of this meeting, OpenTV's board of directors directed management to
continue its due diligence discussions as well as its discussions relating to
the definitive agreements.
On March 24, 2000, the board of directors of Spyglass held a special
meeting at which members of Spyglass' senior management, together with
Spyglass' financial advisor and legal counsel, reviewed various aspects of the
business combination with OpenTV, including the terms of the merger agreement,
the results of the due diligence investigation and the directors' fiduciary
duties under Delaware law. FleetBoston Robertson Stephens delivered its oral
opinion, subsequently confirmed by delivery of a written opinion dated March
26, 2000, that as of such date and based on and subject to the factors and
assumptions stated in its written opinion, the exchange ratio in the merger
was fair from a financial point of view to Spyglass stockholders. Legal
counsel advised the Spyglass board of directors on their responsibilities as
board members, summarized the terms of the merger agreement and related
ancillary documents, which had been previously distributed to the directors,
and answered questions regarding the acquisition process and their fiduciary
duties to Spyglass stockholders. After deliberation, the directors unanimously
approved the merger agreement and related agreements and authorized the
execution of the merger agreement and related agreements, subject to the
completion of these documents to the satisfaction of senior management.
On March 25, 2000, OpenTV's board of directors held an in person and
telephonic meeting to discuss the merger in detail. OpenTV's accounting and
legal advisors also attended this meeting. Members of OpenTV's senior
management provided a business summary of the transaction, and a report on the
results of the technology diligence conducted to date. OpenTV's legal counsel
reviewed the terms of the draft merger agreement and
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related agreements, presented a report on the results of the legal diligence
conducted to date, and advised the board of its fiduciary duties.
Representatives of Merrill Lynch reviewed their financial analysis with
respect to the proposed financial terms of the merger. OpenTV's accountants
presented a report on the results of the accounting diligence conducted to
date. After full discussion, the OpenTV board unanimously approved the
proposed transaction structure and the terms of the definitive merger and
related agreements, subject to the satisfactory resolution of certain due
diligence points, and delivery of an opinion from Merrill Lynch as to the
fairness, from a financial point of view, to OpenTV, of the exchange ratio
provided for in the merger.
On March 25 and 26, 2000, OpenTV and Spyglass finalized the definitive
merger and related agreements and OpenTV completed its due diligence
investigation.
On March 26, 2000, OpenTV's board of directors held a telephonic meeting.
OpenTV's legal counsel also attended. Upon receipt of confirmation from senior
management that all due diligence matters had been resolved, the board
unanimously approved the proposed transaction structure and the terms of the
definitive merger and related agreements. Also at this meeting,
representatives of Merrill Lynch rendered an oral opinion, which opinion was
subsequently confirmed by delivery of a written opinion dated March 26, 2000,
to the effect that, as of that date and based upon and subject to the factors
and assumptions set forth in the opinion, the exchange ratio was fair, from a
financial point of view, to OpenTV.
On March 26, 2000, after approval of the merger agreement and related
agreements, OpenTV and Spyglass executed and delivered the merger agreement
and the parties thereto executed and delivered the related agreements
including the parent voting agreement, the company voting agreement, and the
employment agreements.
On March 26, 2000, OpenTV and Spyglass issued a joint press release
announcing the transaction.
Spyglass' reasons for the merger
At a meeting held on March 24, 2000, the board of directors of Spyglass
concluded that the merger was in the best interests of Spyglass and its
stockholders and determined to recommend that the stockholders approve the
stockholder proposals relating to the merger. In its evaluation of the merger,
Spyglass' board of directors identified several potential benefits of the
merger, the most important of which included the board's expectation that:
. the merger would provide a growth opportunity for Spyglass, and an
opportunity to achieve industry leadership in the interactive television
industry by providing a broader product offering through the combined
company, accompanied with an experienced professional services
organization;
. the combined company may realize potential synergies by integrating
Spyglass' complementary Internet technologies, professional services and
talented and highly-skilled employee base with OpenTV's interactive
software platform and larger, more diverse customer base;
. the merger would leverage OpenTV's global presence, international
sources of revenue, customer base and distribution channels to
accelerate Spyglass' revenue growth for its products and services; and
. the combined company's broader technology base and product offerings
would provide greater opportunities for the professional growth of
individual employees and enhance Spyglass' ability to retain and recruit
employees in a tight labor market.
Spyglass' board of directors consulted with senior management, as well as
its legal counsel, independent accountants and financial advisors, in reaching
its decision to approve the merger. In its evaluation of the merger, the
Spyglass board reviewed several factors, including, but not limited to, the
following:
. Spyglass management's view of the financial condition, results of
operations and businesses of Spyglass and OpenTV before and after giving
effect to the merger and the Spyglass board's determination of the
merger's effect on stockholder value;
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. historical information concerning Spyglass' and OpenTV's business,
financial performance and condition, operations, technology and
management, including reports concerning results of operations during
the most recent fiscal period filed with the Securities and Exchange
Commission;
. the consideration Spyglass stockholders will receive in the merger in
light of comparable transactions;
. the current and prospective industry environment for Spyglass' products
and services, including the ability of larger industry participants to
increase market share;
. current financial market conditions and historical market prices,
volatility and trading information for OpenTV and Spyglass;
. the opinion of FleetBoston Robertson Stephens that, as of the date of
its opinion and based on and subject to the matters described in its
opinion, the exchange ratio in the merger was fair from a financial
point of view to the holders of Spyglass common stock;
. the belief that the terms of merger agreement are reasonable;
. the potential impact of the merger on Spyglass' customers and employees;
. discussions with its management, legal and financial advisors as to the
results of the due diligence investigation of OpenTV; and
. the expectation that the merger will be a reorganization for United
States federal income tax purposes.
The Spyglass board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
. the risk that the potential benefits of the merger may not be realized;
. the risk that the per share value of the consideration to be received by
Spyglass stockholders might be significantly less than the price per
share implied by the exchange ratio immediately prior to the
announcement of the merger because the exchange ratio will not be
adjusted for changes in the market price of either OpenTV Class A
Ordinary Shares or Spyglass common stock;
. the possibility that the merger may not be consummated, even if approved
by Spyglass' and OpenTV's stockholders;
. the effect of the public announcement and consummation of the merger on
Spyglass' and OpenTV's sales, customer relations and strategic partners;
. the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical, sales and management personnel might not remain
employed by the combined company;
. the difficulty and risks associated with the integration of a different
management and organizational structure;
. the negative effect that treating the merger, for accounting purposes,
as a "purchase," will have on the combined company's future earnings per
share, due to amortization of "goodwill" purchased from Spyglass; and
. the other applicable risks described in this joint proxy
statement/prospectus statement under "Risk Factors" beginning on page 6.
The Spyglass board concluded that on balance the potential benefits of the
merger outweighed the potential risks. This discussion of the information and
factors considered by the board is not meant to be exhaustive. Given the
complexity of the issue and the number of factors considered, the board did
not attempt to quantify or otherwise assign relative weight to specific
factors.
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Recommendation of the Spyglass board of directors
After careful consideration, the board of directors of Spyglass unanimously
determined that the merger is in the best interests of Spyglass and its
stockholders, unanimously approved the merger agreement and recommends that
Spyglass stockholders vote for approval and adoption of the merger agreement
and the merger.
In view of the variety of factors considered in connection with its
evaluation of the merger, the Spyglass board of directors did not find it
practicable to, and accordingly did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, many of the factors contained elements that may have both a positive
and negative effect on the fairness of the merger. Except as described above,
the Spyglass board of directors, as a whole, did not attempt to analyze each
individual factor separately to determine its impact on the fairness of the
merger. Consequently, individual members of the Spyglass board of directors
may have given different weight to different factors and may have viewed
differently each factor's effect on the fairness determination.
In considering the recommendation of the Spyglass board of directors with
respect to the merger agreement, Spyglass stockholders should be aware that
directors and officers of Spyglass have interests in the merger that are
different from, or are in addition to, the interests of Spyglass stockholders
generally. Please see "Interests of certain persons in the merger" on page 57.
OpenTV's reasons for the merger
At a meeting held on March 26, 2000, the board of directors of OpenTV
concluded that the merger was in the best interests of OpenTV and its
stockholders and determined to recommend that the stockholders approve the
stockholder proposals relating to the merger. In its evaluation of the merger,
OpenTV's board of directors identified several potential benefits of the
merger, the most important of which included the board's expectation that:
. the merger would provide an opportunity for OpenTV to accelerate its
revenue growth and extend its leadership in the interactive television
industry;
. the merger would allow OpenTV to offer a more complete product solution
to network operators by combining Spyglass technology with OpenTV
technology, and thereby obtain a larger share of network operator's
business than OpenTV would on its own;
. the merger would allow OpenTV to better address network operator
interest in providing their viewers with HTML-based web-browsing
capability than OpenTV would on its own, given the difficulty OpenTV
would face in developing or licensing the necessary HTML-based web-
browsing capability on its own;
. the merger would allow OpenTV to penetrate the United States cable
market to a greater degree than OpenTV would on its own due to the
combined company's access to Spyglass' existing customer relationships
and Spyglass' United States focused sales organization;
. the merger would allow OpenTV to expand its interactive television
professional services business by accessing Spyglass' management
expertise, personnel and current base of professional services
customers;
. the merger would provide OpenTV with the ability to expand into the
wireless communication market through Spyglass' proprietary technology
and Spyglass' experience in providing professional services in this
market;
. the merger would create a combined company with a larger revenue base
both near-term and long-term than OpenTV would likely achieve on its
own; and
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. the merger would allow OpenTV to obtain a critical mass of talented and
highly skilled employees with proven capabilities that OpenTV would not
otherwise have been able to obtain in a tight labor market.
OpenTV's board of directors consulted with senior management, as well as
its legal counsel and financial advisor, in reaching its decision to approve
the merger. In its evaluation of the merger, the OpenTV board reviewed several
factors, including, but not limited to, the following:
. historical information concerning OpenTV's and Spyglass' respective
businesses, financial performance and condition, operations, technology
and management;
. OpenTV management's view of the financial condition, results of
operations and businesses of OpenTV and Spyglass before and after giving
effect to the merger and the OpenTV board's determination of the
merger's effect on stockholder value;
. current financial market conditions and historical market prices,
volatility and trading information;
. the consideration Spyglass stockholders will receive in the merger in
light of comparable transactions;
. the written opinion of Merrill Lynch, dated March 26, 2000, to the
OpenTV board of directors to the effect that, as of the date of its
opinion and based upon and subject to the factors and assumptions set
forth in its opinion, which is described below, under "Opinion of
OpenTV's financial advisor," the exchange ratio in the merger was fair
from a financial point of view to OpenTV;
. the belief by OpenTV's senior management that the terms of the merger
agreement are reasonable;
. the potential impact of the merger on OpenTV's and Spyglass' customers
and employees; and
. discussions with its management, legal and financial advisors as to the
results of the due diligence investigation of Spyglass.
The OpenTV board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
. the risk that the potential benefits of the merger may not be realized;
. the difficulty of integrating Spyglass with OpenTV and the management
effort required to complete the integration;
. the possibility that the merger may not be consummated, even if approved
by OpenTV's and Spyglass' board of directors;
. the negative effect that treating the merger, for accounting purposes,
as a "purchase," will have on the combined company's future earnings per
share, due to amortization of "goodwill" purchased from Spyglass;
. the risk that Spyglass revenue mix may not be viewed as favorably by the
market as OpenTV's resulting in a reduction of the value multiple for
OpenTV's stock;
. the risk that the premium offered relative to Spyglass' current stock
price may not be viewed favorably by the market;
. the effect of the public announcement of the merger on OpenTV's and
Spyglass' customer relations;
. the risk that Microsoft might seek to modify its relationship with
Spyglass following the merger due to its concerns with OpenTV as a
competitor in the interactive television market;
. the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical, sales and management personnel might not remain
employed by the combined company;
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. the impact of the accelerated vesting provisions associated with
Spyglass' employee stock option plan on the combined company's ability
to retain the Spyglass employees; and
. the other applicable risks described in this joint proxy
statement/prospectus under "Risk Factors" beginning on page 6.
The OpenTV board concluded however, that, on balance, the potential
benefits to OpenTV and its stockholders of the merger outweighed the risks
associated with the merger. The discussion of the information and factors
considered by the OpenTV board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
merger, the OpenTV board did not find it practicable to, and did not quantify
or otherwise assign relative weight to, the specific factors considered in
reaching its determination.
Recommendation of OpenTV's Board of Directors
After careful consideration, the OpenTV board of directors has determined
the merger agreement and the merger to be fair to and in the best interests of
its stockholders. OpenTV's board of directors recommends approval of the
issuance of shares of OpenTV Class A Ordinary Shares in connection with the
merger as described in this joint proxy statement/prospectus.
Opinion of Spyglass' financial advisor
Pursuant to an engagement letter dated March 6, 2000, Spyglass engaged
FleetBoston Robertson Stephens to render an opinion as to the fairness of the
exchange ratio, from a financial point of view, to holders of shares of
Spyglass common stock (other than OpenTV or any of its affiliates).
On March 24, 2000 at a meeting of the Spyglass board held to evaluate the
proposed merger, FleetBoston Robertson Stephens rendered to the Spyglass board
an oral opinion, which was subsequently confirmed by delivery of a written
opinion dated March 26, 2000, that, as of the date of the opinion and based on
the assumptions made, the matters considered and the limitations on the review
undertaken described in the opinion, the exchange ratio was fair, from a
financial point of view, to the holders of shares of Spyglass common stock
(other than OpenTV or any of its affiliates). The exchange ratio was
determined through negotiations between the respective managements of Spyglass
and OpenTV. Although FleetBoston Robertson Stephens did assist the management
of Spyglass in these negotiations, it was not asked to, and did not, recommend
to Spyglass that any specific exchange ratio constitutes the appropriate
exchange ratio for the merger. FleetBoston Robertson Stephens also assisted
Spyglass' management in the negotiations leading to agreement on the principal
structural terms of the merger.
The full text of the FleetBoston Robertson Stephens opinion, which sets
forth, among other things, assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex C and is
incorporated in this joint proxy statement/prospectus by reference. Spyglass
urges its stockholders to read the FleetBoston Robertson Stephens opinion in
its entirety. The FleetBoston Robertson Stephens opinion was prepared for the
benefit and use of the Spyglass board in connection with its evaluation of the
merger and does not constitute a recommendation to stockholders of Spyglass as
to how they should vote, or take any other action, with respect to the merger.
The FleetBoston Robertson Stephens opinion does not address:
. the relative merits of the merger and the other business strategies that
the Spyglass board has considered or may be considering; or
. the underlying business decision of the Spyglass board to proceed with
the merger.
The summary of the FleetBoston Robertson Stephens opinion set forth in this
joint proxy statement/prospectus is qualified in its entirety by reference to
the full text of the FleetBoston Robertson Stephens opinion.
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In connection with the preparation of the FleetBoston Robertson Stephens
opinion, FleetBoston Robertson Stephens, among other things:
. reviewed certain publicly available financial statements and other
business and financial information of Spyglass and OpenTV, respectively;
. reviewed certain internal financial statements and other financial and
operating data concerning Spyglass prepared by the management of
Spyglass;
. reviewed certain financial forecasts and other forward looking financial
information prepared by the management of Spyglass;
. reviewed with OpenTV certain publicly available estimates of research
analysts relating to Spyglass and OpenTV;
. held discussions with the respective managements of Spyglass and OpenTV
concerning the businesses, past and current operations, financial
condition and future prospects of both Spyglass and OpenTV,
independently and combined, including discussions with the managements
of Spyglass and OpenTV concerning cost savings and other synergies that
are expected to result from the merger, as well as their views regarding
the strategic rationale for the merger;
. reviewed the financial terms and conditions set forth in the merger;
. reviewed the stock price and trading history of Spyglass and OpenTV;
. compared the financial performance of Spyglass and OpenTV and the prices
and trading activity of Spyglass common stock and OpenTV ordinary shares
with that of certain other publicly traded companies it deemed
comparable with Spyglass and OpenTV, respectively;
. compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that it deemed
relevant;
. reviewed the pro forma impact of the merger on OpenTV's revenue per
share;
. participated in discussions and negotiations among representatives of
Spyglass and OpenTV and their financial and legal advisors; and
. made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In its review and analysis, and in arriving at its opinion, FleetBoston
Robertson Stephens assumed and relied upon the accuracy and completeness of
all of the financial and other information provided to it (including
information furnished to it orally or otherwise discussed with it by the
managements of Spyglass and OpenTV) or publicly available and neither
attempted to verify, nor assumed responsibility for verifying, any of such
information. FleetBoston Robertson Stephens relied upon the assurances of
managements of Spyglass and OpenTV that they were not aware of any facts that
would make such information inaccurate or misleading. Furthermore, FleetBoston
Robertson Stephens did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the
properties, assets or liabilities (contingent or otherwise) of Spyglass or
OpenTV, nor was FleetBoston Robertson Stephens furnished with any such
evaluation or appraisal.
With respect to the financial forecasts and projections (and the
assumptions and bases therefor) for each of Spyglass and OpenTV that
FleetBoston Robertson Stephens reviewed, upon the advice of the managements of
Spyglass and OpenTV, FleetBoston Robertson Stephens assumed that such
forecasts and projections:
. had been reasonably prepared in good faith on the basis of reasonable
assumptions;
. reflected the best available estimates and judgments as to the future
financial condition and performance of Spyglass and OpenTV,
respectively; and
. will be realized in the amounts and in the time periods estimated.
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<PAGE>
In addition, FleetBoston Robertson Stephens assumed that:
. the merger will be consummated upon the terms set forth in the merger
agreement without material alteration thereof, including, among other
things, that the merger will be accounted for as a "purchase method"
business combination in accordance with United States generally accepted
accounting principles ("United States GAAP");
. the merger will be treated as a reorganization pursuant to the Internal
Revenue Code of 1986, as amended; and
. the historical financial statements of each of Spyglass and OpenTV
reviewed by it had been prepared and fairly presented in accordance with
United States GAAP consistently applied.
FleetBoston Robertson Stephens relied as to all legal matters relevant to
rendering its opinion on the advice of counsel.
Although developments following the date of the FleetBoston Robertson
Stephens opinion may affect the opinion, FleetBoston Robertson Stephens
assumed no obligation to update, revise or reaffirm its opinion. The
FleetBoston Robertson Stephens opinion is necessarily based upon market,
economic and other conditions as in effect on, and information made available
to FleetBoston Robertson Stephens as of, the date of the FleetBoston Robertson
Stephens opinion. It should be understood that subsequent developments may
affect the conclusion expressed in the FleetBoston Robertson Stephens opinion
and that FleetBoston Robertson Stephens disclaims any undertaking or
obligation to advise any person of any change in any matter affecting the
opinion which may come or be brought to its attention after the date of the
opinion. The FleetBoston Robertson Stephens opinion is limited to the
fairness, from a financial point of view and as of the date thereof, of the
exchange ratio to holders of shares of Spyglass common stock (other than
OpenTV or any of its affiliates). FleetBoston Robertson Stephens does not
express any opinion as to:
. the value of any employee agreement or other arrangement entered into in
connection with the merger;
. any tax or other consequences that might result from the merger; or
. what the value of OpenTV ordinary shares will be when issued to
Spyglass' stockholders pursuant to the merger or the price at which the
shares of OpenTV Class A Ordinary Shares that are issued pursuant to the
merger may be traded in the future.
The following is a summary of the material financial analyses performed by
FleetBoston Robertson Stephens in connection with rendering the FleetBoston
Robertson Stephens opinion. The summary of the financial analyses is not a
complete description of all of the analyses performed by FleetBoston Robertson
Stephens. Certain of the information in this section is presented in a tabular
form. In order to better understand the financial analyses performed by
FleetBoston Robertson Stephens, these tables must be read together with the
text of each summary. The FleetBoston Robertson Stephens opinion is based upon
the totality of the various analyses performed by FleetBoston Robertson
Stephens and no particular portion of the analyses has any merit standing
alone.
Comparable Companies Analysis. Using publicly available information,
FleetBoston Robertson Stephens analyzed, among other things, the total
capitalization and trading multiples of Spyglass and selected publicly traded
companies in the devices, platforms/software, broadband applications and
eBusiness consulting industries, including:
Devices Companies:
. ACTV
. Palm
. Phone.com
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Platforms/Software Companies:
. Aether Systems
. BSquare
. Gemstar
. Liberate
. OpenTV
. Puma Technology
. Wind River Systems
. Wink Communications
Broadband Applications Companies:
. Concurrent Computer
. SeaChange International
eBusiness Consulting Companies:
. AppNet
. Breakaway Solutions
. C-bridge Internet Solutions
. Cysive
. Predictive Systems
. Proxicom
. Razorfish
. Sapient Corporation
. Scient
. US Interactive
. Viant
Multiples compared by FleetBoston Robertson Stephens included total
capitalization to estimated revenues for calendar years 1999, 2000 and 2001.
All multiples were based on closing stock prices as of March 23, 2000.
FleetBoston Robertson Stephens estimated that Spyglass derives and will
continue to derive approximately 30% of its revenue from business activities
that are comparable to those of the devices, platforms/software and broadband
applications companies listed above and approximately 70% of its revenue from
business activities that are comparable to those of the eBusiness consulting
companies listed above. Therefore, in performing its comparable companies
analyses, FleetBoston Robertson Stephens calculated a composite weighted
multiples average for all comparable companies which gave 30% weight to the
averages of the multiples of the devices, platforms/software and broadband
application companies and 70% weight to the averages of the multiples of the
eBusiness consulting companies. Using the ranges of multiples set forth in the
table below that FleetBoston Robertson Stephens derived from multiples for the
comparable companies which include the composite weighted multiples average,
the following exchange ratios are implied:
<TABLE>
<CAPTION>
Multiple
Range Implied exchange ratio
------------ ----------------------
<S> <C> <C>
1999 Revenues............................ 50.0x--65.0x 0.500x--0.641x
2000 Revenues............................ 30.0x--50.0x 0.436x--0.707x
2001 Revenues............................ 20.0x--35.0x 0.436x--0.740x
</TABLE>
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<PAGE>
FleetBoston Robertson Stephens also applied a typical control premium of
20.0%--40.0% to the mean values implied in the foregoing analysis, which
implied the following exchange ratios:
<TABLE>
<CAPTION>
Premium Range Implied exchange ratio
------------- ----------------------
<S> <C> <C>
1999 Revenues........................... 20.0%--40.0% 0.600x--0.897x
2000 Revenues........................... 20.0%--40.0% 0.524x--0.989x
2001 Revenues........................... 20.0%--40.0% 0.524x--1.036x
</TABLE>
Precedent Transaction Analysis. Using publicly available information,
FleetBoston Robertson Stephens analyzed the consideration offered and the
implied transaction value multiples paid or proposed to be paid in selected
acquisition transactions in the Wireless/Enhanced TV and eServices industries,
including:
Wireless/Enhanced TV:
. @Mobile.com/Software.com (March 9, 2000)
. TransPoint/CheckFree Holdings (February 16, 2000)
. Onebox.com/Phone.com (February 14, 2000)
. Riverbed Technologies/Aether Systems (February 10, 2000)
. Paragon Software/Phone.com (February 8, 2000)
. InterVu/Akamai Technologies (February 7, 2000)
. SoftPlus/US Interactive (February 2, 2000)
. SnapTrack/Qualcomm (January 26, 2000)
. @Motion/Phone.com (December 21, 1999)
. Net Mind/Puma Technology (December 9, 1999)
. Interactive Pictures/Bamboo.com (October 25, 1999)
. Integrated Systems/Wind River Systems (October 21, 1999)
. Andromedia/Macromedia (October 7, 1999)
. Broadcast.com/Yahoo! (April 1, 1999)
. MovieFone/AOL (February 1, 1999)
. Starfish Software/Motorola (July 14, 1998)
eServices:
. Tallan/CMGI (February 14, 2000)
. Cell Networks/Mandator AB (February 8, 2000)
. USWeb/CKS/Whittman-Hart (December 13, 1999)
. I-Cube/Razorfish (August 10, 1999)
. International Network/Lucent Technologies (August 10, 1999)
. Think New Ideas/Answerthink Consulting (June 24, 1999)
. Computer Management Sciences/Computer Associates (February 8, 1999)
In analyzing these "precedent transactions", FleetBoston Robertson Stephens
compared, among other things, the total consideration in such transactions as a
multiple of the last twelve months ("LTM") and estimated calendar year 2000
revenues. FleetBoston Robertson Stephens estimated that Spyglass derives and
will continue
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<PAGE>
to derive approximately 30% of its revenue from business activities that are
comparable to those of the wireless/enhanced TV companies listed above and
approximately 70% of its revenue from business activities that are comparable
to those of the eServices companies listed above. Therefore, in performing its
precedent transaction analysis, FleetBoston Robertson Stephens gave 30% weight
to the average of the implied transaction value multiples paid or proposed to
be paid in the wireless/enhanced TV transactions and 70% weight to the average
of the implied transaction value multiples paid or proposed to be paid in the
eServices transactions. All multiples for the precedent transactions were
based on public information available at the time of the announcement. Based
on this information and other publicly available information, the following
table illustrates the implied exchange ratios derived from applying a range of
multiples that FleetBoston Robertson Stephens derived from the precedent
transactions:
<TABLE>
<CAPTION>
Multiple
range Implied exchange ratio
----------- ----------------------
<S> <C> <C>
LTM revenues.............................. 30.0x-50.0x 0.312x-0.500x
CY2000 revenues........................... 20.0x-35.0x 0.301x-0.504x
</TABLE>
Premium Paid Analysis. FleetBoston Robertson Stephens also considered the
premiums paid in selected technology acquisitions from 1997 to March, 2000
over the target's closing share price the day before the transaction was
announced and the target's closing share price four weeks prior to the
announcement. Based on this information and other publicly available
information, the following table illustrates the implied exchange ratios
derived from applying a range of premiums that FleetBoston Robertson Stephens
derived from the premiums paid analysis to the Spyglass closing share price on
March 22, 2000 (the date which was three trading days prior to the
announcement of the merger) and to the Spyglass closing share price on
February 24, 2000 (the date which was four weeks prior to March 22, 2000).
<TABLE>
<CAPTION>
Spyglass
closing
trading
price Premium range Implied exchange ratio
-------- ------------- ----------------------
<S> <C> <C> <C>
March 22, 2000 .............. $68.69 25.0%-45.0% 0.520x-0.604x
Four weeks prior to March 22,
2000........................ $44.44 30.0%-70.0% 0.350x-0.458x
</TABLE>
No company, business or transaction compared in the comparable companies
analysis, precedent transaction analysis or premium paid analysis is identical
to Spyglass or OpenTV. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the comparable companies, precedent transactions
or the business segment, company or transactions to which they are being
compared.
Pro Forma Analysis. FleetBoston Robertson Stephens analyzed certain pro
forma effects resulting from the merger, including, among other things, the
impact of the merger on the projected revenues per share of the combined
company for fiscal years 2000, 2001 and 2002. The following table summarizes
the results of such analysis:
<TABLE>
<S> <C>
Fiscal Year 2000 estimated revenue per share accretion............... 34.7%
Fiscal Year 2001 estimated revenue per share accretion............... 54.6%
Fiscal Year 2002 estimated revenue per share accretion............... 44.5%
</TABLE>
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion,
FleetBoston Robertson Stephens considered certain other factors and conducted
certain other comparative analyses, including, among other things a review of:
. the history of trading prices and volume for Spyglass common stock for
the period from March 22, 1999 to March 23, 2000;
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<PAGE>
. The history of trading prices and volume for OpenTV common share for the
period from November 23, 1999 to March 23, 2000; and
. selected published analysts' reports on Spyglass and OpenTV, including
analysts' estimates as to the earnings growth potential of Spyglass and
OpenTV.
While the foregoing summary describes certain analyses and factors that
FleetBoston Robertson Stephens deemed material in its presentation to the
Spyglass board, it is not a comprehensive description of all analyses and
factors considered by FleetBoston Robertson Stephens. The preparation of a
fairness opinion is a complex process that involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. FleetBoston
Robertson Stephens believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by
it, without considering all analyses and factors, would create an incomplete
view of the evaluation process underlying the FleetBoston Robertson Stephens
opinion. Several analytical methodologies were employed and no one method of
analysis should be regarded as critical to the overall conclusion reached by
FleetBoston Robertson Stephens. Each analytical technique has inherent
strengths and weaknesses, and the nature of the available information may
further affect the value of particular techniques. The conclusions reached by
FleetBoston Robertson Stephens are based on all analyses and factors taken as
a whole and also on application of FleetBoston Robertson Stephens' own
experience and judgment. Such conclusions may involve significant elements of
subjective judgment and qualitative analysis. FleetBoston Robertson Stephens
therefore gives no opinion as to the value or merit standing alone of any one
or more parts of the analysis it performed. In performing its analyses,
FleetBoston Robertson Stephens considered general economic, market and
financial conditions and other matters, many of which are beyond the control
of Spyglass and OpenTV. The analyses performed by FleetBoston Robertson
Stephens are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than those suggested by such
analyses. Accordingly, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business
actually may be purchased. Furthermore, no opinion is being expressed as to
the prices at which shares of Spyglass common stock or OpenTV Class A Ordinary
Shares may be traded at any future time.
The engagement letter between FleetBoston Robertson Stephens and Spyglass
provides that, for its services, FleetBoston Robertson Stephens is entitled to
receive a transaction fee equal to fifty-five one hundredths of one percent
(0.55%) of the imputed value of Spyglass' fully diluted equity and outstanding
debt calculated three trading days prior to the closing of the merger.
Spyglass has also agreed to reimburse FleetBoston Robertson Stephens for
certain of its out-of-pocket expenses, including legal fees, and to indemnify
and hold harmless FleetBoston Robertson Stephens and its affiliates and any
director, employee or agent of FleetBoston Robertson Stephens or any of its
affiliates, or any person controlling FleetBoston Robertson Stephens or its
affiliates for certain losses, claims, damages, expenses and liabilities
relating to or arising out of services provided by FleetBoston Robertson
Stephens as financial advisor to Spyglass. The terms of the fee arrangement
with FleetBoston Robertson Stephens, which Spyglass and FleetBoston Robertson
Stephens believe are customary in transactions of this nature, were negotiated
at arm's length between Spyglass and FleetBoston Robertson Stephens, and the
Spyglass board was aware of such fee arrangements, including the fact that a
significant portion of the fees payable to FleetBoston Robertson Stephens is
contingent upon completion of the merger. Prior to this engagement,
FleetBoston Robertson Stephens has not provided any investment banking
services to Spyglass for which it has been paid fees. FleetBoston Robertson
Stephens was retained based on FleetBoston Robertson Stephens' experience as a
financial advisor in connection with mergers and acquisitions and in
securities valuations generally, as well as FleetBoston Robertson Stephens'
investment banking relationship and familiarity with Spyglass.
FleetBoston Robertson Stephens is an internationally recognized investment
banking firm. As part of its investment banking business, FleetBoston
Robertson Stephens is frequently engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes. In the ordinary course of its business,
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<PAGE>
FleetBoston Robertson Stephens may trade in Spyglass' securities and OpenTV's
securities for its own account and the account of its customers and,
accordingly, may at any time hold a long or short position in Spyglass'
securities or OpenTV's securities.
Opinion of OpenTV's financial advisor
OpenTV retained Merrill Lynch to act as its financial advisor in connection
with the proposed merger. On March 26, 2000, at a meeting of the OpenTV board
of directors held to evaluate the merger, Merrill Lynch rendered to the OpenTV
board of directors an oral opinion, which was subsequently confirmed by
delivery of a written opinion dated March 26, 2000, to the effect that, as of
the date of the written opinion and based upon and subject to the factors and
assumptions set forth in the opinion, the exchange ratio was fair, from a
financial point of view, to OpenTV.
The full text of Merrill Lynch's opinion, dated March 26, 2000, which sets
forth the assumptions made, matters considered, and qualifications and
limitations on the review undertaken by Merrill Lynch, is attached as Annex B
to this joint proxy statement/prospectus and is incorporated into this
document by reference. The summary of Merrill Lynch's opinion set forth below
is qualified in its entirety by reference to the full text of the opinion.
OpenTV stockholders are urged to read the opinion carefully in its entirety.
Merrill Lynch's opinion was delivered to the OpenTV board of directors for
its information and is directed only to the fairness, from a financial point
of view, of the exchange ratio to OpenTV, does not address any other aspect of
the merger, including the merits of the underlying decision by OpenTV to
engage in the merger, and does not constitute a recommendation to any
stockholder as to how such stockholder should vote as to any matter relating
to the merger.
In preparing its opinion to the OpenTV board of directors, Merrill Lynch
performed a variety of financial and comparative analyses, including those
described below. The summary set forth below does not purport to be a complete
description of the analyses underlying Merrill Lynch's opinion or the
presentation made by Merrill Lynch to the OpenTV board of directors. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Merrill
Lynch did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors, or focusing on information presented in tabular
format, without considering all of the analyses and factors or the narrative
description of such analyses, would create a misleading or incomplete view of
the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of Merrill Lynch, Spyglass or OpenTV. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at
which such businesses or securities might actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. In
addition, as described above, Merrill Lynch's opinion was among several
factors taken into consideration by the OpenTV board of directors in making
its determination to approve the merger agreement and the merger.
Consequently, Merrill Lynch's analyses should not be viewed as determinative
of the decision of the OpenTV board of directors or OpenTV's management with
respect to the fairness of the exchange ratio set forth in the merger
agreement.
In arriving at its opinion, Merrill Lynch, among other things, did the
following:
(1) reviewed publicly available business and financial information relating
to Spyglass and OpenTV that Merrill Lynch deemed to be relevant;
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<PAGE>
(2) reviewed information, including financial forecasts, relating to the
business, earnings, cash flows, assets, liabilities and prospects of
Spyglass and OpenTV furnished to or discussed with Merrill Lynch by
Spyglass and OpenTV;
(3) conducted discussions with members of senior management and
representatives of Spyglass and OpenTV concerning the matters described
in clauses (1) and (2) above, as well as their businesses and prospects
both before and after giving effect to the merger;
(4) reviewed the market prices and valuation multiples for the Spyglass
common stock and the OpenTV Class A Ordinary Shares and compared them
with those of publicly traded companies that Merrill Lynch deemed to be
relevant;
(5) reviewed the results of operations of Spyglass and OpenTV and compared
them with those of publicly traded companies that Merrill Lynch deemed
to be relevant;
(6) participated in discussions and negotiations among representatives of
Spyglass and OpenTV and their respective financial and legal advisors;
(7) reviewed the merger agreement; and
(8) reviewed other financial studies and analyses and took into account
other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch or publicly
available, and did not assume any responsibility for independently verifying
that information and Merrill Lynch did not undertake an independent evaluation
or appraisal of any of the assets or liabilities of Spyglass or OpenTV, nor
was Merrill Lynch furnished with any evaluations or appraisals. In addition,
Merrill Lynch did not assume any obligation to conduct, nor did it conduct,
any physical inspection of the properties or facilities of Spyglass or OpenTV.
With respect to the financial forecast information furnished to or discussed
with Merrill Lynch by Spyglass or OpenTV, Merrill Lynch assumed that they were
reasonably prepared reflecting the best currently available estimates and
judgments of the managements of Spyglass or OpenTV as to the expected future
financial performance of Spyglass or OpenTV, as the case may be. Merrill Lynch
further assumed that the merger will qualify as a tax-free reorganization for
United States federal income tax purposes. Merrill Lynch also assumed that the
final form of the merger agreement would be substantially similar to the last
draft reviewed by Merrill Lynch.
Merrill Lynch's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the opinion.
Merrill Lynch did not express any opinion as to the prices at which the OpenTV
Class A Ordinary Shares will trade following the announcement or consummation
of the merger. Although Merrill Lynch evaluated the fairness, from a financial
point of view, of the exchange ratio, Merrill Lynch was not requested to, and
did not, recommend the specific consideration payable in the merger, which
consideration was determined through negotiations between Spyglass and OpenTV
and approved by the OpenTV board of directors. No other limitation was imposed
on Merrill Lynch with respect to the investigations made or procedures
followed by Merrill Lynch in rendering its opinion.
The following is a summary of the material analyses performed by Merrill
Lynch in connection with its opinion to the OpenTV board of directors dated
March 26, 2000. Some of the financial analyses summarized below include
information presented in tabular format. In order to understand fully Merrill
Lynch's financial analyses, the tables must be read together with the text of
the summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth below without considering
the full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Merrill Lynch's financial analyses.
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Selected Companies Analysis
Spyglass. Merrill Lynch compared financial, operating and stock market data
of Spyglass to corresponding data of the following selected publicly traded
information appliances companies:
. Aether Systems, Inc.
. BSQUARE Corporation
. Liberate Technologies
. Phone.com, Inc.
. Puma Technology, Inc.
. PSW Technologies, Inc.
. OpenTV, Inc.
Merrill Lynch reviewed enterprise value, calculated as equity market value,
plus total debt, preferred stock and minority investments, less cash and cash
equivalents, of the selected companies as a multiple of estimated revenue for
calendar years 2000 and 2001. All multiples were based on closing stock prices
on March 24, 2000. Estimated financial data for the selected companies were
based on publicly available research analysts' estimates, and estimated
financial data for Spyglass were based on estimates of the management of
Spyglass. Merrill Lynch then applied a range of selected multiples for the
selected companies, taking into account Spyglass' mix of licensing and
professional services revenue, to corresponding data of Spyglass.
Merrill Lynch compared financial, operating and stock market data of OpenTV
to corresponding data of the following publicly traded interactive television
companies:
. ACTV, Inc.
. TV Guide International
. Liberate Technologies
. SeaChange International, Inc.
. Source Media, Inc.
. TiVo Inc.
. Wink Communications, Inc.
. WorldGate Communications, Inc.
Merrill Lynch reviewed total market capitalization of the selected
companies as a multiple of estimated revenue for calendar years 2000 and 2001.
All multiples were based on closing stock prices on March 24, 2000. Estimated
financial data for the selected companies were based on publicly available
research analysts' estimates, and estimated financial data for OpenTV were
based on estimates of the management of OpenTV. Merrill Lynch then applied a
range of selected multiples for the selected companies to corresponding data
of OpenTV.
The analysis described above indicated an implied exchange ratio reference
range for Spyglass and OpenTV of approximately 1.50x to 2.50x. None of the
selected companies is identical to Spyglass or OpenTV. Accordingly, an
analysis of the results of the Selected Companies Analysis involves complex
considerations of the selected companies and other factors that could affect
the public trading value of Spyglass, OpenTV and the selected companies.
Discounted Cash Flow Analysis
Merrill Lynch estimated the present value of the stand-alone, unlevered,
after-tax free cash flows that Spyglass could produce over the calendar years
2000 through 2019 based on two scenarios. The first scenario,
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the management case for Spyglass, was based on the revenue growth estimates of
(i) Spyglass management and publicly available research analysts for calendar
years 2000 through 2002, and (ii) OpenTV management and publicly available
research analysts for calendar years 2003 through 2019. The second scenario,
the OpenTV case for Spyglass, was based on the revenue growth estimates of the
management of OpenTV and publicly available research analysts. Ranges of
terminal values were derived using perpetual growth rates of 3% to 5%. The
free cash flows and terminal values were then discounted to present value
using discount rates in the management case of 13% to 16% and in the OpenTV
case of 11% to 14%.
Merrill Lynch estimated the present value of the stand-alone, unlevered,
after-tax free cash flows that OpenTV could produce over the calendar years
2000 through 2019 based on estimates of the management of OpenTV and publicly
available research analyst reports. Ranges of terminal values were derived
using perpetual growth rates of 3% to 5%. The free cash flows and terminal
values were then discounted to present value using discount rates of 10% to
13%.
The analysis described above indicated an implied exchange ratio range in
the management case for Spyglass of approximately 0.25x to 0.50x and in the
OpenTV case for Spyglass of approximately 1.00x to 2.00x.
Relative Contribution Analysis
Using estimated financial data for Spyglass and OpenTV, Merrill Lynch
analyzed the relative contributions of Spyglass and OpenTV to the combined
company's revenue and gross profits for calendar years 1999 through 2001. This
analysis indicated the following:
<TABLE>
<CAPTION>
Spyglass OpenTV
-------- ------
<S> <C> <C>
Revenue
1999..................................................... 55.7% 44.3%
2000E.................................................... 50.5% 49.5%
2001E.................................................... 48.0% 52.0%
Gross Profit
1999..................................................... 49.1% 50.9%
2000E.................................................... 36.5% 63.5%
2001E.................................................... 37.5% 62.5%
</TABLE>
Based on the exchange ratio of 0.7236 in the merger, current OpenTV
stockholders would own approximately 82.1% and current stockholders of
Spyglass would own approximately 17.9% of the combined company's equity value
following the merger. The results described above indicated an implied
exchange ratio range for the merger of approximately 1.49x to 1.87x.
Other Factors
In the course of preparing its opinion, Merrill Lynch also reviewed and
considered other information and data, including the following:
. the trading characteristics of Spyglass and OpenTV;
. historical market prices and trading volumes for Spyglass common stock
and OpenTV Class A Ordinary Shares;
. the relative exchange ratio of Spyglass and OpenTV over the period
November 23, 1999 to March 24, 2000;
. Spyglass' stock price performance relative to the Nasdaq Composite
Index; and
. the implied equity value of the combined company based on estimated
financial data for calendar years 2000 and 2001.
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Miscellaneous
Pursuant to the terms of Merrill Lynch's engagement, OpenTV has agreed to
pay Merrill Lynch for its financial advisory services in connection with the
merger a fee of $1,000,000 payable upon the closing of the merger. OpenTV also
has agreed to reimburse Merrill Lynch for reasonable out-of-pocket expenses
incurred by Merrill Lynch in performing its services, including reasonable
fees and expenses for legal counsel, and to indemnify Merrill Lynch and
related persons and entities against liabilities, including liabilities under
the federal securities laws, arising out of Merrill Lynch's engagement.
OpenTV retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking
and advisory firm. Merrill Lynch, as part of its investment banking business,
is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes.
Merrill Lynch and its affiliates have in the past and currently are
providing financial advisory and financing services to OpenTV and certain of
its affiliates unrelated to the merger, and may in the future continue to do
so, for which services Merrill Lynch and its affiliates have received and will
receive compensation. In the ordinary course of business, Merrill Lynch and
its affiliates may actively trade in the securities of OpenTV and Spyglass for
their own accounts and for the accounts of customers and, accordingly, may at
any time hold a long or short position in those securities.
Interests of certain persons in the merger
When considering the recommendation of Spyglass' board of directors and
OpenTV's board of directors with respect to the merger agreement, you should
know that some directors and officers of Spyglass and the directors and
officers of OpenTV participate in arrangements and have continuing
indemnification against liabilities that would provide them with interests in
the merger that are different from, or in addition to your interests.
Employment agreements following the merger
In connection with the merger, Nigel Bennet, Doug Colbeth, Mark Huttemann,
Michael Lambert, Marty Leamy, Randall Littleson and Anup Murarka have entered
into employment agreements, whereby each has agreed to remain employed by
OpenTV following the merger. These agreements will supersede any agreements
each of these individuals previously had with Spyglass. The agreements that
will be superseded provide, among other things, for acceleration of 50% of
these individuals' unvested options upon the occurrence of a change in
control, such as this merger. The summary of the new employment agreements is
as follows:
Nigel Bennet employment agreement. Mr. Bennet agreed to be employed with
OpenTV subsequent to the merger as its Vice President, Microsoft Solutions
Center and Mobile Consultancy. For his work as Vice President, Microsoft
Solutions Center and Mobile Consultancy, he will be provided: (a) a base
salary of not less than $160,000, (b) an incentive bonus to be determined
under the terms of the bonus plan of OpenTV, and (c) the ability to
participate in OpenTV's employee benefit plans. In addition, on the effective
date of the merger, 25% or, as of April 30, 2000, 25,000, shares of his
existing unvested options for Spyglass stock which are assumed by OpenTV
("Bennet Spyglass Options") become vested and exercisable. After the merger,
for a period of three years, if he is terminated without cause, he resigns
because his responsibilities are materially reduced, his pay is reduced below
15% of his base salary, OpenTV breaches (by more than a de minimis amount) its
compensation obligations to him, or he is relocated by more than fifty miles,
then, subject to his execution of a release of claims from OpenTV, he will
receive:
. regular salary payments at the highest salary rate in effect at any time
under his employment agreement, for a period of six months, from the
termination date;
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
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. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Bennet Spyglass Options or (B) twelve and
one-half percent of the shares originally subject to the Bennet Spyglass
Options, which options shall immediately vest and become exercisable;
and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
Doug Colbeth employment agreement. Mr. Colbeth agreed to be employed with
OpenTV subsequent to the merger as its Executive Vice President, Corporate
Development, Mobile Telephony. For his work as Executive Vice President,
Corporate Development, Mobile Telephony he will be provided: (a) a base annual
salary of not less than $204,750, (b) an incentive bonus to be determined
under the terms of the bonus plan of OpenTV, and (c) the ability to
participate in OpenTV's employee benefit plans. In addition, on the effective
date of the merger, 25% or, as of April 30, 2000, 32,710 shares, of his
existing unvested options for Spyglass common stock which are assumed by
OpenTV ("Colbeth Spyglass Options") become vested and exercisable. After the
merger, for a period of three years, if he is terminated without cause, he
resigns because his responsibilities are materially reduced, his pay is
reduced below 15% of his base salary, OpenTV breaches (by more than a
de minimis amount) its compensation obligations to him, or he is relocated by
more than fifty miles, then, subject to his execution of a release of claims
from OpenTV, he will receive:
. regular salary payments for a period of six months from the termination
date, at the highest salary rate in effect at any time under his
employment agreement;
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Colbeth Spyglass Options or (B) twelve
and one-half percent of the shares originally subject to the Colbeth
Spyglass Options, which options shall immediately vest and become
exercisable; and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
Mark Huttemann employment agreement. Mr. Huttemann agreed to be employed
with OpenTV subsequent to the merger as its Vice President and General
Manager, Motorola Solutions Center. For his work as Vice President and General
Manager, Motorola Solutions Center he will be provided: (a) a base salary of
not less than $150,000, (b) an incentive bonus to be determined under the
terms of the bonus plan of OpenTV, and (c) the ability to participate in
OpenTV's employee benefit plans. In addition, on the effective date of the
merger, 25% or, as of April 30, 2000, 22,200 shares, of his existing unvested
options for Spyglass stock which are assumed by OpenTV ("Huttemann Spyglass
Options") become vested and exercisable. After the merger, for a period of
three years, if he is terminated without cause, he resigns because his
responsibilities are materially reduced, his pay is reduced below 15% of his
base salary, OpenTV breaches (by more than a de minimis amount) its
compensation obligations to him, or he is relocated by more than fifty miles,
then, subject to his execution of a release of claims from OpenTV, he will
receive:
. regular salary payments at the highest salary rate in effect at any time
under his employment agreement, for a period of six months, from the
termination date;
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Huttemann Spyglass Options or (B) twelve
and one-half percent of the shares originally subject to the Huttemann
Spyglass Options, which options shall immediately vest and become
exercisable; and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
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Michael Lambert employment agreement. Mr. Lambert agreed to be employed
with OpenTV subsequent to the merger as its Director, Device Mosaic and Prism.
For his work as Director, Device Mosaic and Prism he will be provided: (a) a
base salary of not less than $128,000, (b) an incentive bonus to be determined
under the terms of the bonus plan of OpenTV, and (c) the ability to
participate in OpenTV's employee benefit plans. In addition, on the effective
date of the merger, 25% or, as of April 30, 2000, 8,744 shares, of his
existing unvested options for Spyglass stock which are assumed by OpenTV
("Lambert Spyglass Options") become vested and exercisable. After the merger,
for a period of three years, if he is terminated without cause, he resigns
because his responsibilities are materially reduced, his pay is reduced below
15% of his base salary, OpenTV breaches (by more than a de minimis amount) its
compensation obligations to him, or he is relocated by more than fifty miles,
then, subject to his execution of a release of claims from OpenTV, he will
receive:
. regular salary payments at the highest salary rate in effect at any time
under his employment agreement, for a period of six months, from the
termination date,
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Lambert Spyglass Options or (B) twelve
and one-half percent of the shares originally subject to the Lambert
Spyglass Options, which options shall immediately vest and become
exercisable; and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
Marty Leamy employment agreement. Mr. Leamy agreed to be employed with
OpenTV subsequent to the merger as its General Manager, Consultancy Services.
For his work as General Manager, Consultancy Services, he will be provided:
(a) a base salary of not less than $240,000, (b) an incentive bonus to be
determined under the terms of the bonus plan of OpenTV, and (c) the ability to
participate in OpenTV's employee benefit plans. In addition, on the effective
date of the merger, 25% or, as of April 30, 2000, 37,500 shares, of his
existing unvested options for Spyglass stock which are assumed by OpenTV
("Leamy Spyglass Options") become vested and exercisable. After the merger,
for a period of three years, if he is terminated without cause, he resigns
because his responsibilities are materially reduced, his pay is reduced below
15% of his base salary, OpenTV breaches (by more than a de minimis amount) its
compensation obligations to him, or he is relocated by more than fifty miles,
then, subject to his execution of a release of claims from OpenTV, he will
receive:
. regular salary payments at the highest salary rate in effect at any time
under his employment agreement, for a period of six months, from the
termination date,
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Leamy Spyglass Options or (B) twelve and
one-half percent of the shares originally subject to the Leamy Spyglass
Options, which options shall immediately vest and become exercisable;
and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
Randall Littleson employment agreement. Mr. Littleson agreed to be employed
with OpenTV subsequent to the merger as its Vice President, Consultancy
Services. For his work as a Vice President, Consultancy Services, he will be
provided: (a) a base salary of not less than $160,000, (b) an incentive bonus
to be determined under the terms of the bonus plan of OpenTV, and (c) the
ability to participate in OpenTV's employee benefit plans. In addition, on the
effective date of the merger, 25% or, as of April 30, 2000, 22,068 shares, of
his existing unvested options for Spyglass stock which are assumed by OpenTV
("Littleson Spyglass Options") become vested and exercisable. After the
merger, for a period of three years, if he is terminated without cause, he
resigns because his responsibilities are materially reduced, his pay is
reduced below 15% of his base salary, OpenTV
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breaches (by more than a de minimis amount) its compensation obligations to
him, or he is relocated by more than fifty miles, then, subject to his
execution of a release of claims from OpenTV, he will receive:
. regular salary payments at the highest salary rate in effect at any time
under his employment agreement, for a period of six months, from the
termination date;
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Littleson Spyglass Options or (B) twelve
and one-half percent of the shares originally subject to the Littleson
Spyglass Options, which options shall immediately vest and become
exercisable; and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
Anup Murarka employment agreement. Mr. Murarka agreed to be employed with
OpenTV subsequent to the merger as its Vice President, ITV Practice. For his
work as Vice President, ITV Practice, he will be provided: (a) a base salary
of not less than $126,000, (b) an incentive bonus to be determined under the
terms of the bonus plan of OpenTV, and (c) the ability to participate in
OpenTV's employee benefit plans. In addition, on the effective date of the
merger, 25% or, as of April 30, 2000, 9,260 shares, of his existing unvested
options for Spyglass stock which are assumed by OpenTV ("Murarka Spyglass
Options") become vested and exercisable. After the merger, for a period of
three years, if he is terminated without cause, he resigns because his
responsibilities are materially reduced, his pay is reduced below 15% of his
base salary, OpenTV breaches (by more than a de minimis amount) its
compensation obligations to him, or he is relocated by more than fifty miles,
then, subject to his execution of a release of claims from OpenTV, he will
receive:
. regular salary payments at the highest salary rate in effect at any time
under his employment agreement, for a period of six months, from the
termination date,
. the pro-rata target bonus that he was scheduled to earn under OpenTV's
cash bonus plan;
. health and welfare benefits coverage for a period of six months after
the termination date;
. the greater of (A) thirty-three and one-third percent of the then
unvested shares subject to the Murarka Spyglass Options or (B) twelve
and one-half percent of the shares originally subject to the Murarka
Spyglass Options, which options shall immediately vest and become
exercisable; and
. twelve and one-half percent of any other unvested equity he then has in
OpenTV.
Spyglass director options
Pursuant to the terms of existing stock option agreements, the vesting of
the options to purchase Spyglass common stock held by the non-employee
directors of Spyglass will accelerate in full upon consummation of the merger.
Certain indemnification provisions and insurance relating to Spyglass'
officers and directors
OpenTV has agreed to cause the surviving corporation in the merger to
indemnify each Spyglass officer and director against liabilities arising out
of such person's service as an officer or director. OpenTV will cause the
surviving corporation to maintain officers' and directors' liability insurance
to cover any such liabilities for the next six years, subject to certain
limitations.
Certain interests of OpenTV's directors and officers
Spyglass and OpenTV have agreed that following the merger, OpenTV's
directors will remain directors of the combined company. Spyglass and OpenTV
have also agreed that Jan Steenkamp will continue as president and chief
executive officer of the combined company.
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Structure of the merger and conversion of Spyglass common stock
Pursuant to the merger agreement, Sonnet Acquisition Corp., a wholly-owned
subsidiary of OpenTV, will merge with and into Spyglass. Immediately following
this merger, Spyglass will be a wholly-owned subsidiary of OpenTV.
Upon completion of the merger, each outstanding share of Spyglass common
stock will be converted into the right to receive 0.7236 of an OpenTV Class A
Ordinary Share. No fractional OpenTV Class A Ordinary Shares will be issued
pursuant to the merger. In lieu of the issuance of any fractional OpenTV Class
A Ordinary Shares, cash equal to the product of such fractional share amount,
after aggregating all fractional shares to which a former holder of Spyglass
common stock would be entitled, and the average closing price of OpenTV Class
A Ordinary Shares as reported on the Nasdaq National Market for the five
trading days immediately preceding the last full trading day prior to the
effectiveness of the merger.
Based on the exchange ratio of 0.7236, and based on the number of shares of
Spyglass common stock outstanding as of March 31, 2000, and vested options and
warrants to purchase Spyglass common stock and rights to purchase Spyglass
common stock under Spyglass' employee stock purchase plan as of December 31,
2000, a total of approximately 13,853,741 OpenTV Class A Ordinary Shares will
be issued in the merger or pursuant to the exercise of Spyglass options and
warrants assumed by OpenTV in the merger.
Completion and effectiveness of the merger
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including approval and adoption of the
merger agreement and the merger by the stockholders of Spyglass and approval
of the issuance of OpenTV Class A Ordinary Shares in the merger by the
stockholders of OpenTV. The merger will become effective upon the filing of
the certificate of merger with the Secretary of State of the State of
Delaware.
Exchange of Spyglass stock certificates for OpenTV stock certificates
When the merger is completed, OpenTV's exchange agent will mail to Spyglass
stockholders a letter of transmittal and instructions for use in surrendering
Spyglass stock certificates in exchange for OpenTV stock certificates. When
former Spyglass stockholders deliver their Spyglass stock certificates to the
exchange agent along with an executed letter of transmittal and any other
required documents, the Spyglass stock certificates will be canceled and
former Spyglass stockholders will receive OpenTV stock certificates
representing the number of full shares of OpenTV Class A Ordinary Shares to
which they are entitled under the merger agreement. They will receive payment
in cash, without interest, in lieu of any fractional shares of OpenTV Class A
Ordinary Shares which would have been otherwise issuable to them in the
merger.
Spyglass stockholders should not submit their Spyglass stock certificates
for exchange until they receive the transmittal instructions and a form of
letter of transmittal from the exchange agent.
No dividends; surrender of certificates
Spyglass stockholders are not entitled to receive any dividends or other
distributions on OpenTV Class A Ordinary Shares until the merger is completed
and they have surrendered their Spyglass stock certificates in exchange for
OpenTV stock certificates.
Subject to the effect of applicable laws, promptly following surrender of
Spyglass stock certificates and the issuance of the corresponding OpenTV
certificates, Spyglass stockholders will be paid the amount of dividends or
other distributions, without interest, which were previously paid with respect
to whole shares of OpenTV Class A Ordinary Shares to the extent such Spyglass
stockholders were holders of record of OpenTV shares when these dividend
payments or other distributions were made. See "Market price and dividend
information--Dividends" on page 32 of this joint proxy statement/prospectus
for a description of OpenTV's dividend policy.
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OpenTV will only issue Spyglass stockholders an OpenTV stock certificate or
a check in lieu of a fractional share in the name in which the surrendered
Spyglass stock certificate is registered. If Spyglass stockholders wish to
have their certificates issued in another name they must present the exchange
agent with all documents required to show and effect the unrecorded transfer
of ownership and show that they paid any applicable stock transfer taxes.
Material United States federal income tax considerations of the merger
General
This section summarizes the material United States federal income tax
consequences to holders of Spyglass common stock as of the date of this
prospectus who will receive our Class A Ordinary Shares in the merger. The
summary applies to you only if you hold your shares of Spyglass common stock
and will hold our ordinary shares as a capital asset for tax purposes (that
is, for investment purposes). In addition, this summary may 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 or other financial institution;
. an insurance company;
. a tax-exempt organization;
. a person that holds shares of Spyglass common stock or will hold 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 United
States dollar;
. a person liable for alternative minimum tax;
. a person that owns, or is treated as owning, 10% or more of any class of
our shares;
. a person who acquired shares of Spyglass common stock or our ordinary
shares through stock option or stock purchase programs or in other
compensatory transactions; or
. a person who is not a United States holder.
For purposes of the discussion below, you are a "United States holder" if
you are a beneficial owner of Spyglass common stock or our ordinary shares who
or which is:
. an individual who is a citizen or resident of the United States;
. a corporation, or other entity taxable as a corporation, that was
created or organized in or under the laws of the United States or any
state thereof;
. an estate, the income of which is subject to United States federal
income taxation, regardless of its source; or
. a trust, if a court within the United States is able to exercise primary
supervision of the trust and one or more United States citizens have the
authority to control all of the substantial decisions of the trust.
If a partnership holds OpenTV's 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.
Section 367 of the Internal Revenue Code and the Treasury regulations
promulgated thereunder impose additional requirements for tax-free
reorganization treatment on transactions where, as is the case in the merger,
a United States holder exchanges stock in a United States corporation for
stock in a foreign corporation. In general, for an exchange of Spyglass common
stock for OpenTV's ordinary shares by a United States person in the merger to
qualify for tax-free reorganization treatment (in addition to meeting the
requirements of Section 368 of the Internal Revenue Code), certain reporting
requirements must be satisfied and each of the following conditions must be
met: (i) no more than fifty percent of both the total voting power and the
total value of the
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stock of the transferee foreign corporation is received, in the aggregate, by
the "United States transferors" (as defined in the Treasury regulations) in
the transaction; (ii) no more than fifty percent of each of the total voting
power and the total value of the stock of the transferee foreign corporation
is owned, in the aggregate, immediately after the transaction by United States
persons that are either officers or directors or "five-percent stockholders"
(as defined in the Treasury regulations and computed taking into account
direct, indirect and constructive ownership) of the United States corporation;
(iii) either (A) the United States person is not a "five-percent stockholder"
(computed taking into account direct, indirect and constructive ownership) of
the transferee foreign corporation or (B) the United States person is a "five-
percent stockholder" of the transferee foreign corporation and enters into an
agreement with the Internal Revenue Service to recognize gain under certain
circumstances; and (iv) the "active trade or business test" is satisfied as
defined in Treasury Regulation Section 1.367(a)-3(c)(3).
The discussion in this joint proxy statement/prospectus is based on and
subject to the Internal Revenue Code, its legislative history, applicable
Treasury regulations, administrative rulings and court decisions currently in
effect, all of which are subject to change at any time, possibly with
retroactive effect, and assumptions, limitations, representations and
covenants, including those contained in representation letters of OpenTV,
Sonnet Acquisition Corp. and Spyglass to be delivered to Hale and Dorr LLP and
Wilson Sonsini Goodrich & Rosati Professional Corporation for the purpose of
their rendering the closing opinions described under "Material United States
federal income tax consequences of the merger" below.
The discussion in this joint proxy statement/prospectus is not intended to
be a complete analysis or description of all potential United States federal
income tax consequences or any other consequences of the merger or of holding
our ordinary shares. In addition, the discussion does not address tax
consequences which may vary with, or are contingent on, your individual
circumstances. Moreover, this discussion does not address any non-income tax
or any foreign, state or local tax consequences of the merger or of holding
our ordinary shares.
Accordingly, you are strongly urged to consult with your tax advisor to
determine the particular United States federal, state, local or foreign income
or other tax consequences to you of the merger and of holding our ordinary
shares.
Material United States federal income tax consequences of the merger
The parties' obligations to complete the merger are conditioned on receipt
of a closing tax opinion (1) by Spyglass from Hale and Dorr LLP and (2) by
OpenTV from Wilson Sonsini Goodrich & Rosati Professional Corporation, in each
case in form and substance reasonably satisfactory to the party to whom such
closing tax opinion is addressed, to the effect that, for United States
federal income tax purposes, the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. If either
tax counsel does not render a closing tax opinion, such condition nonetheless
will be satisfied if tax counsel to the other party renders an opinion to the
party whose tax counsel has not done so. The closing tax opinions (1) will be
based on facts, representations and assumptions set forth or referred to in
the closing tax opinions and (2) will rely on certain representations and
covenants of OpenTV, Sonnet Acquisition Corp. and Spyglass, including those
contained in representation letters delivered to Hale and Dorr LLP and Wilson
Sonsini Goodrich & Rosati Professional Corporation for the purpose of their
rendering the closing tax opinions. The opinions are also subject to the
condition that OpenTV, Spyglass and you comply with all applicable filings
required under Section 367 of the Code and the regulations thereunder. Based
on such closing tax opinions and the advice of OpenTV's and Spyglass'
respective counsel, provided that the merger qualifies as a reorganization,
the following federal income tax consequences will result:
. No gain or loss will be recognized by OpenTV, Spyglass or Sonnet
Acquisition Corp. solely as a result of the merger;
. No gain or loss will be recognized by holders of OpenTV stock as a
result of the merger;
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. No gain or loss will be recognized by you when you exchange all of your
Spyglass common stock solely for OpenTV ordinary shares in the merger,
except that gain or loss may be recognized by you with respect to cash
received in lieu of a fractional interest in OpenTV ordinary shares;
. The aggregate tax basis of the OpenTV ordinary shares you receive in the
merger will be the same as your aggregate tax basis in the Spyglass
common stock you surrender in the merger, except that your aggregate tax
basis in OpenTV ordinary shares will be reduced by the tax basis
allocable to any fractional interest in OpenTV ordinary shares for which
you receive cash;
. You will recognize gain or loss for United States federal income tax
purposes with respect to the cash you receive instead of a fractional
interest in OpenTV ordinary shares, measured by the difference between
the amount of cash you receive and the portion of the tax basis of your
surrendered shares of Spyglass common stock that is allocable to the
fractional interest in OpenTV ordinary shares. This gain or loss will be
capital gain or loss and will be a long-term capital gain or loss if
your shares of Spyglass common stock have been held for more than one
year at the time the merger is completed; and
. The tax holding period of the OpenTV ordinary shares you receive in the
merger (including any fractional interest for which you receive cash as
described above) will include the period during which you held the
Spyglass common stock surrendered in the merger.
The closing tax opinions are not binding on the IRS or the courts, and
OpenTV and Spyglass do not intend to request a ruling from the IRS with
respect to the merger. Accordingly, there can be no assurance that the IRS
will not challenge the conclusions set forth in the closing tax opinions or
that a court will not sustain such a challenge. A failure of the merger to
qualify as a reorganization would result in Spyglass stockholders recognizing
taxable capital gain or loss with respect to each share of Spyglass common
stock surrendered equal to the difference between the stockholder's tax basis
in such share and the fair market value, as of the closing of the merger, of
the OpenTV ordinary shares received in exchange therefor. In such event, a
stockholder's aggregate basis in the OpenTV ordinary shares so received would
equal its fair market value as of the closing of the merger and the holding
period for such stock would begin the day after the closing of the merger.
Material United States federal income tax consequences to United States
holders of owning OpenTV ordinary shares
Distributions. OpenTV does not anticipate making distributions on its
ordinary shares in the foreseeable future. See "Dividend Policy". If
distributions are made, however, the gross amount of any such distribution
(other than in liquidation) that you receive with respect to OpenTV's ordinary
shares generally will be taxed to you as a dividend (i.e., ordinary income) to
the extent such distribution does not exceed OpenTV's current or accumulated
earnings and profits, as calculated for United States federal income tax
purposes ("E&P"). To the extent any distribution exceeds OpenTV's 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 OpenTV's ordinary shares. See
"Sale or Other Disposition of OpenTV's Ordinary Shares," below. Because OpenTV
is not a United States corporation, no dividends-received deduction will be
allowed to corporations with respect to dividends paid by OpenTV. Dividends
paid with respect to its ordinary shares will generally be treated as foreign
source "passive income" or, in the case of certain types of United States
holders, "financial services income," for purposes of computing allowable
foreign tax credits for United States foreign tax credit purposes.
Sale or other disposition of OpenTV ordinary shares. Generally speaking, in
connection with the sale or other taxable disposition of OpenTV's ordinary
shares:
. you will recognize gain or loss equal to the difference (if any)
between:
--the United States dollar value of the amount realized on such sale or
other taxable disposition, and
--your adjusted tax basis in such ordinary shares;
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. 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. United States 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 United States 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 United States tax advisor regarding the adverse United States 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 reporting and backup withholding. Any dividends paid, or
proceeds on a sale of, our ordinary shares to or by a United States holder may
be subject to United States information reporting, and a 31% backup
withholding tax may apply unless the holder is an exempt recipient or provides
a United States taxpayer identification number, certifies that such holder is
not subject to backup withholding and otherwise complies with any applicable
backup withholding requirements. Any amount withheld under the backup
withholding rules will be allowed as a refund or credit against the holder's
United States federal income tax, provided that the required information is
furnished to the Internal Revenue Service.
Material British Virgin Islands tax consequences of owning OpenTV's ordinary
shares
Under the International Business Companies Act of the British Virgin
Islands as currently in effect, a holder of common stock, such as OpenTV's
ordinary shares, who is not a resident of the British Virgin Islands is exempt
from British Virgin Islands income tax on dividends paid with respect to the
common stock and all holders of common stock are not liable to the British
Virgin Islands for income tax on gains realized 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.
Accounting treatment of the merger
OpenTV intends to account for the merger as a "purchase" for financial
reporting and accounting purposes, under generally accepted accounting
principles.
Regulatory filings and approvals required to complete the merger
This merger is subject to review by the Department of Justice and the
Federal Trade Commission to determine whether it is in compliance with
applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, the merger may not be
consummated until the specified waiting period requirements of that Act have
been satisfied. In connection with the merger, OpenTV and Spyglass will file
notification reports with the Department of Justice and the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. In addition, the completion of this merger is subject to the
effectiveness of the registration statement of which this joint proxy
statement/prospectus is a part, and compliance with applicable corporate laws
of the British Virgin Islands and Delaware.
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Certain securities laws considerations
The OpenTV Class A Ordinary Shares to be issued in the merger will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for OpenTV Class A Ordinary Shares issued to
any person who is an affiliate of Spyglass. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control with Spyglass and may include some of Spyglass'
officers and directors, as well as its principal stockholders. Spyglass'
affiliates may not sell their OpenTV Class A Ordinary Shares acquired in the
merger except pursuant to (1) an effective registration statement under the
Securities Act covering the resale of those shares, (2) an exemption under
paragraph (d) of Rule 145 under the Securities Act or (3) any other applicable
exemption under the Securities Act.
No appraisal or dissenters' rights
Appraisal rights under Delaware law are not available to stockholders of a
Delaware corporation if:
. the securities of the corporation are listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc.; and
. in the case of the stockholders of the corporation who are required to
take consideration different from that previously held by them, such
stockholders accept in exchange for their stock (a) stock in the
surviving corporation and (b) cash in lieu of fractional shares.
Spyglass' stockholders will not have appraisal rights under Delaware law
with respect to the merger because:
. Spyglass' common stock is traded on the NASDAQ; and
. Spyglass stockholders are being offered no merger consideration other
than OpenTV Class A Ordinary Shares and cash only in lieu of fractional
shares.
OpenTV's stockholders will not have dissenters' rights with respect to the
merger, because OpenTV is not merging within the meaning of that term as
defined in the International Business Companies Act of the British Virgin
Islands. Under the merger agreement, OpenTV's wholly-owned subsidiary is the
merging entity, while OpenTV itself is merely issuing 0.7236 of an OpenTV
Class A Ordinary Share in exchange for each share of outstanding Spyglass
common stock.
Listing on NASDAQ of OpenTV Class A Ordinary Shares to be issued in the merger
OpenTV has agreed to cause the shares of OpenTV Class A Ordinary Shares to
be issued in the merger to be approved for listing on the NASDAQ, subject to
official notice of issuance prior to the effective time of the merger.
Delisting and deregistration of Spyglass common stock after the merger
If the merger is completed, Spyglass' common stock will be delisted from
the Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934, as amended.
Listing on the AEX of OpenTV Class A Ordinary Shares to be issued in the
merger
In accordance with the listing requirements of the AEX, the shares of
OpenTV Class A Ordinary Shares to be issued in the merger will be approved for
listing on the AEX, subject to official notice of issuance prior to the
effective time of the merger.
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THE MERGER AGREEMENT
This section of the joint proxy statement/prospectus describes the merger
agreement. While OpenTV and Spyglass believe that the description in this
section covers the material terms of the merger agreement, this summary may
not contain all of the information that is important to you. The merger
agreement is attached to this joint proxy statement/prospectus as Annex A and
OpenTV and Spyglass urge you to read it carefully.
General
Following the adoption of the merger agreement and approval of the merger
by Spyglass stockholders and the satisfaction or waiver of the other
conditions to the merger, the transitory subsidiary, a wholly-owned subsidiary
of OpenTV, will merge into Spyglass. Spyglass will survive the merger as a
wholly owned subsidiary of OpenTV. If all conditions to the merger are
satisfied or waived, the merger will become effective at the time of the
filing by the surviving corporation of a duly executed certificate of merger
with the Delaware secretary of state.
The exchange ratio and treatment of Spyglass common stock
At the effective time of the merger, generally, each issued and outstanding
share of Spyglass common stock will be converted into the right to receive
0.7236 of an OpenTV Class A Ordinary Share. However, any shares owned by
Spyglass and any shares owned by OpenTV or the merger subsidiary will be
cancelled without conversion. OpenTV will adjust the exchange ratio to reflect
any reclassification, stock split, stock dividend, reorganization or other
similar change with respect to OpenTV Class A Ordinary Shares or Spyglass
common stock occurring before the effective time of the merger.
Treatment of restricted stock of Spyglass
At the effective time of the merger, all outstanding unvested shares of
Spyglass common stock granted by Spyglass under any of its plans or
arrangements will be converted into unvested OpenTV Class A Ordinary Shares
based on the exchange ratio and will remain subject to the same terms,
restrictions and vesting schedules as were applicable prior to the effective
time of the merger. OpenTV will assume any rights Spyglass held prior to the
effective time of the merger to repurchase these unvested shares.
Treatment of Spyglass stock options and warrants
At the effective time of the merger, OpenTV will assume each outstanding
option, whether vested or unvested, and warrant to purchase shares of Spyglass
common stock and convert them into options or warrants, as the case may be, to
purchase OpenTV Class A Ordinary Shares subject to the same terms and
conditions as were applicable prior to the effective time of the merger. The
number of OpenTV Class A Ordinary Shares issuable upon the exercise of such
stock options and warrants will be adjusted based on the exchange ratio. Any
fractional OpenTV Class A Ordinary Shares resulting from such adjustment will
be rounded down to the nearest whole number. The exercise price per OpenTV
Class A Ordinary Share issuable under each Spyglass option and warrant will
equal the aggregate exercise price of the Spyglass common stock purchasable
under the Spyglass option or warrant divided by the number of whole OpenTV
Class A Ordinary Shares the optionholder or warrantholder is entitled to
purchase based on the exchange ratio. The exercise price will be rounded up to
the nearest whole cent.
OpenTV will reserve for issuance a sufficient number of its Class A
Ordinary Shares for delivery upon a Spyglass optionholder's or warrantholder's
exercise of his or her option or warrant. OpenTV will file a
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registration statement on Form S-8 with respect to the assumed Spyglass stock
options. During the period that any such options remain outstanding, OpenTV
will use its best efforts to maintain the effectiveness of any such
registration statement on Form S-8.
Prior to the completion of the merger, Spyglass' Employee Stock Purchase
Plan will be terminated.
Exchange of certificates
Exchange agent; Exchange procedures; No further ownership rights. After the
effective time of the merger, OpenTV's exchange agent will mail to each record
holder of Spyglass common stock a letter of transmittal and instructions for
surrendering their certificates. Only those holders who properly surrender
their certificates in accordance with the instructions will receive
certificates representing OpenTV Class A Ordinary Shares, cash in lieu of any
fractional OpenTV Class A Ordinary Shares and any dividends or distributions
to which they are entitled. The surrendered certificates representing shares
of Spyglass common stock will be cancelled. After the effective time of the
merger, each certificate representing shares of Spyglass common stock that
have not been surrendered will only represent the right to receive (1) Class A
Ordinary Shares of OpenTV, (2) cash in lieu of any fractional OpenTV Class A
Ordinary Shares and (3) dividends or distributions. Following the effective
time of the merger, Spyglass will not register any transfers of Spyglass
common stock on its stock transfer books.
No fractional shares. OpenTV will not issue any fractional Class A Ordinary
Shares in the merger. Instead, each holder of shares of Spyglass common stock
exchanged in the merger who would otherwise be entitled to receive a fraction
of a Class A Ordinary Share of OpenTV will instead be entitled to receive
cash, without interest, equal to the product of such fraction and the average
closing price per OpenTV Class A Ordinary Share on NASDAQ during the five
consecutive trading days ending on and including the trading day immediately
preceding the closing of the merger.
Distributions with respect to unexchanged shares. After the effective date
of the merger, no dividends or other distributions declared or made after the
closing of the merger with respect to OpenTV Class A Ordinary Shares will be
paid to the holder of any unsurrendered Spyglass certificate and no cash
payment in lieu of fractional shares will be paid to any such holder until the
holder surrenders its Spyglass certificate in accordance with the letter of
transmittal. Upon surrender, OpenTV will pay to the recordholder of the
certificate, without interest, the amount of cash payable in lieu of
fractional shares to which the holder is entitled and any dividends or
distributions with respect to the OpenTV Class A Ordinary Shares to which the
holder is entitled which have a record date after the closing date of the
merger but prior to the surrender of the certificate and a payment date after
the surrender of the certificate.
Lost certificates. In the event any Spyglass common stock certificate is
lost, stolen or destroyed, a Spyglass stockholder must provide an appropriate
affidavit of that fact. OpenTV may require a Spyglass stockholder to deliver a
bond as indemnity against any claim that may be made against OpenTV with
respect to any lost, stolen or destroyed certificate.
Holders of Spyglass common stock should not send in their certificates
until they receive a letter of transmittal from the exchange agent.
Representations and warranties
OpenTV and Spyglass each made a number of representations and warranties in
the merger agreement regarding aspects of their respective businesses,
financial condition, structure and other facts pertinent to the merger.
Spyglass' representations and warranties
Spyglass' representations and warranties include representations as to:
. Spyglass' corporate organization and its qualification to do business;
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. Spyglass' certificate of incorporation and bylaws;
. Spyglass' capitalization;
. authorization of the merger agreement by Spyglass;
. the effect of the merger on obligations of Spyglass and under applicable
laws;
. regulatory approvals required to complete the merger;
. Spyglass' compliance with applicable laws;
. permits required to conduct Spyglass' business and compliance with those
permits;
. Spyglass' filings and reports with the Securities and Exchange
Commission ("SEC");
. Spyglass' financial statements;
. Spyglass' liabilities;
. changes in Spyglass' business since December 31, 1999;
. litigation involving Spyglass;
. Spyglass' employee benefit plans;
. Spyglass' labor relations;
. information supplied by Spyglass in this joint proxy
statement/prospectus and the related registration statement filed by
OpenTV;
. restrictions on the conduct of Spyglass' business;
. Spyglass' title to the properties it owns and leases;
. Spyglass' taxes;
. environmental laws that apply to Spyglass;
. payments, if any, required to be made by Spyglass to brokers and agents
on account of the merger;
. intellectual property used by Spyglass;
. Spyglass' material contracts;
. Spyglass' insurance coverage;
. the fairness opinion received by Spyglass from its financial advisor;
. approval by the Spyglass board;
. the vote of Spyglass stockholders required to approve the merger; and
. the inapplicability of state takeover statues.
The representations and warranties of Spyglass expire at the effective time
of the merger.
OpenTV's representations and warranties
OpenTV's representations and warranties include representations as to:
. OpenTV's corporate organization and its qualification to do business;
. OpenTV's articles of association and memorandum of association;
. OpenTV's capitalization;
. authorization of the merger agreement by OpenTV and Sonnet Acquisition
Corp.;
. the effect of the merger on obligations of OpenTV under applicable laws;
. regulatory approvals required to complete the merger;
. OpenTV's filings and reports with the SEC;
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. OpenTV's financial statements;
. OpenTV's liabilities;
. changes in OpenTV's business since September 30, 1999;
. litigation involving OpenTV;
. OpenTV's taxes;
. information supplied by OpenTV in this joint proxy statement/prospectus
and the related registration statement filed by OpenTV;
. payments, if any, required to be made by OpenTV to brokers and agents on
account of the merger;
. the fairness opinion received by OpenTV from its financial advisor;
. approval by the OpenTV board; and
. the vote of OpenTV's stockholders required to approve the merger.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles of the
merger agreement entitled "Representations and Warranties of Company,"
relating to Spyglass, and "Representations and Warranties of Parent and Merger
Sub," relating to OpenTV and Sonnet Acquisition Corp.
Spyglass' conduct of business before completion of the merger
Spyglass agreed that, until the earlier of the completion of the merger or
termination of the merger agreement or unless OpenTV consents in writing,
Spyglass will use its commercially reasonable efforts consistent with past
practices and policies to:
. preserve intact its present business organization;
. keep available the services of its present officers and employees; and
. preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
Spyglass also agreed that until the earlier of the completion of the merger
or termination of the merger agreement or unless OpenTV consents in writing,
Spyglass would conduct its business in compliance with certain specific
restrictions relating to the following:
. restricted stock and stock options;
. employees and employee benefits, including severance and termination
payments;
. Spyglass' intellectual property;
. the issuance of dividends or other distributions;
. the issuance, encumbrance and redemption of securities;
. modification of Spyglass' certificate of incorporation and bylaws;
. the acquisition of assets or other entities;
. the sale, lease, license and disposition of assets;
. the incurrence of indebtedness;
. the adoption, amendment or increase of employee benefit plans, policies
or arrangements;
. payment or settlements of liabilities;
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. making of certain payments;
. modification, amendment or termination of material contracts;
. entrance into or modification of distribution, sale, license or
marketing contracts;
. accounting policies and procedures;
. incurrence of obligations to make certain expenditures;
. treatment of the merger as a "reorganization" under the Internal Revenue
Code; and
. making of tax elections.
The agreements related to the conduct of Spyglass' business in the merger
agreement are complicated and not easily summarized. You are urged to
carefully read the sections of the merger agreement entitled "Conduct of
Business by Company," relating to Spyglass.
OpenTV's conduct of business before completion of the merger
OpenTV has agreed that, until the earlier of the completion of the merger
or termination of the merger agreement or unless Spyglass consents in writing,
OpenTV will use its commercially reasonable efforts consistent with past
practices and policies to:
. preserve intact its present business organization; and
. keep available the services of its present officers and employees.
OpenTV also agreed that until the earlier of the completion of the merger
or termination of the merger agreement or unless Spyglass consents in writing,
OpenTV will not engage in any of the following actions.
. the issuance of dividends or other distributions;
. the issuance or redemption of securities;
. amendment of OpenTV's organizational documents;
. revalue assets or change accounting policies and procedures;
. cause the merger to fail to qualify as a "reorganization" under the
Internal Revenue Code; and
. engage in actions that would adversely impact the merger.
No solicitation by Spyglass
Spyglass further agreed to cease, as of the date of the merger agreement,
any and all existing activities, discussions or negotiations with any parties
conducted prior to that date with respect to any Acquisition Proposal.
Until the merger is completed or the merger agreement is terminated,
Spyglass and its subsidiaries agreed not to directly or indirectly take any of
the following actions:
. solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal;
. participate in any discussions or negotiations regarding any Acquisition
Proposal;
. furnish to any person any non-public information with respect to any
Acquisition Proposal;
. take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal;
. engage in discussions with any person with respect to any Acquisition
Proposal, except as to the existence of the Acquisition Proposal
provisions;
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. subject to certain limited exceptions discussed below, approve, endorse
or recommend any Acquisition Proposal; and
. enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction.
Spyglass' board may, without breaching the merger agreement, respond to an
unsolicited, bona fide written Acquisition Proposal by discussing the proposal
with, and furnishing information to the party making the proposal, if all of
the following conditions are met:
. Spyglass' board reasonably concludes that the proposal constitutes a
Superior Offer;
. Spyglass' board determines in good faith, after considering the advice
of its outside legal counsel, that its fiduciary obligations require it
to do so;
. Spyglass gives prior written notice to OpenTV of discussions with, or
furnishing of information to the party making the proposal, and Spyglass
receives a customary confidentiality agreement from that party;
. when furnishing nonpublic information to the party making the proposal,
Spyglass contemporaneously furnishes the same information to OpenTV; and
. Spyglass has not breached any of the non-solicitation provisions
contained in the merger agreement.
For purposes of the foregoing, any action by any officer, director,
affiliate or employee of Spyglass or any investment banker, attorney or other
advisor or representative of Spyglass is deemed to be a breach by Spyglass.
An Acquisition Proposal is any offer or proposal relating to any
Acquisition Transaction, other than an offer or proposal from OpenTV.
An Acquisition Transaction is any transaction or series of transactions,
other than the merger, involving any of the following:
. the acquisition or purchase from Spyglass of more than a 5% interest in
the total outstanding voting securities of Spyglass or any of its
subsidiaries;
. any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 5% or more of the total
outstanding voting securities of Spyglass or any of its subsidiaries;
. any merger, consolidation, business combination or similar transaction
involving Spyglass pursuant to which the stockholders of Spyglass
immediately preceding such transaction hold less than 95% of the equity
interests in the surviving or resulting entity;
. any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition
or disposition of more than 5% of the assets of Spyglass; and
. any liquidation, dissolution or recapitalization of Spyglass;
A Superior Offer is an Acquisition Proposal proposing the acquisition of
all of the outstanding voting securities of the Company that meets all of the
following conditions:
. if any cash consideration is involved, is not subject to any financing
contingency;
. Spyglass' board of directors has determined, after considering the
advice of its independent financial advisors, that the acquiring party
is capable of consummating the proposed transaction on the proposed
terms; and
. Spyglass' board of directors has determined after considering the advice
of its financial advisors that such proposal provides greater value to
the stockholders of Spyglass than the merger.
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Spyglass has agreed to promptly inform OpenTV of any request for
information that Spyglass reasonably believes would lead to an Acquisition
Proposal, or of any Acquisition Proposal, or any inquiry with respect to or
which Spyglass reasonably should believe would lead to any Acquisition
Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person or group making any such
request, Acquisition Proposal or inquiry. Spyglass further agreed to keep
OpenTV informed in all material respects of the status and details, including
material amendments or proposed amendments, or any such request, Acquisition
Proposal or inquiry.
Spyglass stockholder meeting
Regardless of whether there has been a Superior Offer, Spyglass is
obligated under the merger agreement to hold and convene the Spyglass special
meeting of stockholders for purposes of voting on the merger agreement and the
merger.
Employee benefits matters
Individuals who continue to be employed by Spyglass after the merger is
completed who become participants or are subject to OpenTV's employee benefit
plans will, subject to certain qualifications, receive credit for length of
service with Spyglass prior to the merger for eligibility and vesting
purposes.
Conditions to completion of the merger
The obligations of OpenTV and Spyglass to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver, to the extent legally permissible, of each of the
following conditions before completion of the merger:
. the merger agreement must be approved and adopted and the merger must be
approved by the requisite vote of holders of Spyglass stock;
. the issuance of OpenTV's shares to Spyglass' stockholders must be
approved by the requisite vote of OpenTV holders under the NASDAQ rules;
. OpenTV's registration statement on Form F-4 must be effective, no stop
order suspending its effectiveness will be in effect and no proceedings
for suspension of its effectiveness have been initiated or threatened by
the SEC;
. no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger;
. all applicable waiting periods under applicable antitrust laws must have
expired or been terminated;
. OpenTV and Spyglass must each receive from their respective tax counsel,
an opinion to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. However, if counsel to either OpenTV or Spyglass does not
render this opinion, this condition will be satisfied if counsel to the
other party renders the opinion to such party; and
. the shares of OpenTV Class A Ordinary Shares to be issued in the merger
must be authorized for listing on NASDAQ, upon notice of issuance.
Spyglass' obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the
merger:
. OpenTV's representations and warranties must be true and correct as of
March 26, 2000 and at and as of the date the merger is to be completed
as if made at and as of such time except:
-- to the extent OpenTV's representations and warranties address
matters only as of a particular date, they must be true and correct
as of that date;
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-- if any of these representations and warranties are not true and
correct but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and breaches of these
warranties, is not and does not have an adverse effect on OpenTV,
then this condition will be deemed satisfied;
. OpenTV must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be
performed or complied with by OpenTV at or before completion of the
merger; and
. Spyglass has received a legal opinion from British Virgin Islands
counsel relating to certain legal items.
OpenTV's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the
merger:
. Spyglass' representations and warranties must be true and correct as of
March 26, 2000 and at and as of the date the merger is to be completed
as if made at and as of such time except:
-- to the extent Spyglass' representations and warranties address
matters only as of a particular date, they must be true and correct
as of that date;
-- if any of these representations and warranties are not true and
correct but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and breaches of these
warranties, is not and does not have a material adverse effect on
Spyglass, then this condition will be deemed satisfied;
. Spyglass must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be
performed or complied with by Spyglass at or before completion of the
merger;
. Certain Spyglass employees shall have entered into employee agreements
and each of the agreements is in full force and effect as of the date of
the merger; and
. Spyglass shall have obtained all consents, waivers and approvals
required by identified contracts.
Termination of the merger agreement
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after approval and adoption of the merger
agreement and approval of the merger by Spyglass stockholders:
. by mutual consent of the board of directors of OpenTV and Spyglass;
. by OpenTV or Spyglass, if the merger is not completed before December
31, 2000 except that this right to terminate the merger agreement is not
available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the merger to occur on
or before December 31, 2000 and such action or failure to act
constitutes a breach of the merger agreement;
. by OpenTV or Spyglass, if there is any action of a court or governmental
authority having jurisdiction over either OpenTV or Spyglass permanently
restraining, enjoining or prohibiting the completion of the merger which
is final and nonappealable;
. by OpenTV or Spyglass, if the merger agreement fails to receive the
requisite vote for approval and adoption and the merger fails to receive
the requisite vote for approval by the stockholders of Spyglass at a
Spyglass stockholders meeting or at any adjournment of that meeting or
if the merger fails to receive the requisite approval by the
stockholders of OpenTV at an OpenTV stockholders meeting or at any
adjournment of that meeting, except that this right to terminate the
merger agreement is not available to any party where the failure to
obtain stockholder approval was caused by that party's action or failure
to act and such action or failure to act constitutes a breach of the
merger agreement;
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. by Spyglass, upon a breach of any representation, warranty, covenant or
agreement on the part of OpenTV in the merger agreement, or if any of
OpenTV's representations or warranties are or become untrue so that the
corresponding condition to completion of the merger would not be met.
However, if the breach or inaccuracy is curable by OpenTV through the
exercise of its commercially reasonable efforts, and OpenTV continues to
exercise such commercially reasonable efforts, Spyglass may not
terminate the merger agreement for 30 days after delivery of written
notice from Spyglass to OpenTV of the breach;
. by OpenTV, upon a breach of any representation, warranty, covenant or
agreement on the part of Spyglass set forth in the merger agreement, or
if any of Spyglass' representations or warranties are or become untrue
so that the corresponding condition to completion of the merger would
not be met. However, if the breach or inaccuracy is curable by Spyglass
through the exercise of its commercially reasonable efforts and Spyglass
continues to exercise such commercially reasonable efforts, OpenTV may
not terminate the merger agreement for 30 days after delivery of written
notice from OpenTV to Spyglass of the breach; and
. by OpenTV if any of the following shall have occurred:
-- Spyglass' board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to OpenTV or its stockholders;
-- Spyglass' board of directors approves or recommends any Acquisition
Proposal;
-- Spyglass' breach of the non-solicitation provisions of the merger
agreement;
-- An Acquisition Proposal is announced or becomes publicly known to
Spyglass' board of directors and Spyglass' board of directors fails
to recommend against such proposal or fails to reconfirm its
approval and recommendation of the merger agreement and the merger,
within five business days after OpenTV makes such a written request
of Spyglass;
-- Spyglass fails to hold a stockholders meeting prior to December 31,
2000; or
-- Spyglass' board of directors resolves to take any of the actions
described above.
Payment of termination fee
Spyglass will pay OpenTV a termination fee of $74 million if any of the
following conditions occur:
. OpenTV terminates the merger agreement because of any of the following:
-- Spyglass' board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to OpenTV or its stockholders;
-- Spyglass' board of directors approves or recommends any Acquisition
Proposal;
-- Spyglass breaches any of the non-solicitation provisions of the
merger agreement;
-- An Acquisition Proposal is announced or becomes publicly known to
Spyglass' board of directors and Spyglass' board of directors fails
to recommend against such proposal or fails to reconfirm its
approval and recommendation in favor of the merger agreement and the
merger, within five business days after OpenTV makes such a written
request of Spyglass;
-- Spyglass fails to hold a stockholders meeting prior to December 31,
2000; or
-- Spyglass' board of directors resolves to take any of the actions
described above.
. the merger agreement is terminated because the merger has not been
consummated by December 31, 2000 and (1) at or prior to such
termination, there shall exist or have been proposed an Acquisition
Proposal, (2) OpenTV shall not be guilty of any action or failure to act
in breach of the merger agreement that has been a principal reason for
the failure of the merger to occur by December 31, 2000,
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(3) Spyglass shall not have previously delivered a notice of breach by
OpenTV of the merger agreement that entitles Spyglass to terminate the
merger agreement and (4) within 12 months after such termination,
Spyglass shall enter into a definitive agreement with respect to an
acquisition of Spyglass or an acquisition of Spyglass shall be
consummated; or
. the merger agreement is terminated because Spyglass has not been able to
obtain the requisite vote for the merger from its stockholders and
Spyglass shall not have previously delivered a notice of breach by
OpenTV of the merger agreement that entitles Spyglass to terminate the
merger agreement.
In addition, if OpenTV terminates the merger agreement because of a breach
by Spyglass of a representation, warranty, covenant or agreement in the merger
agreement or because of Spyglass' representations and warranties failing to
remain true, then Spyglass will be required to reimburse OpenTV for OpenTV's
costs and expenses in connection with the merger agreement. Furthermore, if,
within 12 months of such termination of the merger agreement, Spyglass shall
enter into a definitive agreement with respect to an acquisition of Spyglass
or an acquisition of Spyglass shall be consummated, Spyglass shall be required
to pay to OpenTV the amount by which $74 million exceeds the amount of
OpenTV's expenses previously reimbursed by Spyglass.
Operations after the merger
Immediately following the merger, it is expected that Spyglass will
continue its operations as a wholly-owned subsidiary of OpenTV. The membership
of OpenTV's board of directors will remain unchanged as a result of the
merger. The stockholders of Spyglass will become stockholders of OpenTV, and
their rights as stockholders will be governed by the OpenTV memorandum and
articles of association, as currently in effect, and the laws of the British
Virgin Islands. See "Comparison of Stockholder Rights and Corporate Governance
Matters" beginning on page 79 of this joint proxy statement/prospectus.
Extension, waiver and amendment of the merger agreement.
OpenTV and Spyglass may amend the merger agreement before completion of the
merger by mutual written consent.
Either OpenTV or Spyglass may extend the other's time for the performance
of any of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive
compliance by the other with any of the agreements or conditions contained in
the merger agreement.
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AGREEMENTS RELATED TO THE MERGER
This section of the joint proxy statement/prospectus describes agreements
related to the merger agreement, including the Company Stockholder Agreements,
the Parent Voting Agreement, the Lock-Up Agreements and the Affiliate
Agreements. While OpenTV and Spyglass believe that these descriptions in this
section cover the material terms of these agreements, these summaries may not
contain all of the information that is important to you. Forms of these
agreements are attached as exhibits to Annex A to this joint proxy
statement/prospectus.
Company stockholder agreements
OpenTV required each member of the Spyglass board of directors and each
executive officer of Spyglass to enter into voting agreements. By entering
into the voting agreements these Spyglass stockholders have irrevocably
appointed OpenTV as their lawful attorney and proxy. These proxies give OpenTV
the limited right to vote the shares of Spyglass common stock beneficially
owned by these Spyglass stockholders, including any shares of Spyglass common
stock acquired after the date of the voting agreements, in favor of the
approval and adoption of the merger agreement, in favor of the merger and in
favor of each other matter that could reasonably be expected to facilitate the
merger. These Spyglass stockholders may vote their shares of Spyglass common
stock on all other matters.
As of March 26, 2000, the Spyglass stockholders who entered into voting
agreements collectively owned 1,239,455 shares of Spyglass common stock which
represented approximately 7.2% of the then outstanding Spyglass common stock.
None of the Spyglass stockholders who are parties to the voting agreements
were paid additional consideration in connection with them.
Each Spyglass stockholder who is a party to a voting agreement agreed not
to sell the Spyglass stock and options owned, controlled or acquired, either
directly or indirectly, by that person until the earlier of the termination of
the merger agreement or the completion of the merger, unless each person to
which any shares or any interest in any shares is transferred agrees to be
bound by the terms and provisions of the voting agreement.
The company stockholder agreements will terminate upon the earlier to occur
of either the termination of the merger agreement or the completion of the
merger. The form of company stockholder agreement is attached as Exhibit A-1
to the merger agreement which is attached to this joint proxy
statement/prospectus as Annex A, and you are urged to read it in its entirety.
Parent voting agreement
Spyglass required OTV Holdings Limited, an indirect subsidiary of MIH
Limited, to enter into the parent voting agreement. By entering into this
voting agreement OTV Holdings Limited has irrevocably appointed Spyglass as
its lawful attorney and proxy. This proxy gives Spyglass the limited right to
vote the OpenTV Class A and Class B Ordinary Shares beneficially owned by OTV
Holdings Limited, including any OpenTV Class B Ordinary Shares acquired after
the date of the voting agreement, in favor of the approval and adoption of the
merger agreement, in favor of the merger, issuance of Class A Ordinary Shares
in the merger and in favor of each other matter that could reasonably be
expected to facilitate the merger. OTV Holdings Limited may vote its OpenTV
Class A and Class B Ordinary Shares on all other matters.
As of March 26, 2000, OTV Holdings Limited owned no shares of OpenTV Class
A and 30,631,746 Class B Ordinary Shares, which represented approximately
94.8% of the votes represented by the then outstanding OpenTV ordinary shares.
OTV Holdings Limited was not paid additional consideration to enter into this
voting agreement.
OTV Holdings Limited agreed not to sell the OpenTV Class A and Class B
Ordinary Shares and options owned, controlled or acquired, either directly or
indirectly, by it until the earlier of the termination of the merger
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agreement or the completion of the merger, unless each person to which any
shares or any interest in any shares is transferred agrees to be bound by the
terms and provisions of the voting agreement.
The parent voting agreement will terminate upon the earlier to occur of the
termination of the merger agreement and the completion of the merger. The form
of parent voting agreement entered into by OTV Holdings Limited is attached as
Exhibit A-2 to the merger agreement which is attached to this joint proxy
statement/prospectus as Annex A, and you are urged to read it in its entirety.
Lock-Up agreement
As an inducement to OpenTV to enter the merger agreement, each member of
the Spyglass board of directors and each executive officer of Spyglass has
executed a lock-up agreement. Under these lock-up agreements, these persons
have agreed that until May 21, 2000, the first date on which directors,
executive officers and certain other stockholders of OpenTV can sell their
stock in OpenTV under certain lock-up agreements each of them entered into in
connection with OpenTV's initial public offering, they will not sell or
otherwise dispose of the Class A Ordinary Shares they receive under the
merger.
Spyglass affiliate agreements
As an inducement to OpenTV to enter into the merger agreement, each member
of the Spyglass board of directors and each executive officer of Spyglass and
certain stockholders of Spyglass has executed an affiliate agreement. Under
the affiliate agreements, OpenTV will be entitled to place appropriate legends
on these persons' certificates evidencing any OpenTV Class A Ordinary Shares
to be received by these persons and to issue stop transfer instructions to the
transfer agent for the OpenTV Class A Ordinary Shares. Further, these persons
have also acknowledged the resale restrictions imposed by Rule 145 under the
Securities Act on shares of OpenTV Class A Ordinary Shares to be received by
them in the merger.
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COMPARISON OF STOCKHOLDER RIGHTS
AND CORPORATE GOVERNANCE MATTERS
This section of the joint proxy statement/prospectus describes certain
differences between Spyglass common stock and OpenTV Class A Ordinary Shares
and certain differences relating to the corporate governance of Spyglass and
OpenTV. While OpenTV and Spyglass believe that the description covers the
material differences, this summary may not contain all of the information that
is important to Spyglass stockholders. Spyglass stockholders should read this
entire document, the memorandum of association and articles of association of
OpenTV, and the certificate of incorporation and bylaws of Spyglass for a more
complete understanding of these differences between Spyglass common stock and
OpenTV Class A Ordinary Shares.
Spyglass' certificate of incorporation and bylaws currently govern the
rights of stockholders of Spyglass. After the completion of the merger,
Spyglass' common stockholders will become holders of Class A Ordinary Shares
of OpenTV. As a result, former Spyglass stockholders' rights will be governed
by OpenTV's memorandum of association and articles of association. The
following paragraphs summarize certain differences between the rights of
OpenTV stockholders and Spyglass stockholders generally. The summary also
describes the differences in certain corporate governance matters under the
memorandum of association and articles of association of OpenTV and British
Virgin Islands law compared to the certificate of incorporation and bylaws of
Spyglass and Delaware general corporate law. Under British Virgin Islands law
holders of a company's stock are referred to as "members," but for clarity,
they are referred to as "stockholders" in the following summary and elsewhere
in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
Description of
ordinary shares or
common stock...... The ordinary shares of The Spyglass common stock is
OpenTV are divided into not divided.
Class A Shares and Class B
Shares.
OpenTV is authorized to Spyglass is currently
issue up to 500,000,000 authorized to issue
Class A Shares of no par 50,000,000 shares of common
value and up to 200,000,000 stock, with a par value of
Class B Shares of no par $0.01.
value.
The holders of OpenTV Class The holders of Spyglass
A Shares are entitled to one common stock are entitled to
vote on each matter one vote for each share held
submitted to the security of record on all matters
holders for each share submitted to a vote of
thereof held. The holders of stockholders.
OpenTV Class B Shares are
entitled to 10 votes on each
matter submitted to security
holders for each share
thereof held.
Each Class B Share may be Holders of common stock have
converted at any time, at no preemptive rights or
the option of its record rights to convert their
holder, into one validly common stock into any other
issued, fully paid and non- securities.
assessable Class A Share.
Each Class B Share in
addition, shall
automatically and without
any further action on the
part of OpenTV or any other
person, convert to one Class
A Share upon the occurrence
of certain events as stated
in OpenTV's memorandum of
association.
</TABLE>
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<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
OpenTV may purchase, redeem There are no redemption or
or otherwise acquire and sinking fund provisions
hold its own shares but may applicable to the Spyglass
only do so out of surplus or common stock.
in exchange for newly issued
shares of equal value and
only with the consent of the
stockholder whose shares are
to be purchased, redeemed or
otherwise acquired, and only
for fair value.
All outstanding shares of
All outstanding ordinary Spyglass common stock are
shares of OpenTV are fully fully paid and non-
paid and non-assessable. assessable.
Description of
preferred stock... Pursuant to Spyglass'
certificate of
OpenTV is authorized to incorporation, the board of
issue up to 500,000,000 directors has the authority,
Preference Shares of no par without further action by
value. Pursuant to OpenTV's the stockholders, to issue
memorandum of association, up to 2,000,000 shares of
the board of directors has preferred stock, $0.01 par
the authority, without value per share, in one or
further action by the more series and to fix the
stockholders, to provide out rights, preferences,
of the unissued Preference privileges and restrictions
Shares for one or more thereof. The board, without
series of Preference Shares stockholder approval, can
and to fix the number of issue preferred stock with
shares constituting such voting, conversion or other
series and the designation rights that could adversely
of such series, the voting affect the voting power and
powers (if any) of the other rights of the holders
shares of such series, the of common stock. Preferred
relative, participating, stock could thus be issued
optional or other rights (if quickly with terms
any) and any qualifications, calculated to delay or
preferences, limitations or prevent a change in control
restrictions of the shares of Spyglass or make removal
of such series. The board, of management more
without stockholder difficult. Additionally, the
approval, can issue issuance of preferred stock
preferred stock with voting, may have the effect of
conversion or other rights decreasing the market price
but only if such preferred of the common stock, and may
stock does not adversely adversely affect the voting
affect the voting power and and other rights of the
other rights of existing holders of common stock.
stockholders, otherwise it There are no shares of
must obtain approval of the preferred stock outstanding
affected stockholders. and Spyglass has no plans to
OpenTV currently has no issue any of the preferred
Preference Shares. stock.
</TABLE>
Annual meeting of
stockholders...... British Virgin Islands law Delaware law requires annual
does not require an meetings of stockholders.
International Business
Company, such as OpenTV, to
have an annual meeting.
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<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
OpenTV's articles of
association does, however,
require an annual meeting of
stockholders for the
election of directors and
for such other business as
may come before the meeting.
Special meeting of
stockholders....... Under British Virgin Islands Under Delaware law, a
law, unless otherwise special meeting of
provided by a company's stockholders may be called
memorandum of association or by the board of directors or
articles of association, any other person authorized
special meetings of members to do so in the certificate
may be called by the of incorporation or the
directors at any time. bylaws. Spyglass' bylaws
Directors are required to authorize the board of
call meetings upon a written directors or the president
request from the members to call a special meeting of
holding more than 50% of the stockholders.
outstanding voting shares.
OpenTV's articles of
association provide that
special meetings of
stockholders may be called
only by a resolution of
directors or by the chief
executive officer.
Action by written
consent in lieu of
a stockholders' Under British Virgin Islands Same.
meeting............ law, stockholders may take
action by written consent in
lieu of voting at a
stockholders meeting.
Currently, OpenTV's Spyglass' certificate of
memorandum of association incorporation and bylaws
and articles of association require any action by
do not allow stockholders to written consent of
act by written consent. stockholders be signed by
all of the stockholders that
would be entitled to vote on
the matter at a stockholders
meeting.
Record date for
determining Under Delaware law and
stockholders....... OpenTV's articles of Spyglass' certificate of
association state that the incorporation, the record
directors may fix the date date for determining
that notice is given of a stockholders of record at a
meeting of stockholders as meeting is a date the
the record date for directors may fix not more
determining those shares than sixty days nor less
that are entitled to vote at than ten days before such
the meeting. meeting.
</TABLE>
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<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
Advance notice
provisions for
board nomination
and other
stockholders'
business at any OpenTV's articles of For nominations or other
stockholder annual association provide that business to be properly
meetings.......... written notice of all brought before a
meetings of stockholders, stockholders' meeting by a
stating the time, place and stockholder, the stockholder
purposes thereof, shall be must have given timely
given not fewer than ten notice thereof in writing to
days before the date of the the secretary of Spyglass
proposed meeting to those and such other business must
persons whose names appear otherwise be a proper matter
as stockholders in the share for stockholder action. To
register of OpenTV on the be timely, stockholders
date of the notice and are notice shall be delivered to
entitled to vote at the and received at the
meeting. However, in general principal executive offices
a meeting of stockholders of Spyglass not less than 60
may be called on shorter and not more than 90 days
notice if at least 90% of prior to the meeting;
the total number of shares provided, however, that in
consent or stockholders the event that less than 70
holding such number of days' notice or prior public
shares waive the right to disclosure of the meeting is
notice. given to the stockholders,
notice by the stockholder to
be timely must be delivered
not later than the close of
business on the 10th day
following the day on which
the notice of the meeting
was mailed or prior public
disclosure was made.
OpenTV's articles of The Spyglass bylaws require
association provides that that nominations of persons
nominations of persons for for election to the board of
election to the board of directors and the proposal
directors shall be made only of business to be considered
at a meeting of stockholders at any meeting of
and only by or at the stockholders must be made
direction of the directors by:
or by a stockholders
entitled to vote for the
election of directors who
complies with the notice
procedures.
-- the board of directors,
or
-- a stockholder who gives
proper notice.
</TABLE>
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<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
At any meeting of The Spyglass by laws require
stockholders, only such that the proposal of
business shall be conducted business to be considered at
as shall have been brought any meeting of stockholders
before such meeting (a) by must be made by:
or at the direction of the
Chairman of the board of
directors; or (b) by any
stockholders who is a holder
of record at the time of the
giving of the notice, who is
entitled to vote at the
meeting and who complies
with the notice procedures
of OpenTV's articles of
association.
-- the corporation's notice
of meeting (or any
supplement to the
notice),
-- the board of directors,
or
-- a stockholder who gives
proper notice.
Number of OpenTV's articles of The Spyglass certificate of
directors.......... association provides that incorporation and bylaws
the number of directors provide that the board of
shall be at least five directors shall be at least
members but no more than three members. The exact
fifteen members, as number of directors may be
determined from time to time fixed by the board of
by a resolution of directors.
directors.
Classified board of
directors.......... OpenTV's articles of Delaware law provides that a
association does not provide corporation's board of
for various classes or a directors may be divided
staggered board. into various classes with
staggered terms of office.
The board of directors of
Spyglass is divided into
three classes, with a
separate class being elected
each year. As a result,
Spyglass directors are
elected to a term of three
years and until their
successors are elected and
qualified.
Removal of OpenTV's articles of Under Delaware law, except
directors.......... association provides that a as otherwise provided in the
director shall be removed corporation's certificate of
only upon the occurrence of incorporation, a director of
certain events. In addition, a corporation that has a
a director may be removed by classified board of
resolution signed by all the directors may be removed
other directors or if only with cause. The
removed for cause, by a Spyglass certificate of
resolution of members. incorporation and bylaws
provide that a director or
the entire board of
directors may be removed
only for cause.
</TABLE>
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<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
Board of director
vacancies.......... OpenTV's articles of Under Delaware law,
association provides that vacancies and newly created
any vacancy on the board directorships may be filled
resulting from death, by a majority of the
resignation, removal or directors then in office,
other cause and any newly even though less than a
created directorship quorum, unless otherwise
resulting from any increase provided in the certificate
in the authorized number of of incorporation or bylaws.
directors between meeting of The Spyglass certificate of
stockholders shall be filled incorporation and bylaws
only by the affirmative vote provide that vacancies on
of a majority of all the the board of directors,
directors then in office including vacancies
(even if less than a quorum) resulting from any increase
and any director so in the authorized number of
appointed shall hold office directors, unless and until
for the remainder of the filled by the stockholders,
annual term of the directors may be filled by the vote of
and until such a successor a majority of directors then
is duly elected, or until in office, even though less
his earlier death, than a quorum.
resignation or removal from
office.
Indemnification..... OpenTV's articles of Same.
association provides that
OpenTV 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:
. 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 OpenTV; or
. is or was, at the request
of OpenTV, 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.
This is subject to the
limitation that OpenTV may
only indemnify a person if
the person acted honestly
and in good faith with a
view to the best interests
of OpenTV and, in the case
of criminal proceedings, the
person had no reasonable
cause to believe that his
conduct was unlawful.
</TABLE>
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<TABLE>
<CAPTION>
OPENTV SPYGLASS
---------------------------- ----------------------------
<S> <C> <C>
Amendment of Amendments to OpenTV's Amendments to the Spyglass
corporate memorandum of association certificate of incorporation
documents......... and articles of association may be made by resolution of
may be made by resolution of the Board of Directors
stockholders followed by the approval of
or directors, unless a majority of the holders of
otherwise required by common stock unless
certain provisions of the otherwise provided by
articles of association or certain provisions of the
the memorandum. If so certificate of
required, such amendments incorporation. If so
require the affirmative vote required such amendments
of the holders of 66% or require the affirmative vote
more of the combined votes of the holders of 75% or
of all the then outstanding more of the common stock.
Ordinary Shares voting
together as a single class,
or the affirmative vote of
66 2/3% of the total number
of directors.
Limitation of Spyglass' certificate of
liability of OpenTV's articles of incorporation provides that,
directors......... association provides that, except to the extent
to the full extent of the prohibited by Delaware law,
law, no director shall be no director shall be
personably liable to OpenTV personally liable to the
or its members for or with Company or its stockholders
respect to any acts or for or with respect to any
omissions in the performance acts or omissions in the
of his duties as a director performance of his duties as
of OpenTV. a director of the Company.
British Virgin Islands
legislation, however, sets
the standard of care
expected from every director
in performing his functions,
as requiring that he act
honestly and in good faith
with a view to the best
interests of the company and
exercise the care, diligence
and skill that a reasonably
prudent person would
exercise in comparable
circumstances. No provision
in a company's memorandum of
association or articles of
association or in any
agreement entered into by
the company relieves a
director, from the duty to
act in accordance with the
memorandum or articles or
from any personal liability
arising from his management
of the business and affairs
of the company.
It should be noted,
therefore, that in addition
to the statutory standard of
care laid down for
directors, they are also
bound by the usual common
law duty of care in relation
to the exercise of their
powers as directors.
</TABLE>
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CERTAIN INFORMATION REGARDING OPENTV
Forward-looking statements
This joint proxy statement/prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These forward-looking statements
involve risks and uncertainties, including, among other things, statements
regarding anticipated costs and expenses, revenue mix, product and service
development and relationships with strategic partners. These forward-looking
statements include, among others, those statements including the words
"expects," "anticipates," "intends," "believes" and similar language. Actual
results may differ significantly from those projected in the forward-looking
statements. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in the section "Risk
Factors."
Overview of OpenTV's business
OpenTV is the leading worldwide provider of software that enables digital
interactive television. OpenTV's software is running on over 7.8 million set-
top boxes worldwide, with 28 network operators in more than 20 countries
having selected OpenTV's OpenTV Runtime software as their interactive
platform. OpenTV's digital interactive solution enhances a television viewer's
experience without changing viewing habits and provides a rich audio and video
television environment for enhanced applications, such as e-commerce. The
majority of OpenTV's revenues today are generated from royalties and fees
related to OpenTV's core software platform. In addition, OpenTV is developing
interactive applications that OpenTV intends 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. OpenTV's 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. OpenTV
believes its 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 OpenTV's business and growth
strategy:
. Continue to expand OpenTV's global presence. OpenTV's system is the
first digital interactive television software being deployed by multiple
network operators and set-top box manufacturers on a significant scale.
OpenTV's software platform has been adopted by 28 network operators in
more than 20 countries covering all six inhabited continents. Twenty
network operators already have begun deploying set-top boxes with
OpenTV's system to their viewers. OpenTV plans to leverage this first
mover advantage by expanding within its current markets and entering new
markets in Europe, Asia, Latin America and the United States. For
example, OpenTV recently signed agreements with Quiero Television, a
Spanish terrestrial operator; PrimaCom, a German cable operator; Galaxy
Latin America, a satellite operator affiliated with DirecTV covering 27
Latin American and Carribean countries; and E-Vision, a cable operator
in the United Arab Emirates.
. Capitalize on worldwide transition to digital television. OpenTV
believes the vast installed base of one billion television households
worldwide will rapidly migrate to digital technology. OpenTV believes
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. OpenTV's 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
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digital network infrastructure, OpenTV's 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 OpenTV's technology. OpenTV is continually enhancing
and upgrading its software. For example, OpenTV is currently shipping
the third generation of its Runtime software. OpenTV is developing
additional software features in anticipation of the eventual
proliferation of two-way broadband communication and increased set-top
box memory and performance. Through partnerships with Sun Microsystems,
Inc. and Panasonic, OpenTV is developing a future version of its Runtime
based on Java technology that also will comply with emerging European
interactive television standards. Through its partnership with EchoStar,
OpenTV is developing a future version of its Runtime that will support
an integrated hard drive within set-top boxes and thereby enable video
recording applications. Following the merger with Spyglass, OpenTV
expects to develop a future version of its Runtime with an Internet web
browser. As OpenTV updates its technology, OpenTV intends to make future
versions of its Runtime backward compatible, which allows existing
applications to run on future versions of its software without
modification. OpenTV's software can be upgraded by network operators via
"flash downloads" that are transmitted directly to set-top boxes without
viewer involvement, and OpenTV anticipates that software upgrades will
become a source of future revenues. Furthermore, OpenTV maintains its
technology leadership through participation in standards-setting bodies,
including Digital Video Broadcasting, Advanced Television Systems
Committee and Open Cable.
. Encourage independent application development. OpenTV encourages
television program developers and independent parties to design and
create additional applications with the help of OpenTV's 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 OpenTV's open software platform.
OpenTV has created an in-house team with training in traditional
television production that assists third-parties with their projects and
helps OpenTV with its own application development. OpenTV recently
launched a formal program for independent developers called
"OpenAdvantage", which now has more than 300 members. As the volume and
quality of interactive content and services provided using the OpenTV
system expands, OpenTV expects that more viewers and customers will be
attracted to OpenTV's solution.
. Develop OpenTV's applications business and share revenues from
advertising and e-commerce. OpenTV is creating, with its 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, enhanced broadcast programming and e-mail. OpenTV
expects to participate in the recurring advertising and transaction-
based revenue generated by these applications through revenue sharing
agreements with its content partners and network operators. For example,
OpenTV has recently signed a revenue-sharing agreement with EchoStar
Satellite Corporation in which OpenTV will provide certain applications
in exchange for a percentage of the revenues generated by these
applications.
Customers and industry relationships
OpenTV has established significant relationships with network operators,
set-top box manufacturers, chip set manufacturers, conditional access vendors
and independent application developers around the world. OpenTV's customer and
industry relationships include the following:
. 28 network operators that use or have committed to use OpenTV Runtime
software, generally along with OpenTV's head-end software for
broadcasting interactive content, OpenTV's application development tools
and other specially developed applications;
. 29 set-top box manufacturers that license OpenTV Runtime for
distribution in their set-top boxes, generally including the use of
OpenTV's Hardware Porting Kit;
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. 8 chip set manufacturers that use OpenTV's Hardware Porting Kit to
assure the compatibility of their products with OpenTV Runtime;
. 7 conditional access vendors with which OpenTV has worked to ensure the
compatibility of the OpenTV system;
. numerous independent application developers that use its application
development tools to author programs for use with the OpenTV system; and
. digital television set manufacturers can incorporate our software, which
is platform-neutral, at the time of production, or OpenTV's 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.
Since OpenTV's introduction of the OpenTV system in late 1996, the number
of its customers and the number of set-top boxes deployed with its software
have both grown rapidly. The following table demonstrates OpenTV's recent
growth:
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
1997 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
(all figures cumulative)
<S> <C> <C> <C> <C> <C> <C>
Network operators
deploying set-top boxes
with OpenTV............ 2 5 7 10 13 21
Set-top box
manufacturers
shipping............... 3 4 4 9 12 13
Set-top boxes deployed
(000's)................ 252 687 1,121 1,926 3,501 6,230
</TABLE>
Network operators
Set-top boxes with OpenTV's software have been deployed by 21 network
operators around the world. Another seven network operators are planning to
deploy set-top boxes using 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 Deployment Type
- ---------------- -------------------- ---------- --------------
<S> <C> <C> <C>
Television par Satellite
(TPS).................. France Q4:96 Satellite
MultiChoice Africa...... South Africa Q2:97 Satellite
Telia Infomedia TV...... Sweden Q4:97 Cable
France Telecom.......... France Q4:97 Cable
Lyonnaise Cable......... France Q4:97 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
CBSat................... China Q4:98 Satellite
Stream.................. Italy Q1:99 Satellite
Via Digital............. Spain Q2:99 Satellite
Austar.................. Australia Q2:99 Satellite
FOXTEL.................. Australia Q2:99 Satellite
Senda................... Sweden Q3:99 Terrestrial
Teleon.................. Turkey Q3:99 Satellite/MMDS
Image Wireless.......... Canada Q3:99 MMDS
MultiChoice Hellas...... Greece Q4:99 Satellite
Casema.................. Netherlands Q4:99 Cable
Media Kabel............. Netherlands Q4:99 Cable
E-Vision................ United Arab Emirates Q4:99 Cable
</TABLE>
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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>
EchoStar.......................................... USA Satellite
Galaxy Latin America (DirecTV).................... Latin America Satellite
Pacific Digital Media Corporation................. Taiwan Satellite
PrimaCom AG....................................... Germany Cable
Quiero Television................................. Spain Terrestrial
Shaw Communications............................... Canada Cable/Satellite
Sky New Zealand................................... New Zealand Satellite
</TABLE>
Set-top box manufacturers
OpenTV markets and licenses its OpenTV Runtime software and its Hardware
Porting Kit to digital set-top box manufacturers. Because OpenTV's software is
platform neutral and flexible, OpenTV has 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 OpenTV has signed
license agreements with another 16 manufacturers. OpenTV believes that its
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 OpenTV has
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............................................. Q3:99
</TABLE>
OpenTV is continuing to build relationships with additional set-top box
manufacturers by targeting certain strategic vendors. The following
manufacturers have signed licensing agreements with OpenTV and will begin
producing set-top boxes containing OpenTV's operating system in the near
future:
Avias Technology International Philips
CPS Europe Sony Corporation
Galaxis Tae Young Telstar
Hughes Networks Technisat
Hyundai Digital Technology Techsan Electronics
Interisa Electronica Visionetics
Kiryung Electronics Zenith Electronics
Motorola (General Instrument) Zinwell Corporation
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Chip set manufacturers
OpenTV also licenses its Hardware Porting Kit to chip set manufacturers
that use it to ensure the compatibility of their products with the OpenTV
system. By doing so, OpenTV is able to maximize the portability and
compatibility of the OpenTV 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 OpenTV's Hardware Porting Kit:
Conexant NEC Electronics (UK) Limited
Fujitsu Microelectronics GmbH ST Microelectronics
IBM Corporation Toshiba Corporation
LSI Logic Corporation VLSI Technology
Conditional access vendors
OpenTV has developed relationships with seven conditional access vendors
that have licensed its Hardware Porting Kit or with which OpenTV has consulted
to ensure the compatibility of their products with the OpenTV system.
Conditional access vendors produce systems that scramble and decode
information streams to prevent access by unauthorized parties. Because the
ability to integrate with multiple conditional access systems is difficult to
achieve, OpenTV believes its relationships with these vendors are an important
advantage. The following conditional access vendors have ensured the
compatibility of their systems with OpenTV:
France Telecom S.A. Nagra USA, Inc.
Motorola NDS Limited
Irdeto Access Philips
Mindport
Independent application developers
Numerous independent application developers have begun authoring programs
for use with OpenTV, including many using its application development tools.
OpenTV believes 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. To this end, OpenTV
has created the OpenAdvantage program for the benefit of independent
developers that create applications for the OpenTV system. The OpenAdvantage
program provides its more than 300 member developers with certain OpenTV-
related resources, including access to pre-release versions of software tools
and certification of applications authored using OpenTV tools.
Digital television set manufacturers
Digital television set manufacturers can incorporate chip sets that are
compatible with OpenTV's operating system or directly incorporate OpenTV's
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 OpenTV's operating
system. The 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 the OpenTV
Runtime software during the manufacturing process.
Strategic partners
In connection with OpenTV's private placement that was completed in October
1999, OpenTV entered into strategic agreements with America Online, News
Corporation and Time Warner. These agreements, which are
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described below, require us to undertake specific development work to produce
software that can be used by the other party or marketed to our respective
customers. These agreements are expected to create new business opportunities
for OpenTV as applications are developed by it and deployed by the other
parties or OpenTV's customers. OpenTV believes these strategic agreements will
increase its United States market penetration and allow OpenTV to expand the
range of interactive applications available to its global client base.
More recently, OpenTV entered into strategic agreements with General
Instrument (which subsequently was acquired by Motorola) and EchoStar. These
agreements are also described below.
America Online
OpenTV's agreement with America Online, or AOL, provides for OpenTV to
collaborate on the development and marketing of AOL applications to be
delivered to television sets over the OpenTV Runtime software. Under the terms
of the agreement, OpenTV will work with AOL to 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
OpenTV 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 OpenTV with access
to News Corporation's extensive global satellite and cable platforms and will
help OpenTV grow in markets where News Corporation is expanding and deploying
its digital interactive services.
Time Warner
OpenTV 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, such as those
shown on CNN and Cartoon Network, 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.
General Instrument (Motorola)
In December 1999, OpenTV entered into an agreement with General Instrument,
which was subsequently acquired by Motorola, under which OpenTV and General
Instrument agreed to integrate OpenTV's Runtime system into General
Instrument's DCT 2000 set-top box. General Instrument and OpenTV also agreed
to market the integrated system to cable operators in the United States and
internationally. Currently, the DCT 2000 is the most widely deployed set-top
box among United States cable operators.
EchoStar
On February 22, 2000, OpenTV entered into an agreement with EchoStar
Communications Corporation and certain EchoStar affiliates to develop a low-
cost, hard-drive set-top box for the mass television-viewing market in the
United States. This integrated set-top box will enable video-recording
applications in addition to other OpenTV interactive television applications.
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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. OpenTV's Software Development Kit,
OpenAuthor and OpenStudio products enable network operators and third-
party developers to author interactive television applications and
services; and
. Applications for Interactive Television. OpenTV's in-house application
development group creates and authors, often in collaboration with
content and e-commerce partners, interactive television applications and
services.
OpenTV Runtime
OpenTV's core product is its 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 Television par Satellite sent an overnight
upgrade to over 500,000 subscribers in February 1999. More recently,
Austar executed a flash download through which over 63,000 subscribers
received OpenTV Runtime in February 2000;
. 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;
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. Broadcast Technology. OpenTV's broadcast technology is designed to limit
bandwidth consumption and server usage. OpenTV achieves 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; and
. Comprehensive Applications Programming Interfaces ("API"). Since our
initial deployment of OpenTV Runtime, OpenTV has extended our APIs so
that the system today can run a wide array of services. For instance,
Television par Satellite is currently running over 40 different
interactive applications.
Future Development. OpenTV currently is 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, OpenTV expects to migrate toward two different versions of
OpenTV Runtime. The first will retain the small footprint that embodies its
existing versions and is be able to operate on platforms featuring affordable
infrastructure and hardware. OpenTV will also develop a second 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 OpenTV's partnership with Sun Microsystems, OpenTV has agreed to
develop future versions of the 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. OpenTV believes this functionality will expand the number
of third party developers creating applications for the OpenTV system.
OpenTV recently announced an agreement with Panasonic to develop a future
version of its OpenTV Runtime software that includes support for the European
DVD/MHP interactive television standard, which is also based on Java
technology.
OpenTV plans to integrate Spyglass Device Mosaic with its OpenTV Runtime
software. Device Mosaic is an Internet web browser specifically designed to
work efficiently in a television set-top box. Device Mosaic will enable
television viewers to browse the World Wide Web from their television sets.
Device Mosaic is fully compatible with HTML.
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, OpenTV's 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. For example, OpenTV recently added extensions to support broadband
communication via cable modems, including both the European DVB and the United
States OpenCable DOCSIS cable modem standards.
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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
OpenTV's 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.
OpenTV's Hardware Porting Kit is flexible. OpenTV is 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 OpenTV's 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 OpenTV's 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. OpenStreamer is capable of updating
a data stream in real-time, allowing up-to-the-second transmission of sports
scores, stock quotes or other time-sensitive data. For example, viewers
watching a sporting event will be able to get updated selected statistics and
scores from other games on demand rather than having to wait for the
broadcaster to provide these updates.
In addition to real-time data updates, OpenStreamer allows network
operators to broadcast multiple streams of data reliably and efficiently. It
reduces deployment and maintenance costs by relying on a single, OpenTV-
supplied hardware architecture capable of interfacing with any standard
multiplexer broadcast system.
OpenStreamer consists of the following components:
. Application Streamer software that runs the head-end portion of the
OpenTV interactive application, responds to external data sources and
updates data in real-time, and then plays out the stream to the
broadcast streamer. OpenTV enables 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
OpenTV provides 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 OpenTV's 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. OpenTV's Software
Developers Kit and OpenAuthor can be purchased as part of a combined product
called OpenStudio.
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Software Developers Kit. OpenTV's 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.
Applications
OpenTV develops and markets interactive applications for use by its
customers.
OpenTV's principal goal is to develop a set of core applications that
OpenTV believes 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 OpenTV is currently offering to
network operators include the following:
. Weather. Allows viewers to instantly access the weather forecast for
their local area, for other areas they plan to visit, and for skiing and
beach resorts.
. Shopping. 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
sports scores, general news, financial 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.
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. Enhanced Sports Broadcast. Allows viewers watching a sports event to act
as a "couch commander" by selecting among various camera angles to watch
at a particular time, to pull up player statistics and scores from other
games at will, and to order merchandise related to the event or sport.
Multiple camera angles may be used to follow a particular favorite
player, to see instant replays or highlights of the game.
As OpenTV continues to roll out the OpenTV system to more network
operators, OpenTV expects to generate an increasing portion of its revenue
from sharing in advertising and transaction fees, as well as license fees and
royalties, associated with our applications business. OpenTV intends to
continue developing its strategic relationships with content providers in
order to maximize the value of the OpenTV system for network operators.
OpenTV's agreement with Time Warner is an example of the strategic
relationships OpenTV is seeking to procure with content providers.
Customer service and support
OpenTV offers the following technical support programs to its 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 OpenTV's application development
products.
OpenTV believes that technical support is an important part of its
relationship with its customers. OpenTV's 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 OpenTV receive free product updates and a reduced price on
full upgrades.
Sales and marketing
OpenTV sells its software products through OpenTV's direct sales
organization, which consisted of approximately 31 people on March 31, 2000.
OpenTV's sales force is organized geographically with offices in Mountain
View, California; London, England; Paris, France; Seoul, South Korea; Beijing,
China; Tokyo, Japan; Sydney, Australia; Munich, Germany; and Madrid, Spain.
OpenTV expects to open additional United States and international offices in
the future, from time to time, as the circumstances of its business may
require. OpenTV's sales efforts are primarily focused on network operators,
because OpenTV believes they heavily influence the adoption of the OpenTV
system. Secondarily, OpenTV is also focusing its sales efforts on system
integrators and set-top box manufacturers.
OpenTV focuses its marketing efforts on the following activities:
. promoting the OpenTV brand with network operators, manufacturers,
advertisers and the creative and financial communities;
. using targeted media to educate key communities on our products and
services; and
. providing OpenTV's developers with marketing information for the
development of compelling products and services, including upgrades and
updates.
In addition, OpenTV is establishing an Affiliate Marketing Group that will
coordinate OpenTV's activities with customers after an initial sale has been
made. This group will focus on establishing revenue sharing arrangements. This
group 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.
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Principal investors
MIH Limited. As of March 31, 2000, MIH Limited indirectly owned all of
OpenTV's Class B Ordinary Shares (representing 94.8% of the voting rights
pertaining to OpenTV's then outstanding ordinary shares). 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,
Multichoice Hellas and MultiChoice Middle East, license OpenTV software to
offer interactive services on their platforms. MIH Limited (through its
wholly-owned subsidiary, Myriad International Holdings BV) first became
OpenTV's stockholder in July 1997.
Sun Microsystems. As of March 31, 2000, Sun Microsystems indirectly owned
14.0% of the Class B Common Stock of OpenTV's operating subsidiary, OpenTV,
Inc., and 5.3% of OpenTV's Class A Ordinary Shares. Sun has the right to
exchange its shares of Class B Common Stock of OpenTV, Inc. into OpenTV's
Class B Ordinary Shares. Sun, a global provider of enterprise network
computing products, has been a stockholder of OpenTV, Inc. since its
inception. OpenTV is currently working with Sun to develop future versions of
OpenTV Runtime based on Java technology.
Certain agreements that OpenTV has entered into with MIH Limited, Sun and
certain other of its investors are more fully described in the section
entitled "OpenTV's Transactions with Related Parties."
Competition
OpenTV faces competition from a number of companies in the new and rapidly
evolving digital interactive television market. OpenTV expects to face
significant barriers in its efforts to secure broad market acceptance of
OpenTV's products, including intense competition at several different levels.
Current and potential competitors in one or more aspects of OpenTV's 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--Risks related to the OpenTV business--New competitors could
emerge and this could impair the combined company's ability to grow its
business and sell its products."
Intellectual property
As a result of sustained research and development efforts over the past
several years, OpenTV has built a substantial intellectual property portfolio.
OpenTV currently has 32 patents issued in the United States, with another 34
pending. OpenTV is also filing and have been granted patents internationally
in all the major markets where it intends to be active. OpenTV believes that
its patent portfolio protects many of the key elements necessary to support
digital interactive television.
OpenTV's ability to compete is dependent in part upon its ability to
protect and further mature OpenTV's internally developed, proprietary
intellectual property. OpenTV relies on patent, trademark, trade secret and
copyright law, as well as confidentiality procedures and licensing
arrangements to establish and protect OpenTV's rights in its technology.
OpenTV believes that its current portfolio of patents is strong. This
portfolio of patents contains many early patents in the digital interactive
television field. Nevertheless, other companies may develop technologies that
are similar or superior to OpenTV's patents. These factors are discussed in
"Risk Factors--Because much of OpenTV's success and value lies in its
ownership and use of intellectual property, OpenTV's failure to protect its
property and develop new proprietary technology may negatively affect it."
Employees
As of March 31, 2000, OpenTV employed approximately 283 full-time
equivalents, excluding temporary personnel and consultants. OpenTV is not
subject to any collective bargaining agreements and believes its relationship
with its employees is satisfactory.
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Facilities
OpenTV's corporate headquarters and executive offices are in Mountain View,
California, where OpenTV occupies approximately 53,237 square feet of space
under two separate subleases. These subleases expire on February 27, 2001 (as
to 36,257 square feet of space) and August 31, 2003 (as to 17,000 square feet
of space), respectively. In addition, OpenTV subleases 25,000 square feet of
additional space under a lease that expires on February 27, 2001. This
additional space currently is being sublet to a third party tenant and will
revert to OpenTV on May 31, 2000. OpenTV believes that it will be able to
renew these subleases or secure sufficient space on reasonable terms upon
expiration of these subleases. In addition, OpenTV has offices in London,
England; Paris, France; Seoul, South Korea; Beijing, China; Tokyo, Japan;
Sydney, Australia; Munich, Germany and Madrid, Spain.
OpenTV expects that it will from time to time open additional United States
and international offices in the future as the circumstances of its business
may require.
Legal Proceedings
On October 12, 1999, one of OpenTV Inc.'s former employees filed a
complaint against OpenTV Inc. in California state court alleging wrongful
termination and other related claims, and seeking monetary damages. OpenTV
believes that the litigation is without merit and intends to defend itself
vigorously. Although OpenTV does not believe that this litigation would have a
material adverse effect on the combined company, OpenTV cannot make assurances
to that effect since this type of litigation is complex and difficult to
predict.
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OPENTV'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of OpenTV should be read in conjunction with
OpenTV's Condensed Consolidated Financial Statements and the Notes thereto.
This discussion contains forward-looking statements based upon current
expectations that involve risks and uncertainties, such as OpenTV's plans,
objectives, expectations and intentions. OpenTV's actual results and the
timing of events could differ materially from those anticipated in these
forward-looking statements as a result of several factors, including those set
forth in the following discussion and under "Risk Factors" and elsewhere in
this joint proxy statement/prospectus.
Background
OpenTV is the leading worldwide provider of software that enables digital
interactive television. OpenTV offers an end to end solution for the
development and delivery of digital interactive services for television
viewers.
Revenues
OpenTV currently generates revenues from the following sources:
. royalties from the delivery of OpenTV Runtime software ("OpenTV
Runtime") in set-top boxes;
. license fees for software products; and
. 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.
OpenTV also receives royalties from network operators when they install or
upgrade OpenTV Runtime to set-top boxes that have already been deployed.
OpenTV recognizes royalties from licenses 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.
OpenTV recognizes software license fees upon shipment if a signed contract
exists, the fee is fixed and determinable, collection of the resulting
receivable is probable and product returns are reasonably estimable. For
contracts with multiple obligations (e.g., maintenance, integration and other
services), OpenTV allocates revenue to each delivered and undelivered element
of the contract based on objective evidence of its fair value.
OpenTV recognizes maintenance and support fees ratably over the period of
the relevant contract. Payments for maintenance and support fees are generally
made in advance and are non-refundable. For revenues allocated to consulting
services, such as training, and for consulting services sold separately,
OpenTV recognizes revenue as the related services are performed. For
integration services sold with product licenses, OpenTV recognizes revenues
based on the completed contract method. OpenTV recognizes revenue from
software development contracts of less than six months in duration under the
completed contract method and for longer-term contracts generally under the
percentage of completion method. Provisions for estimated losses on
uncompleted contracts are made in the period in which estimated losses are
determined. Revenue form the sale of hardware components and manuals are
recognized upon shipment.
Operating expenses
OpenTV has no cost of revenue associated with royalties. Cost of revenue
for software license fees includes direct costs of packaging, printed
documentation and third-party royalties. To date, these costs have been
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immaterial. Cost of revenue for services consists primarily of headcount-
related expenses, costs related to outside consultants, travel and overhead
associated with software development, program management, customer and
technical support and training.
Research and development expenses consist primarily of salary and other
related costs for personnel and independent consultants for OpenTV's
development efforts. OpenTV believes that continued investment in research and
development is critical to attaining our strategic objectives. OpenTV plans to
increase the level of research and development expenses, both to develop new
versions of the OpenTV Runtime system and to create interactive applications
and services.
Sales and marketing expenses consist primarily of personnel and related
costs for OpenTV's direct sales force and marketing staff, and marketing
programs, including advertising, tradeshows, public relations and marketing
materials. OpenTV plans to increase the level of sales and marketing expenses,
as OpenTV increases spending on advertising and marketing programs to build
the OpenTV brand and establish additional international sales and support
offices to expand OpenTV's presence in new geographic markets.
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
legal and human resources. OpenTV expects general and administrative expenses
to grow to support a larger number of OpenTV employees worldwide.
Non-cash expenses include amortization of intangibles, amortization of
stock-based compensation and non-cash warrant expense. Amortization of
intangibles includes the amortization of acquired intellectual property.
Amortization of stock-based compensation includes the amortization of deferred
compensation, which represents 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.
Non-cash warrant expense represents the fair value of warrants issued to
strategic investors.
Losses
From inception through December 31, 1999, OpenTV has an accumulated deficit
of $150.6 million, which includes amortization of stock-based compensation,
non-cash warrant expense, and a preferred stock dividend in the amounts of
$13.1 million, $68.6 million, and $31.3 million, respectively. We have not
achieved profitability on a quarterly or annual basis.
Recent developments
On February 22, 2000, OpenTV entered into an agreement with EchoStar
Communications Corporation ("ECC"), EchoStar Satellite Corporation and
EchoStar Technologies Corporation (collectively "EchoStar") to develop a low-
cost, hard-drive set-top box for the mass TV-viewing market in the United
States. EchoStar contributed to a newly formed subsidiary of ECC ("OpenStar")
a non-exclusive, perpetual, royalty-free worldwide license to all of
EchoStar's existing software intellectual property which enables hard drive
functionality in a satellite receiver. Immediately following the formation of
OpenStar, OpenTV purchased 50% of the OpenStar shares from ECC, in exchange
for 2,252,252 shares of OpenTV Class A Ordinary Shares and contribution of a
non-exclusive perpetual royalty free worldwide license to certain OpenTV
intellectual property to OpenStar. The shares have been placed in an escrow
account until certain milestones, relating to the deployment of OpenTV-enabled
set-top boxes, have been met by EchoStar. These shares will revert back to
OpenTV if these milestones have not been met by Echostar within three years of
the date of the agreement.
On March 26, 2000, OpenTV and Spyglass signed a definitive merger agreement
providing for the merger of Spyglass and a wholly-owned subsidiary of OpenTV
and the issuance of Class A Ordinary Shares of OpenTV to Spyglass'
stockholders as more fully described in this joint proxy statement/prospectus.
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On April 27, 2000 OpenTV issued a press release relating to its financial
results for the quarter ending March 31, 2000. The following is a discussion
of these results:
Quarters ended March 31, 1999, December 31, 1999 and March 31, 2000
The following table sets forth the results of OpenTV's operations for the
periods indicated. The historical results are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------
March 31, December 31, March 31,
1999 1999 2000
----------- ------------ -----------
(unaudited, in thousands)
<S> <C> <C> <C>
Revenues:
Royalties............................. $ 2,915 $ 4,721 $ 7,705
License fees.......................... 359 1,060 1,312
Services and other.................... 2,586 2,613 1,928
----------- ----------- -----------
Total revenues...................... 5,860 8,394 10,945
----------- ----------- -----------
Operating expenses:
Cost of services and other revenues
(exclusive of $6, $31 and $30 stock-
based compensation in the quarter
ended March 31, 1999, December 31,
1999 and March 31, 2000,
respectively)........................ 1,331 2,499 1,845
Research and development (exclusive of
$40, $384 and $373 stock-based
compensation in the quarter ended
March 31, 1999, December 31, 1999 and
March 31, 2000, respectively)........ 2,228 4,909 8,179
Sales and marketing (exclusive of $34,
$323, and $313 stock-based
compensation in the quarter ended
March 31, 1999, December 31, 1999 and
March 31, 2000, respectively)........ 2,174 3,814 5,028
General and administrative (exclusive
of $134, $10,039 and $2,508 stock-
based compensation in the quarter
ended March 31, 1999, December 31,
1999 and March 31, 2000,
respectively)........................ 1,079 2,037 2,390
Amortization of intangibles........... -- 383 382
Amortization of stock-based
compensation......................... 214 10,777 3,224
Non-cash warrant expense.............. -- 68,883 23,356
----------- ----------- -----------
Total operating expenses............ 7,026 93,302 44,404
----------- ----------- -----------
Loss from operations.................... (1,166) (84,908) (33,459)
Other income (expense), net............. (65) 3,030 2,744
----------- ----------- -----------
Net loss................................ $ (1,231) $ (81,878) $ (30,715)
Preferred stock dividend................ -- 31,250 --
----------- ----------- -----------
Net loss attributable to ordinary
shares................................. $ (1,231) $ (113,128) $ (30,715)
=========== =========== ===========
Net loss per ordinary share, basic and
diluted................................ $ (0.04) (2.93) $ (0.68)
=========== =========== ===========
Shares used in computing net loss per
ordinary share, basic and diluted...... 33,830,583 38,646,742 45,236,028
</TABLE>
Revenues
OpenTV's total revenues increased 87% from $5.9 million for the quarter
ended March 31, 1999 to $10.9 million for the quarter ended March 31, 2000,
and total revenues for the quarter ended March 31, 2000 increased 30% from the
$8.4 million for the fourth quarter of 1999.
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Operating expenses
OpenTV's total operating expenses increased 532% from $7.0 million for the
quarter ended March 31, 1999 to $44.4 million for the quarter ended March 31,
2000, and total operating expenses for the quarter ended March 31, 2000
decreased 52% from $93.3 million in the fourth quarter of 1999. Excluding non-
cash charges associated with stock-based compensation, warrant expenses and
amortization of intangibles, OpenTV's total operating expenses increased 156%
from $6.8 million for the quarter ended March 31, 1999 to $17.4 million for
the quarter ended March 31, 2000, and increased 31% from $13.3 million in the
fourth quarter of 1999.
Results of operations
In view of the rapidly evolving nature of OpenTV's business and its limited
operating history, OpenTV believes that period-to-period comparisons of
revenue and operating results, including OpenTV's gross margins, operating
expenses as a percentage of total revenues, and growth rates may not be
indicative of future performance or results.
Years ended December 31, 1997, 1998 and 1999
The following table sets forth the results of OpenTV's operations for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended
Year Ended December 31, December 31,
---------------------------- ------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- ------ ------ ------
(in thousands) (percentage of total
revenues)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Royalties............. $ 2,382 $ 2,788 $ 14,782 34% 29% 57%
License fees.......... 1,255 1,578 2,964 18 17 11
Services and other.... 3,322 5,102 8,205 48 54 32
-------- -------- -------- ------ ------ ------
Total revenues...... 6,959 9,468 25,951 100 100 100
-------- -------- -------- ------ ------ ------
Operating expenses:
Cost of services and
other revenues
(exclusive of $53
stock-based
compensation in
1999)................ 3,290 4,736 5,949 48 51 23
Research and
development
(exclusive of $662
stock-based
compensation in
1999)................ 6,219 7,514 13,172 89 79 51
Sales and marketing
(exclusive of $556
stock-based
compensation in
1999)................ 4,323 7,418 11,415 62 78 43
General and
administrative
(exclusive of $11,827
stock-based
compensation in
1999)................ 3,929 3,982 5,971 56 42 23
Amortization of
intangibles.......... -- -- 1,210 -- -- 5
Amortization of stock-
based compensation... -- 13 13,098 -- -- 50
Non-cash warrant
expense.............. -- -- 68,569 -- -- 265
-------- -------- -------- ------ ------ ------
Total operating
expenses........... 17,761 23,663 119,384 255 250 460
-------- -------- -------- ------ ------ ------
Loss from operations.... (10,802) (14,195) (93,433) (155) (150) (360)
Other income (expense),
net.................... 113 (7) 823 1 -- 3
Minority interest....... -- -- 2,153 -- -- 8
-------- -------- -------- ------ ------ ------
Net loss................ $(10,689) $(14,202) $(90,457) (154)% (150)% (349)%
======== ======== ======== ====== ====== ======
</TABLE>
Revenues
OpenTV's total revenues increased 174% from $9.5 million for the year ended
December 31, 1998 to $26.0 million for the year ended December 31, 1999. For
the year ended December 31, 1998, OpenTV's two largest
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customers accounted for 16% and 14% of OpenTV's total revenues, respectively.
For the year ended December 31, 1999, one customer accounted for 12% of
OpenTV's total revenues. Total revenues increased 36% from $7.0 million for
the year ended December 31, 1997 to $9.5 million for the year ended December
31, 1998. For fiscal 1997, OpenTV's largest customer accounted for 35% of
OpenTV's total revenues.
Royalties. Royalties increased 430% from $2.8 million for the year ended
December 31, 1998 to $14.8 million for the year ended December 31, 1999. The
$12.0 million increase was attributable to significant growth in deployments
of set-top boxes by its leading network operator BSkyB, an increase in the
number of network operators deploying OpenTV from 10 to 20, and an increase in
our average royalty from $2.98 to $4.63. Royalties increased 17% from $2.4
million for the year ended December 31, 1997 to $2.8 million for the year
ended December 31, 1998. The $0.4 million 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 88% from $1.6 million for the year
ended December 31, 1998 to $3.0 million for the year ended December 31, 1999.
This $1.4 million increase was attributable to a 78% increase in the sale of
our SDK product, and the launches of OpenAuthor and OpenStreamer during the
first quarter of 1999. License fees increased 26% from $1.3 million for the
year ended December 31, 1997 to $1.6 million for the year ended December 31,
1998. The $0.3 million increase was primarily attributable to higher numbers
of network operators and set-top box manufacturers licensing our software
products.
Services and other revenues. Services and other revenue increased 61% from
$5.1 million for the year ended December 31, 1998 to $8.2 million for the year
ended December 31, 1999. The $3.1 million increase was primarily attributable
to an increase in demand for services due to a larger customer base, $900,000
of revenues recognized in 1999 under a long-term software development
contract, and an increase of $2.2 million in amortization of related deferred
maintenance revenue. Services and other revenue increased 54% from
$3.3 million for the year ended December 31, 1997 to $5.1 million for the year
ended December 31, 1998. The $1.8 million 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. There was no backlog from software development contracts at
December 31, 1999.
Operating expenses
OpenTV's total operating expenses increased 405% from $23.7 million for the
year ended December 31, 1998 to $119.4 million for the year ended December 31,
1999. Excluding non-cash charges associated with stock-based compensation,
warrant expense and amortization of intangibles, OpenTV's total operating
expenses increased 53% from $23.7 for year ended December 31, 1998 to $36.2
million for the year ended December 31, 1999. Total operating expenses
increased 33% from $17.8 million for the year ended December 31, 1997 to
$23.7 million for the year ended December 31, 1998.
Cost of services and other revenue. OpenTV's total cost of services and
other revenues increased 26% from $4.7 million for the year ended December 31,
1998 to $5.9 million for the year ended December 31, 1999. The $1.2 million
increase was attributable to an increase in demand for services due to a
larger customer base and related increase in the number of personnel. Cost of
services and other revenues increased 44% from $3.3 million for the year ended
December 31, 1997 to $4.7 million for the year ended December 31, 1998. The
$1.4 million 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.
Research and development. Research and development expenses increased 75%
from $7.5 million for the year ended December 31, 1998 to $13.2 million for
the year ended December 31, 1999. Research and development expenses increased
21% from $6.2 million for the year ended December 31, 1997 to $7.5 million for
the year ended December 31, 1998. The $6.0 million and $1.3 million increase
in fiscal 1999 and 1998,
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respectively, were 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 54% from $7.4
million for the year ended December 31, 1998 to $11.4 million for the year
ended December 31, 1999. Sales and marketing expenses increased 72% from $4.3
million for the year ended December 31, 1997 to $7.4 million for the year
ended December 31, 1998. The $4.6 million and $3.1 million increase in fiscal
year 1999 and 1998, respectively, were primarily attributable to the
initiation of new marketing programs, increase in the number of sales and
marketing personnel, and the opening of new overseas sales offices.
General and administrative. General and administrative expenses increased
50% from $4.0 million for the year ended December 31, 1998 to $6.0 million for
the year ended December 31, 1999. The $2.0 million increase was primarily due
to an increase in the number of personnel. General and administrative expenses
increased 2% from $3.9 million for the year ended December 31, 1997 to $4.0
million for the year ended December 31, 1998.
Amortization of intangibles. In March 1999, OpenTV acquired certain
intellectual property from Thomson Consumer Electronics for $7.6 million.
OpenTV is amortizing this asset over a five year estimated life and recorded
$1.2 million in amortization expense for the year ended December 31, 1999.
Amortization of stock-based compensation. OpenTV recorded a deferred
compensation charge of $22.5 million for the year ended December 31, 1999,
representing the difference between the exercise price and deemed fair market
value for options to purchase shares granted to employees and the fair value
attributable to options granted to non-employees. Accordingly, stock-based
compensation of $13.1 million was amortized to expense for the year ended
December 31, 1999. OpenTV recorded a deferred compensation charge of $49,000
for the year ended December 31, 1998. Accordingly, OpenTV amortized stock-
based compensation of approximately $13,000 for the year ended December 31,
1998. OpenTV recorded no deferred compensation charge for the year ended
December 31, 1997.
Non-cash warrant expense. In October 1999, OpenTV completed a private
placement of 23,648,646 Series C-1 and C-2 Convertible Preference Shares and
issued warrants to purchase 4,729,728 Class A Ordinary Shares (expiring in
October 2001) at $5.55 per share to America Online, Inc., General Instrument
Corp., Liberty Digital, Inc., News Corporation, Time Warner, Inc. and Sun
Microsystems, Inc. for net proceeds of $31.3 million. The fair value
attributable to the warrants to purchase OpenTV's Class A Ordinary Shares of
$63.9 million was recorded in operating expenses as a non-cash warrant expense
in the quarter ended December 31, 1999. The warrants were valued using the
Black Scholes option pricing model. In connection with the investments, OpenTV
entered into strategic agreements with America Online Inc., General Instrument
Corporation, News Corporation and Time Warner, Inc.
In November 1999, OpenTV issued warrants to purchase 700,000 Class A
Ordinary Shares (expiring in May 2001) at $5.55 per share to General
Instrument Corporation. The fair value attributable to the performance
warrants to purchase OpenTV's Class A Ordinary Shares of $37.5 million was
recorded in the quarter ended December 31, 1999, of which $4.7 million was
amortized as non-cash warrant expense. The remaining amount will be amortized
to expense as the related research and development and sales and marketing
work are performed by General Instrument Corp. The fair value of warrants is
calculated at each reporting date using the Black Scholes option pricing
model. As a result, the warrant expense will fluctuate as the fair market
value of OpenTV's ordinary shares fluctuate.
Other income (expense), net. Interest expense was $75,000 for the year
ended December 31, 1998 and $73,000 for the year ended December 31, 1999.
Interest expense was $26,000 for the year ended December 31, 1997 and $75,000
for the year ended December 31, 1998. The increase was primarily due to
interest expense on convertible notes payable to stockholders. Interest income
increased from zero for the year ended December 31, 1998 to $898,000 for the
year ended December 31, 1999. The increase was primarily due to the investment
of proceeds from OpenTV's sale of convertible preference shares and its
initial public offering. Other income, net
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was $68,000 for the year ended December 31, 1998. Other income, net was
$139,000 for the year ended December 31, 1997 and $68,000 for the year ended
December 31, 1998. The change was primarily attributable to a lower average
cash balance during fiscal 1998.
Minority interest. Pursuant to a reorganization that occurred in October
1999, MIH Limited, the majority stockholder of OpenTV, Inc. exchanged its
shares of common stock in OpenTV, Inc. for ordinary shares in OpenTV. The
exchange resulted in the recognition of a minority interest of $2.2 million
for the stockholder's remaining at the OpenTV, Inc. level for the year ended
December 31, 1999.
Income taxes. As of December 31, 1999, OpenTV had federal and state net
operating loss carryforwards of $22.5 million and $9.6 million, respectively,
which will expire at various dates, through 2004 for state and 2019 for
federal income tax purposes, if not utilized. OpenTV has taken full valuation
allowance against the deferred tax asset because of the uncertainty regarding
its realization. OpenTV recognized no income tax expense in 1997, 1998 and
1999.
Liquidity and capital resources
Since inception, OpenTV has financed its operations largely through equity
transactions and short-term loans from stockholders. At December 31, 1997,
1998 and 1999, OpenTV had an accumulated deficit of $14.6 million, $28.8
million and $150.6 million, respectively and cash and short-term investments
of $293,000, $3.3 million and $186.5 million, respectively.
OpenTV's operating activities utilized cash in the amount of $9.4 million,
$11.0 million and $8.4 million for the years ended December 31, 1997, 1998 and
1999, respectively. The net cash utilized during these periods was primarily
to fund its research and development and sales and marketing efforts.
Net cash utilized for investing activities were $1.5 million, $2.6 million
and $3.0 million for the years ended December 31, 1997, 1998 and 1999,
respectively. The net cash utilized was primarily for the purchase of computer
systems and equipment.
Net financing activities provided cash of $5.8 million, $16.8 million and
$194.6 million for the years ended December 31, 1997, 1998 and 1999,
respectively. The net cash provided in 1997 was from the sale of common stock.
Net cash provided in 1998 was from the notes payable to stockholders of $7.0
million and payment on a receivable from stockholder of $9.7 million. Net cash
provided in 1999 was from OpenTV's initial public offering of 8,625,000 Class
A Ordinary Shares for net proceeds of $157.0 million and its sale of
28,153,150 convertible preference shares for net proceeds of $31.3 million.
OpenTV believes that its cash resources and available credit facilities
will be sufficient to meet anticipated cash needs for working capital and
capital expendtures for at least the next twelve months.
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 our
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
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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 our results of
operations, financial position or cash flows.
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, as
amended, 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 our financial results.
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 OpenTV's current revenue recognition policies.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 or SAB
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must
be met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. OpenTV believes that the impact of SAB 101 will
not have a material effect on the financial position or results of OpenTV's
operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). This
Interpretation clarifies the definition of employee for purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25'), the criteria for determining whether a plan qualifies as
a noncompensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for
an exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. OpenTV believes that the impact of FIN 44 will not
have a material effect on the financial position or results of OpenTV's
operations.
Year 2000
Many existing computer programs were designed and developed without
addressing the impact of the change in the century. Prior to the end of 1999,
OpenTV completed a review of the year 2000 compliance for its internally
developed proprietary software. To date, OpenTV has not experienced any year
2000-related problems with its internally developed software or its third-
party supplied software and computer systems, and OpenTV is not aware of any
failure by its third-party suppliers to be year 2000 compliant that could
impact its business or operations. However, such problems or failures could
arise or become apparent in the future, and any such problems or failures
could have negative consequences for OpenTV. Such consequences could include
difficulties in operating OpenTV's products effectively or conducting other
fundamental parts of OpenTV's business.
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OPENTV'S MANAGEMENT
Directors and executive officers
The following table sets forth certain information as of March 31, 2000
with respect to OpenTV's 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
---- --- ---------
<C> <C> <S>
Jacobus D. T. Stofberg.. 49 Chairman of the Board of Directors
37 President, Chief Executive Officer and
Jan Steenkamp........... Director (1)
Vincent Dureau.......... 40 Chief Technology Officer
Randall S. Livingston... 46 Executive Vice President, Office of the CEO,
Chief Financial Officer and Director
43 Executive Vice President and General Manager,
Regis Saint Girons...... Applications Business
Mitch Berman............ 45 Senior Vice President, Worldwide Marketing
35 Senior Vice President, Strategic Development,
James F. Brown.......... General Counsel and Secretary
Thomas Jackson.......... 41 Senior Vice President, Worldwide Sales
Michael Catalano........ 48 Vice President, Technology Partners
Clay Conrad............. 49 Vice President, Affiliate Services
Debbie Coutant.......... 43 Vice President, Products Group
41 General Manager, United States Applications
Scott Higgins........... Business
35 Vice President, Finance and Administration,
Mark Meagher............ Treasurer and Assistant Secretary
Stephen Salvatore....... 44 Vice President, Creative
Joel Zdepski............ 40 Vice President, Application Engineering
Jacobus P. Bekker....... 47 Director
Craig L. Enenstein...... 31 Director (2)
Paul Haggerty........... 40 Director
William Raduchel........ 53 Director (1)(2)
Allan M. Rosenzweig..... 44 Director (1)(2)(3)
Stephen F. Ward......... 45 Director (3)
</TABLE>
- --------
(1) Member of investment committee.
(2) Member of audit committee.
(3) Member of compensation committee.
Set forth below is information regarding the relevant business experience
for each of OpenTV's 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 1999. From 1985 until he joined OpenTV 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
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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 OpenTV since OpenTV's inception and has
served as OpenTV's Chief Technology Officer since May 1998. He is responsible
for developing technologies and business relationships that will bring
integrated, cost-effective solutions to OpenTV's customers and partners. Prior
to becoming OpenTV's CTO, Mr. Dureau served as OpenTV's Senior Vice President
of Engineering. From 1984 to the time he helped start OpenTV's 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 OpenTV under the
terms of a consulting agreement. From 1996 until joining OpenTV 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 OpenTV since its inception and has served
as OpenTV's Executive Vice President and General Manager of our Applications
Business since August 1999. Mr. Saint Girons joined OpenTV as Vice President
of Sales, Europe in July 1996 and was promoted to Managing Director, Europe in
August 1997. Prior to joining OpenTV, 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 OpenTV 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 OpenTV, Mr. Berman served as General
Manager of Strategic Business Development at East Coast Pay Television, Ltd.,
where he was involved in the launch of Australia's first digital direct
broadcast satellite subscription television service. He was also President of
Strategic Marketing and Research Team, Inc., a Los Angeles-based company that
provided desktop software and strategic marketing services to entertainment,
consumer retail, cable, satellite, broadcast TV and telephone companies.
Previously, Mr. Berman was Director of Marketing at Sky Television in New
Zealand, Vice President at E! Entertainment Television in Los Angeles and
Regional Manager at Home Box Office, Inc. in Los Angeles. Mr. Berman has a
Master's degree in Public Administration/Government Management from the
University of Southern California and a B.A. in Sociology from the University
of California at Los Angeles.
James F. Brown has served as 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
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Senior Vice President, Strategic Development, General Counsel and Secretary of
OpenTV Corp. since November 1999. From June 1998 until he joined OpenTV, 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 OpenTV's Senior Vice President of Worldwide
Sales since June 1999. Prior to joining OpenTV, 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 OpenTV as Vice President of Product Development in
December 1997. Prior to joining OpenTV, 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 OpenTV 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 OpenTV, 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 OpenTV, 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 United States patent in the area of compiler technology and
optimization, and graduated from the University of Arizona with a Masters in
Computer Science.
Scott Higgins has served as General Manager, US Applications Business since
January 2000. Prior to joining OpenTV, Mr. Higgins served as Executive-in-
charge of Production at Electronic Arts, where he oversaw the design,
production and development of software for various interactive properties,
including NCAA Football, June's military simulations, the Strike series,
Future Cop and Fantasy Sports. He also served as Chief Operating Officer of
Electronic Arts' Redwood Shores Studio where he managed the business
operations and support
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function of the studio. Prior to working for Electronic Arts, Mr. Higgins
worked for the Family Channel and MTM Entertainment in Studio City,
California. Mr. Higgins holds an M.B.A. from Pepperdine University and a B.A.
in Accounting from Clemson University.
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 OpenTV in
January 1999 as Senior Controller. Prior to joining OpenTV, 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 OpenTV's Vice President, Creative since
July 1998. He joined OpenTV in June 1997 as its Director, Interactive
Programming. Prior to joining OpenTV, 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 development of original interactive shows
and services to be deployed worldwide later this year.
Joel Zdepski has served as OpenTV's Vice President, Application Engineering
since July 1996. Prior to joining OpenTV, 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 Senior 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 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.
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Paul Haggerty has served as a director of OpenTV Corp. since March 2000.
Mr. Haggerty is also Executive Vice President and Chief Financial Officer of
Fox Television. Prior to working for Fox Television, he was Chief Financial
Officer of American Sky Broadcasting. Mr. Haggerty also served as Senior Vice
President and Deputy Chief Financial Officer of News Corporation. Mr. Haggerty
holds a B.S. from LeMoyne College and is also a Certified Public Accountant.
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.
Stephen F. Ward has served as a Director of OpenTV, Corp. since March 2000.
Since January 1, 2000, Mr. Ward has served as a director and chief financial
officer of MIH Limited. Before joining MIH Limited, Mr. Ward was a senior
partner with PricewaterhouseCoopers in the Netherlands where during his
thirteen years as a partner he was involved in advising multinational,
publicly traded companies as well as serving in various management positions.
Mr. Ward is a fellow of the Institute of Chartered Accountants in England and
Wales and a Dutch Registered Accountant.
The business address of OpenTV's directors and executive officers is its
principal executive office at 401 East Middlefield Road, Mountain View, CA
94043, and OpenTV's phone number is (650) 429-5500.
Board committees
OpenTV's board of directors has a compensation committee, an audit
committee and an investment committee. The compensation committee consists of
Messrs. Rosenzweig and Ward. The compensation committee establishes salaries,
incentives and other forms of Compensation for our directors, executive
officers, employees and consultants and administers OpenTV's stock option
incentive and other benefit plans. Compensation for OpenTV's chief executive
officer is reviewed and approved by the full board of directors. None of the
members of OpenTV's 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 audit policies and internal accounting controls
and oversees the engagement of OpenTV's independent auditors.
The investment committee consists of Messrs. Rosenzweig, Raduchel and
Steenkamp. The investment committee reviews and approves equity investments by
OpenTV of up to $50 million in any single venture or company.
Compensation of directors and officers
The aggregate salary, bonus and other compensation paid by OpenTV and
OpenTV's subsidiaries to its respective directors and executive officers as a
group during the fiscal year ended December 31, 1999 was
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approximately $2.3 million. OpenTV's directors do not currently receive cash
compensation for serving as directors other than the reimbursement of out-of-
pocket expenses incurred in attending the meetings.
The following table sets forth information for the year ended December 31,
1999, regarding the compensation of OpenTV's current chief executive officer
and each of OpenTV's four other most highly compensated executive officers.
OpenTV refers to these individuals as its named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------ ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Options Compensation($)
------------------ ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Jan Steenkamp........... 1999 210,625 150,000 70,435(1) 200,000 --
President and Chief 1998 97,500(2) 26,325 12,898(1) 570,000 --
Executive Officer
Randall S. Livingston... 1999 90,000 108,000 -- 540,000 160,250(3)
Executive Vice 1998 -- -- -- -- 11,750(3)
President, Office of
the CEO and Chief
Financial Officer
Mitchell Berman......... 1999 194,240 73,028 -- -- 3,000(4)
Senior Vice President, 1998 182,914 32,183 -- 200,000 3,000(4)
Worldwide Marketing
Vincent Dureau.......... 1999 178,250 57,653 -- 60,000 3,000(4)
Chief Technology
Officer 1998 164,283 43,722 -- 260,000 3,000(4)
Joel Zdepski............ 1999 157,500 51,113 -- 50,000 3,000(4)
Vice President, 1998 134,573 42,402 3,000(4)
Application
Engineering
</TABLE>
- --------
(1) In 1998 and 1999, Mr. Steenkamp was reimbursed for part of his housing
expenses and was provided a leased automobile by OpenTV.
(2) 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 OpenTV's parent company, MIH Limited.
(3) Represents amounts paid to Mr. Livingston for consulting services rendered
prior to September 1, 1999 which is the date of Mr. Livingston's
employment agreement.
(4) Represents matching contributions made by OpenTV to the named executive
officers' 401(k) plan accounts in the fiscal year ending December 31, 1998
or December 31, 1999.
Aggregate options to purchase securities
At March 31, 2000, OpenTV's executive officers and directors as a group
held the following options to purchase OpenTV's Class A Ordinary Shares.
<TABLE>
<CAPTION>
Expiration
Option Shares Purchase Price Date
------------- -------------- --------------
<S> <C> <C>
650,928 $ 1.05 January 2008
550,000 1.05 July 2008
500,000 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
170,000 19.00 November 2009
50,000 94.56 February 2010
</TABLE>
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Option grants in last fiscal year
The following table sets forth information concerning options to purchase
shares granted to OpenTV's named executive officers during the year ended
December 31, 1999. No stock appreciation rights were granted during this
period.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
for Option Term(2)
-------------------
Number of % of Total
Shares Options Granted to Exercise
Underlying Directors and Price ($
Options Employees in Per Expiration
Name Granted Last Fiscal Year(1) Share) Date 5%($) 10%($)
---- ---------- ------------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jan Steenkamp........... 200,000 5.1% $1.05 2/10/2009 $ 132,068 $ 584,767
Randall S. Livingston... 50,000 1.3 1.05 2/10/2009 33,017 83,671
70,000 1.8 2.10 5/27/2009 92,448 234,280
400,000 10.1 6.00 9/27/2009 1,509,347 3,824,982
Mitchell Berman......... -- -- -- -- -- --
Vincent Dureau.......... 60,000 1.5 1.05 2/10/2009 39,620 100,406
Joel Zdepski............ 30,000 1.3 1.05 2/10/2009 19,810 50,203
20,000 0.8 6.00 8/13/2009 75,467 191,249
</TABLE>
- --------
(1) Percentages shown under "% of Total Options Granted to Employees in the
Last Fiscal Year" are based on options granted to employees, directors and
consultants of OpenTV under the OpenTV, Inc 1998 Stock Option/Stock
Issuance Plan, as amended and restated, and the OpenTV Corp. 1999 Share
Option/Share Issuance Plan, as amended and restated, to purchase an
aggregate of 3,960,200 shares during the fiscal year ended December 31,
1999.
(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 OpenTV's 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. OpenTV does 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 OpenTV's future performance, overall market conditions
and the option holder's continued employment with OpenTV throughout the
entire vesting period and option term, which factors are not reflected in
this table.
Employment agreements
Employment agreement with Jan Steenkamp. On July 6, 1999, OpenTV 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. OpenTV is 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 OpenTV experiences 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,
OpenTV entered into an employment agreement with Randall S. Livingston,
OpenTV's 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. Mr. Livingston's
annual salary is $270,000 and he is eligible for an annual bonus. OpenTV is
required to make payments to Mr. Livingston if (a) his employment is
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involuntarily terminated for any reason other than those set forth in the
employment agreement, or (b) he resigns. If OpenTV experiences 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. OpenTV's board of directors adopted its 1999 Share Option/Share
Issuance Plan (the "1999 Plan") in October 1999 and amended the 1999 Plan in
November 1999. OpenTV's stockholders approved the amended plan in November
1999.
Share reserve. OpenTV reserved 7,200,000 Class A Ordinary Shares for
issuance under the 1999 Plan, 405,986 of which had been issued as of March 31,
2000. As of March 31, 2000, options to purchase 5,822,704 shares were
outstanding under the 1999 Plan. These outstanding options include the Assumed
Options described under "Awards Granted/Assumed" below. 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 OpenTV's 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; and
. 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 OpenTV's board of directors who are not employees; and
. 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"); and
. 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 OpenTV (the "Share
Issuance Program").
Option grant program. Options to purchase OpenTV's Class A Ordinary Shares
may be either incentive stock options ("incentive options") qualifying for
favorable tax treatment under Section 422 of the Internal
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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 OpenTV's 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, OpenTV may issue
OpenTV's Class A Ordinary Shares directly, either through immediate purchase
of such shares or as a bonus for services rendered to OpenTV. 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 OpenTV.
Repurchase rights. The committee has the discretion to authorize the
issuance of unvested ordinary shares upon the exercise of options granted or
as shares are 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 OpenTV at the purchase or
exercise price paid for such shares. The terms and conditions upon which the
repurchase rights are exercisable by OpenTV are determined by the committee
and set forth in the repurchase rights agreements evidencing such rights.
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 1999 Plan
at any time. If the board of directors amends the 1999 Plan, stockholder
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.
Awards granted/assumed. Effective as of October 23, 1999, options (the
"Assumed Options") to purchase 5,141,114 shares of OpenTV, Inc. common stock
under the 1998 Plan (see "OpenTV, Inc. 1998 Stock Option/Stock Issuance Plan"
below) were assigned to and assumed by OpenTV Corp. The Assumed Options
thereupon represented the right to purchase an identical number of Class A
Ordinary Shares of OpenTV Corp. Since October 23, 1999, 405,986 Class A
Ordinary Shares have been issued pursuant to exercise of Assumed Options.
These issuances have, reduced, and future exercises of Assumed Options will
reduce, the total number of shares available for issuance under the 1999 Plan.
In addition to the Assumed Options, options to purchase 161,000 shares of
OpenTV, Inc. common stock under the 1998 Plan were outstanding as of October
23, 1999. These options were not assigned to, or assumed by, OpenTV Corp. See
"OpenTV, Inc. 1998 Stock Option/Stock Issuance Plan--Shares
Reserved/Termination," and "Exchange Plan" below.
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United States federal income tax consequences
Incentive stock options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated
as long-term capital gain or loss. Net capital gains on shares held more than
12 months may be taxed at a maximum federal rate of 20%. Capital losses are
allowed in full against capital gains and up to $3,000 against ordinary
income. If these holding periods are not satisfied, the optionee recognizes
ordinary income at the time of disposition equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise or (ii) the sale price of the shares. Any gain or
loss recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income is treated as long-term or short-term
capital gain or loss, depending on the holding period. Unless limited by
Section 162(m) of the Code, OpenTV is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price.
Any taxable income recognized in connection with an option exercise by an
employee of OpenTV is subject to tax withholding by OpenTV. Unless limited by
Section 162(m) of the Code, OpenTV is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon a disposition
of such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are
allowed in full against capital gains and up to $3,000 against ordinary
income.
Stock Issuance Program. Generally, income will be recognized by a recipient
in connection with the issuance of vested stock in an amount equal to the
difference between the fair market value of the stock at the time of the stock
issuance and the amount paid for the stock, if any. Generally, no income will
be recognized by a recipient in connection with the issuance of unvested
stock, unless an election under Section 83(b) of the Code (an "83(b)
Election") is filed with the Internal Revenue Service within 30 days of the
date of grant in the case of an award of stock. Otherwise, at the time the
stock vests, the recipient generally will recognize compensation income in an
amount equal to the difference between the fair market value of the stock at
the time of vesting and the amount paid for the stock, if any. In the case of
a recipient who is also an employee, any amount treated as compensation will
be subject to tax withholding by OpenTV. OpenTV will be entitled to a tax
deduction in the amount and at the time the recipient recognizes ordinary
income with respect to the stock issuance to the extent permitted under
Section 162 of the Code.
Repurchase Rights for Unvested Option Shares. In general, an optionee who
receives unvested shares upon exercise of an option and then makes and 83(b)
Election within 30 days of the exercise date will be taxable as if the
underlying shares were vested shares with the consequences described above
under "Incentive Stock Options" or "Non-Statutory Options" (whichever is
applicable). If a participant makes an 83(b) Election and subsequently
forfeits some or all of the shares, then the participant generally will not be
entitled to any refund of taxes paid as a result of the election. A
participant who exercises an option for unvested shares and does not make an
83(b) Election within 30 days of the exercise date generally will be taxable
as follows. The optionee effectively will be treated as having exercised the
option as and to the extent that the company's repurchase right lapses with
respect to the underlying shares. Otherwise, the participant will be taxable
as described above under "Incentive Stock Options" or "Non-Statutory Options"
(whichever is applicable).
The foregoing is only a summary of the effect of United States federal
income taxation upon optionees, other award recipients, and the Company with
respect to the grant of awards and options and the exercise of options under
the 1999 Plan. It does not purport to be complete, and does not discuss the
tax consequences of the employee's or consultant's death or the provisions of
the income tax laws of any municipality, state or foreign country in which the
employee or consultant may reside.
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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 161,000 shares of Class A Common Stock of OpenTV, Inc. remained
outstanding and an identical number of shares remained reserved for issuance
under the 1998 Plan. 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.
Exchange plan
As of March 31, 2000, 1,470,955 shares of OpenTV, Inc. common stock had
been issued pursuant to the exercise of options granted under the 1998 Plan,
and options to acquire 161,000 shares of OpenTV, Inc. common stock issued
under the 1998 Plan were outstanding. OpenTV intends to facilitate the
disposition of such shares of common stock of OpenTV, Inc. (including those
shares underlying outstanding options) in accordance with a plan of exchange
that was adopted by the board of directors of OpenTV in May 2000. This plan
affords holders of shares of OpenTV, Inc. common stock the ability to exchange
such shares at their election, after May 22, 2000, for OpenTV Corp. Class A
Ordinary Shares, generally on a one-for-one basis subject to customary
antidilution adjustments.
For accounting purposes, the exchange of shares of OpenTV pursuant to the
exchange plan will be treated as the acquisition of a minority interest under
Accounting Principles Board Opinion 16 ("APB 16"). APB 16 requires that any
acquisition of a minority interest be accounted using "purchase" accounting
regardless of the underlying form of the transaction. The result of the
"purchase" accounting treatment is that the OpenTV will be required to take
non-cash charges to earnings that are roughly equal to the fair market value,
at the time of the exchange, of the shares of OpenTV that are received in the
exchange. Once the costs of the exchanges are determined, the costs are
allocated to specific assets of OpenTV, Inc. such as in-process research and
development, intellectual property, and goodwill, on a pro-rata basis, based
on OpenTV, Inc.'s total net assets at the time of the exchange. These costs
are then recorded as expenses on OpenTV's financial statements at the same
rate at which the underlying assets are amortized or expensed, which could be
immediately in the case of in-process research and development, and over five
years in the case of goodwill and certain other asset classes. In addition,
OpenTV does not expect that all the shares of OpenTV, Inc. common stock
eligible for exchange will be exchanged at the same time and therefore expects
to record a number of earnings charges relating to these exchange
arrangements, of various amounts, and at various times in the future.
1999 Employee Stock Purchase Plan
The board of directors of OpenTV, Inc. and OpenTV Corp. adopted the OpenTV
Inc. 1999 Employee Stock Purchase Plan in October 1999 and the stockholders of
OpenTV Corp. and OpenTV, Inc. approved the plan in November 1999.
Share reserve. As of March 31, 2000, OpenTV had reserved 620,000 OpenTV
Corp. Class A Ordinary Shares for issuance pursuant to purchase rights granted
under the purchase plan. The first offering under the
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purchase plan began on the effective date of an Initial Public Offering,
November 23, 1999, and will terminate on June 30, 2000. On December 31 of each
year for the next nine years, the number of shares in the reserve
automatically will be increased by the lower of:
. 5% of OpenTV's 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 OpenTV's shares through
payroll deductions. The purchase plan is implemented by offerings of purchase
rights to 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 OpenTV
grants 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
parent company or subsidiary 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 began on the effective date of OpenTV's IPO,
OpenTV intends to offer shares registered on a Form S-8 registration
statement. The fair market value of the shares on the first date of this
offering was $20 per share at which OpenTV's shares were first sold to the
public. 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 OpenTV's 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 OpenTV and its affiliates.
Other provisions. OpenTV's 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 OpenTV or its affiliates do not permit the employee's rights to purchase
OpenTV's shares to accrue at a rate which exceeds $25,000 of OpenTV's fair
market value of OpenTV's shares for each calendar year in which the purchase
rights are outstanding. Transactions not involving OpenTV's 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, OpenTV's 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.
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Upon a change in control of OpenTV, its board may provide that the
successor corporation will assume or substitute for outstanding purchase
rights. Alternatively, its 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. OpenTV has 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.
401(k) plan
OpenTV maintains the OpenTV, Inc. 401(k) Plan for eligible United States
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. OpenTV 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 401 of the Internal Revenue Code, so that contributions
by OpenTV or its 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 OpenTV's executive officers are eligible for its 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. OpenTV's objectives consist of operating, strategic
and financial goals that are considered critical to OpenTV's fundamental long-
term goal of building stockholder value.
At the end of the year, the compensation committee or board of directors
determines actual bonus awards based on the degree to which OpenTV has met
corporate goals and participants have met their individual goals. Awards are
paid in cash in January or February following the performance year.
Executive officer loan
In connection with his exercise of OpenTV options, OpenTV entered into a
Security and Loan Agreement with Regis Saint Girons on October 22, 1999 and
lent Mr. Saint-Girons the principal amount of $336,000. This loan is secured
by the stock of OpenTV that was purchased by Mr. Saint-Girons pursuant to such
exercise.
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OPENTV'S PRINCIPAL STOCKHOLDERS
The table below sets forth certain information with respect to the
beneficial ownership of each class of OpenTV's voting securities by (1) each
person who is known by OpenTV to be the beneficial owner of more than 10% of
any class or series of OpenTV's voting securities and (2) all directors and
executive officers as a group. Beneficial ownership of ordinary shares is
determined in accordance with the rules of the SEC and generally includes any
ordinary shares over which a person exercises sole or shared voting or
investment powers, or of which a person has a right to acquire ownership at
any time within 60 days of March 31, 2000. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in this table
have sole voting and investment power with respect to all ordinary shares held
by them. Applicable percentage ownership in the following table is based on
16,913,866 Class A Ordinary Shares and 30,631,746 Class B Ordinary Shares
outstanding as of March 31, 2000.
<TABLE>
<CAPTION>
Class A Ordinary Class B
Shares Ordinary Shares
---------------------- ----------------------
Total
Identity of Person Percent Percent Voting
or Group Number of Class Number of Class Rights
------------------ --------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
MIH Limited (1).......... -- -- 30,631,746 100.0% 94.8%
Sun Microsystems, Inc
(2)..................... 900,900 5.3% 7,594,796(3) 19.9 19.3
America Online........... 1,801,800(4) 10.1 -- -- *
Liberty Digital.......... 2,252,252(5) 12.5 -- -- *
News America
Incorporated............ 2,252,252(6) 12.5 -- -- *
Time Warner.............. 2,252,252(7) 12.5 -- -- *
EchoStar (8)............. 2,252,252 13.3 -- -- *
Directors and officers as
a group
(21 persons) (9)........ 3,713,007(10) 19.2 30,631,746 100.0 95.2%
</TABLE>
- --------
*Less than 1%.
(1) MIH Limited holds its shares through its wholly-owned subsidiary, OTV
Holdings Limited.
(2) Sun Microsystems, Inc. holds its shares through its wholly-owned
subsidiary, Sun TSI Subsidiary, Inc.
(3) Represents 7,594,596 shares of Class B Common Stock of OpenTV, Inc. that
may be exchanged into Class B Ordinary Shares of OpenTV Corp. on a one-
for-one basis.
(4) Includes a warrant to purchase 900,900 Class A Ordinary Shares
exercisable within 60 days of March 31, 2000 held by America Online.
(5) Includes a warrant to purchase 1,126,126 Class A Ordinary Shares
exercisable within 60 days of March 31, 2000 held by Liberty Digital.
Liberty Digital holds its shares through its subsidiary, LDIG OTV, Inc.
(6) Includes a warrant to purchase 1,126,126 Class A Ordinary Shares
exercisable within 60 days of March 31, 2000 held by News Corporation
America.
(7) Includes a warrant to purchase 1,126,126 Class A Ordinary Shares
exercisable within 60 days of March 31, 2000 held by Time Warner. Time
Warner holds its shares through its subsidiary, TWI OTV Holdings, Inc.
(8) EchoStar's shares are in escrow and are subject to forfeiture if certain
performance criteria are not met within 3 years.
(9) Includes 2,252,252 Class A Ordinary Shares and 30,631,746 Class B Ordinary
Shares held by Liberty Digital and MIH Limited with respect to which
OpenTV believes certain of its directors may have or share the power to
vote, or to direct the voting of, such securities. If these shares are not
included in the beneficial ownership calculations then the directors and
officers as a group would be deemed to hold 1,460,755 Class A Ordinary
Shares, which represents 8.0% of that class, and no Class B Ordinary
Shares.
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(10) Includes options to purchase 830,540 Class A Ordinary Shares that are
currently vested and exercisable (or will become vested and exercisable
within 60 days of March 31, 2000). Also includes 431,571 shares of Class
A Common Stock and 21,144 shares of Class B Common Stock of OpenTV, Inc.
Pursuant to a plan of exchange adopted by the board of directors of
OpenTV, all employee and former employee holders of such shares may, at
their election, exchange their shares in OpenTV, Inc. for OpenTV Corp.
Class A Ordinary Shares. See "OpenTV's Management--Exchange plan." These
shares are shown as being held by the directors and officers for the
purposes of this table only.
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OPENTV'S TRANSACTIONS WITH RELATED PARTIES
The following describes the significant transactions entered into between
OpenTV and its directors, executive officers, significant stockholders and
affiliates of these significant stockholders. All future transactions between
OpenTV and any such party will be subject to approval by a majority of the
disinterested members of the board.
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, OpenTV entered into a licensing and
distribution agreement with Sun under which Sun granted OpenTV a non-
exclusive, non-transferable license to develop and distribute products based
upon Sun's Java technology. In June 1999 OpenTV amended the agreement and
committed to develop future versions of the OpenTV Runtime software
incorporating Sun's Java technology and compatible with the appropriate JavaTV
application programming interfaces. OpenTV is 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 OpenTV pursuant to which:
. Thomson sold all of OpenTV's 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 OpenTV;
. OpenTV cross-licensed specific intellectual property rights to Thomson;
and
. Thomson, MIH Limited and OpenTV, Inc. entered into mutual releases all
as described more fully below.
Pursuant to an assignment agreement between Thomson and OpenTV, Thomson
assigned to OpenTV specific intellectual property relating to OpenTV's
business. In a license agreement between Thomson and OpenTV, Thomson granted
to OpenTV 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 OpenTV's business.
Under a still picture encoder license agreement, Thomson agreed to grant to
OpenTV a non-exclusive license to copy, display, modify, distribute and use
the software known as MPEG Encoder 3.0.2 developed by Thomson for OpenTV's 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, OpenTV agreed to grant back a
license to Thomson and Thomson Broadcast Systems, S.A. under the technology
assigned to OpenTV 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.
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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 of association or articles of association
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
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.
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<PAGE>
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 affiliates
In May 1999, OpenTV granted a non-statutory stock option to purchase
330,000 ordinary shares to a consulting firm subsidiary of MIH Limited. The
consulting subsidiary expects that it will make available the economic benefit
of these options to its employees and to certain directors of MIH Limited, our
parent company. These beneficiaries include Allan Rosenzweig and William
Raduchel, each of whom is a director of OpenTV Corp. 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 OpenTV's 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.
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. In the following description,
OpenTV refers 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 OpenTV's 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;
124
<PAGE>
. 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; and
. 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,
OpenTV may not:
. enter into a merger, reorganization, sale of all or substantially all
OpenTV's 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 OpenTV's 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; and
. 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 OpenTV's board, OpenTV may not adopt new
or make material modifications to existing stock option and other equity
compensation plans without the approval of OpenTV's 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. 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.
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<PAGE>
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 OpenTV to register its shares on demand and in the event of specified
registered offerings of securities by OpenTV.
Exchange agreement
In connection with the creation of OpenTV Corp., on October 23, 1999,
OpenTV 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.
In order to maintain Sun's relative interest in OpenTV Corp., 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.
Agreement with EchoStar
On February 22, 2000, OpenTV entered into an agreement with EchoStar
Communications Corporation ("ECC"), EchoStar Satellite Corporation and
EchoStar Technologies Corporation (collectively "EchoStar") to develop a low-
cost, hard-drive set-top box for the mass TV-viewing market in the United
States. EchoStar contributed to a newly formed subsidiary of ECC ("OpenStar")
a non-exclusive, perpetual, royalty-free worldwide license to all of
EchoStar's existing software intellectual property which enables hard drive
functionality in a satellite receiver. Immediately following the formation of
OpenStar, OpenTV purchased 50% of the OpenStar shares from ECC, in exchange
for 2,252,252 shares of OpenTV Class A Ordinary Shares and contribution of a
non-exclusive perpetual royalty free worldwide license to certain OpenTV
intellectual property to OpenStar. The shares have been placed in an escrow
account until certain milestones, relating to the deployment of OpenTV-enabled
set-top boxes, have been met by EchoStar. These shares will revert back to
OpenTV if these milestones have not been met by EchoStar within three years of
the date of the agreement.
Under the agreement, OpenTV granted to EchoStar registration rights with
respect to the EchoStar shares identical to those registration rights granted
to the investors under the Investors' Rights Agreement described above. In
addition EchoStar agreed to certain restrictions on the transfer of the
EchoStar shares identical to those restrictions agreed to by the investors
under the Investors' Rights Agreement described above.
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<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF OPENTV STOCKHOLDERS
Proposal 2 -- Election of Directors
Nominees
OpenTV's articles of association currently authorize no fewer than five and
no more than fifteen directors. A director serves in office until his or her
respective successor is duly elected and qualified or until his or her earlier
death or resignation. The OpenTV board is not divided into classes. Each
member of the Board is elected by the stockholders at each annual meeting to
serve a one-year term which expires upon the occurrence of the next annual
meeting.
OpenTV's Board is currently set at ten members and is comprised of one
vacancy and the following nine members: Jacobus D.T. Stofberg, Jan Steenkamp,
Randall S. Livingston, Jacobus P. Bekker, Craig L. Enenstein, Paul Haggerty,
William Raduchel, Allan M. Rosenzweig and Stephen F. Ward.
The existing directors, may, by resolution, fill the existing vacancy in
the board. In addition, Sun has the right to designate one director of OpenTV.
See "OpenTV's Transactions with Related Parties - Board of Directors."
Currently, there is no such Sun designee on OpenTV's board. Sun, may, before
or after OpenTV's annual meeting of stockholders, designate a person to
OpenTV's board of directors and OpenTV's board would by resolution elect that
person to the board. OpenTV anticipates that Sun will designate a person to
OpenTV's board prior to OpenTV's annual meeting of stockholders and that
OpenTV's board will by resolution elect such a person to OpenTV's board prior
to the stockholders meeting. Since this person's term will expire at the
OpenTV annual meeting of stockholders, and since this person is not being
elected by the stockholders under the proposal, the board will by resolution,
following the stockholders meeting, elect such person to OpenTV's board.
At the OpenTV meeting, OpenTV stockholders will be asked to elect nine
directors who will become directors of OpenTV on the date of the annual
meeting. The names of the board's nominees for directors of OpenTV are
identified below. The shares represented by the enclosed proxy for the OpenTV
meeting will be voted "FOR" the election of the nominees listed below unless
authority to vote for the election of directors is withheld. Stockholders may
withhold authority to vote for the slate as nominated or, by writing on the
proxy card, the authority to vote for any individual nominee. If any of the
nominees should unexpectedly decline or be unable to act as director, the
shares may be voted for such substitute nominees as the persons appointed in
the proxy may in their discretion determine.
Directors hold office until the next annual meeting of shareholders and
until their successors are elected and duly qualified.
<TABLE>
<CAPTION>
Name of Nominee Age Position
- --------------- --- --------
<S> <C> <C>
Jacobus D.T. Stofberg....... 49 Chairman of the Board of Directors
Jan Steenkamp............... 37 President, Chief Executive Officer and Director
Randall S. Livingston....... 46 Executive Vice President, Office of the CEO,
Chief Financial Officer and Director
Jacobus P. Bekker........... 47 Director
Craig L. Enenstein.......... 31 Director
Paul Haggerty............... 40 Director
William Raduchel............ 53 Director
Allan M. Rosenzweig......... 44 Director
Stephen F. Ward............. 45 Director
</TABLE>
Vote required
The affirmative vote of a majority of the total voting power of the
outstanding ordinary shares of OpenTV present in person or represented by
proxy at the annual meeting is required for a director to be elected. On a
vote to appoint directors, votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum but have no other
legal effect under the articles of association of OpenTV.
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<PAGE>
Proposal 3--Ratification of Appointment of Independent Accountants
The board of directors of OpenTV has appointed PricewaterhouseCoopers LLP,
independent accountants, to audit the financial statements of OpenTV for the
current fiscal year ending December 31, 2000. OpenTV expects that a
representative of PricewaterhouseCoopers LLP will be present at the annual
meeting of OpenTV's stockholders will have the opportunity to make a statement
if he or she desires to do so, and will be available to answer any appropriate
questions.
Vote required and board of directors' recommendation
The affirmative vote of the holders of a majority of the total voting power
of the outstanding ordinary shares of OpenTV present in person or represented
by proxy at the meeting will be required to approve this proposal. The board
of directors of OpenTV has unanimously approved this proposal and recommends
that OpenTV stockholders vote "FOR" the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants.
Proposal 4 -- Amendment of 1999 Share Option/Share Issuance Plan
OpenTV stockholders are being asked to approve an amendment to the 1999
Share Option/Share Issuance Plan (the "1999 Plan") to provide for an increase
in the number of shares of Class A Ordinary Shares reserved for issuance from
7,200,000 shares to 8,980,000 shares.
The 1999 Plan authorizes the board of directors to grant stock options to
eligible employees and consultants of OpenTV. The 1999 Plan is structured to
give the board broad discretion in creating equity incentives to assist OpenTV
in attracting and retaining the best available personnel for the successful
conduct of its business. OpenTV believes that the practice of linking the
compensation of employees to corporate performance helps maximize stockholder
value. OpenTV has, therefore, consistently included equity incentives as a
significant component of compensation for a broad range of its employees. This
practice has enabled OpenTV to attract and retain the talent that it continues
to require.
The board of directors of OpenTV believes that adding shares to the 1999
Plan is in the best interest of OpenTV because the remaining shares available
for grant under the 1999 Plan are insufficient to accomplish the purposes
described above and, in addition, it will permit OpenTV to accommodate the
increase in employees as a result of the merger.
The principal features of the 1999 Plan, including certain federal income
tax consequences relating thereto, are described in further detail on the
section of this joint proxy statement/prospectus entitled "OpenTV's
Management" under the heading "OpenTV's 1999 Share Option/Share Issuance Plan"
beginning at page 114. OpenTV will provide, without charge, to each person to
whom this joint proxy statement/prospectus is delivered, upon request of such
person a copy of the 1999 Plan by first class mail within three business days
of receipt of such request. Any such request should be directed as follows:
Secretary, OpenTV Corp., 401 East Middlefield Road, Mountain View, CA 94043;
telephone number (650) 429-5500.
Vote required and board of directors' recommendation
The affirmative vote of the holders of a majority of the total voting power
of the outstanding ordinary shares of OpenTV present in person or represented
by proxy at the meeting will be required to approve this proposal. The board
of directors of OpenTV has unanimously approved this proposal and recommends
that OpenTV stockholders vote "FOR" the amendment of the 1999 Share
Option/Share Issuance Plan.
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LEGAL MATTERS
The validity of the OpenTV Class A Ordinary Shares offered by this joint
proxy statement/prospectus will be passed upon for OpenTV by Harney Westwood &
Riegels.
It is a condition to completion of the merger that Spyglass and OpenTV each
receive an opinion from its counsel, to the effect that, among other things,
the merger will be a reorganization for federal income tax purposes. Wilson
Sonsini Goodrich & Rosati, Professional Corporation, is representing OpenTV
and Hale and Dorr LLP is representing Spyglass. See "The Merger--Material
United States federal income tax considerations of the merger."
EXPERTS
The consolidated financial statements of OpenTV Corp. as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999 included in this joint proxy statement/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 auditing and
accounting.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of Spyglass, Inc. included in Spyglass'
Annual Report on Form 10-K for the year ended September 30, 1999 as set forth
in their report, which is incorporated by reference in this joint proxy
statement/prospectus and the registration statement of which this joint proxy
statement/prospectus forms a part in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Under Rule 14a-8 of the Exchange Act, Spyglass stockholders may present
proper proposals for inclusion in Spyglass' proxy statement and for
consideration at the next annual meeting of its stockholders by submitting
such proposals to Spyglass in a timely manner. In order to be so included for
the 2000 annual meeting, stockholder proposals must have been received by
Spyglass a reasonable time in advance of the meeting, and must have otherwise
complied with the requirements of Rule 14a-8.
OpenTV stockholders may present proper proposals for inclusion in OpenTV's
proxy statement and for consideration at the next annual meeting of its
stockholders by submitting such proposals to OpenTV in a timely manner. In
order to be so included for the 2001 annual meeting, stockholder proposals
must have been received by OpenTV no later than thirty days before the date of
the annual meeting.
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WHERE YOU CAN FIND MORE INFORMATION
Reports, proxy statements and Reports, proxy statements and
other information concerning other information regarding
OpenTV may be inspected at: Spyglass may be inspected at:
The National Association of The National Association of
Securities Dealers Securities Dealers
1735 K Street, N.W. 1735 K Street, N.W.
Washington, D.C. 20006
Washington, D.C. 20006
Requests for documents Requests for documents
relating to OpenTV should be relating to Spyglass should be
directed to: directed to:
OpenTV Corp. Spyglass, Inc.
Attn: Investor Relations Attn: Investor Relations
401 East Middlefield Road 1240 E. Diehl Road
Mountain View, California Naperville, IL 60563
94043-4005 (630) 245-6500
(650) 429-5500
OpenTV and Spyglass each file reports, proxy statements and other
information with the SEC. Copies of their respective reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC website is
http://www.sec.gov.
OpenTV has filed a registration statement under the Securities Act with the
SEC with respect to OpenTV's Class A Ordinary Shares to be issued to Spyglass
stockholders in the merger. This joint proxy statement/prospectus constitutes
the prospectus of OpenTV filed as part of the registration statement. This
joint proxy statement/prospectus does not contain all of the information set
forth in the registration statement because certain parts of the registration
statement are omitted as provided by the rules and regulations of the SEC. You
may inspect and copy the registration statement at any of the addresses listed
above. A copy of this prospectus is available for inspection at the offices of
MeesPierson N.V., Rokin 55, 1012 KK, Amsterdam, The Netherlands, tel:
+31205272467, fax +31205271928.
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<PAGE>
The SEC allows Spyglass to "incorporate by reference" information into this
joint proxy statement/prospectus, which means that Spyglass can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed
to be part of this joint proxy statement/prospectus, except for any
information superseded by information in this joint proxy
statement/prospectus. This joint proxy statement/prospectus incorporates by
reference the documents set forth below that Spyglass has previously filed
with the SEC. These documents contain important information about Spyglass and
its finances that you should read.
<TABLE>
<CAPTION>
Spyglass SEC Filings
(File No. 000-26074) Period
- -------------------- --------------------------------------
<S> <C>
Annual Report on Form 10-K.............. Fiscal year ended September 30, 1999
Quarterly Report on Form 10-Q........... Fiscal quarter ended December 31, 1999
Quarterly Report on Form 10-Q........... Fiscal quarter ended March 31, 2000
Current Report on Form 8-K.............. Filed on March 29, 2000
Registration Statement on Form 8-A...... Filed on May 11, 1995
</TABLE>
Spyglass is also incorporating by reference additional documents that
Spyglass may file with the SEC between the date of this joint proxy
statement/prospectus and the date of the special meeting of Spyglass
stockholders.
Documents incorporated by reference are available from Spyglass without
charge, excluding all exhibits unless Spyglass has specifically incorporated
by reference an exhibit in this joint proxy statement/prospectus. Stockholders
may obtain documents incorporated by reference in this joint proxy
statement/prospectus from Spyglass by requesting them in writing or by
telephone at the following address:
Spyglass, Inc.
Attention: Bruce Beerbower
Naperville Corporate Center
1240 E. Diehl Road
Naperville, IL 60563
Telephone: (630) 245-6500
Internet address: http://www.spyglass.com
If you would like to request documents from Spyglass, please do so by
, 2000, to receive them before the Spyglass special meeting.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the merger
agreement and the merger. OpenTV and Spyglass have not authorized anyone to
provide you with information that is different from what is contained in this
joint proxy statement/prospectus. This joint proxy statement/prospectus is
dated , 2000. You should not assume that the information contained in
this joint proxy statement/prospectus is accurate as of any date other than
, 2000, and neither the mailing of the joint proxy statement/prospectus
to OpenTV and Spyglass stockholders nor the issuance of OpenTV Class A
Ordinary Shares in the merger shall create any implication to the contrary.
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the OpenTV Class A Ordinary Shares or the solicitation of a
proxy, in any jurisdiction to or from any person to whom or from whom it is
unlawful to make the offer, solicitation of an offer or proxy solicitation in
that jurisdiction. Neither the delivery of this joint proxy
statement/prospectus nor any distribution of securities means, under any
circumstances, that there has been no change in the information set forth or
incorporated in this document by reference or in its affairs since the date of
this joint proxy statement/prospectus. The information contained in this
document with respect to Spyglass and its subsidiaries was provided by
Spyglass. The information contained in this document or incorporated by
reference with respect to OpenTV was provided by OpenTV.
131
<PAGE>
OPENTV CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations and Comprehensive Loss............... F-4
Consolidated Statements of Shareholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of OpenTV Corp.:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations and comprehensive loss, of shareholders'
equity (deficit), and of cash flows presents fairly, in all material respects,
the financial position of OpenTV Corp. and its subsidiaries as of December 31,
1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of OpenTV Corp.'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
auditing standards generally accepted in the United States 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.
PricewaterhouseCoopers LLP
San Jose, California
January 25, 2000, except
for Note 12 for which the
date is March 26, 2000
F-2
<PAGE>
OPENTV CORP.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 3,324 $ 186,535
Accounts receivable, net................................ 2,218 6,234
Prepaid expenses and other current assets............... 703 1,698
-------- ---------
Total current assets.................................. 6,245 194,467
Property and equipment, net............................... 3,381 5,025
Intangible assets......................................... -- 6,678
Other assets.............................................. 412 620
-------- ---------
Total assets.......................................... $ 10,038 $ 206,790
======== =========
<CAPTION>
LIABILITIES, REDEEMABLE COMMON SHARES AND SHAREHOLDERS'
EQUITY (DEFICIT)
<S> <C> <C>
Current Liabilities:
Accounts payable........................................ $ 1,978 $ 798
Accrued liabilities..................................... 2,171 7,261
Related parties payable................................. 337 606
Deferred revenue........................................ 3,218 3,564
-------- ---------
Total current liabilities............................. 7,704 12,229
Convertible notes payable to shareholders................. 7,000 --
-------- ---------
Total liabilities..................................... 14,704 12,229
-------- ---------
Commitments and contingencies (Notes 4 and 10)
Redeemable common shares, par value $0.001; 111,581 and no
shares issued and outstanding in 1998 and 1999,
respectively............................................. 117 --
-------- ---------
Shareholders' equity (deficit):
Class A Ordinary Shares, no par value, 500,000,000
shares authorized; 33,183,658 and 14,523,859 shares
issued and outstanding in 1998 and 1999, respectively.. 24,115 188,562
Class B Ordinary Shares, no par value, actual
200,000,000 shares authorized; no shares and 30,631,746
shares issued and outstanding in 1998 and 1999,
respectively........................................... -- 35,953
Additional paid-in capital.............................. 49 162,794
Receivable from shareholders............................ -- (1)
Deferred compensation................................... (36) (42,224)
Accumulated other comprehensive income (loss)........... (62) 33
Accumulated deficit..................................... (28,849) (150,556)
-------- ---------
Total shareholders' equity (deficit).................. (4,783) 194,561
-------- ---------
Total liabilities, redeemable common shares, and
shareholders' equity (deficit)....................... $ 10,038 $ 206,790
======== =========
</TABLE>
F-3
<PAGE>
OPENTV CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Royalties............................. $ 2,382 $ 2,788 $ 14,782
License fees.......................... 1,255 1,578 2,964
Services and other.................... 3,322 5,102 8,205
----------- ----------- -----------
Total revenues...................... 6,959 9,468 25,951
----------- ----------- -----------
Operating expenses:
Cost of services and other revenues
(exclusive of $53 share-based
compensation in 1999)................ 3,290 4,736 5,949
Research and development (exclusive of
$662 share-based compensation in
1999)................................ 6,219 7,514 13,172
Sales and marketing (exclusive of $556
share-based compensation in 1999).... 4,323 7,418 11,415
General and administrative (exclusive
of $11,827 share-based compensation
in 1999)............................. 3,929 3,982 5,971
Amortization of intangibles........... -- -- 1,210
Amortization of share-based
compensation......................... -- 13 13,098
Non-cash warrant expense.............. -- -- 68,569
----------- ----------- -----------
Total operating expenses............ 17,761 23,663 119,384
----------- ----------- -----------
Loss from operations.................. (10,802) (14,195) (93,433)
Interest income......................... -- -- 898
Interest expense........................ (26) (75) (73)
Other income (expense), net............. 139 68 (2)
Minority interest....................... -- -- 2,153
----------- ----------- -----------
Net loss.............................. (10,689) (14,202) (90,457)
Preferred stock deemed dividend......... -- -- 31,250
----------- ----------- -----------
Net loss attributable to ordinary
shareholders......................... $ (10,689) $ (14,202) $ (121,707)
=========== =========== ===========
Net loss per share attributable to
ordinary shareholders, basic and
diluted................................ $ (0.43) $ (0.43) $ (4.19)
=========== =========== ===========
Shares used in computing net loss per
share attributable to ordinary
shareholders, basic and diluted........ 24,973,614 33,212,803 29,065,478
=========== =========== ===========
Net loss................................ $ (10,689) $ (14,202) $ (90,457)
Other comprehensive income (loss):
Foreign currency translation.......... 54 (136) 95
----------- ----------- -----------
Comprehensive loss.................. $ (10,635) $ (14,338) $ (90,362)
=========== =========== ===========
</TABLE>
F-4
<PAGE>
OPENTV CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Series C-1 Series C-2
Class A Ordinary Class B Ordinary Convertible Convertible
Shares Shares Preference Shares Preference Shares Additional Receivable
--------------------- ------------------- --------------------- ------------------- Paid-In from Share-
Shares Amount Shares Amount Shares Amount Shares Amount Capital holders
----------- -------- ---------- ------- ----------- -------- ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996............ 18,421,734 $ 8,615 -- $ -- -- $ -- -- $ -- $ -- $ --
Issuance of
ordinary
shares.......... 14,761,924 15,500 -- -- -- -- -- -- -- (9,700)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
----------- -------- ---------- ------- ----------- -------- ---------- ------- -------- -------
Balances,
December 31,
1997............ 33,183,658 24,115 -- -- -- -- -- -- -- (9,700)
Cash receipt
from
shareholder..... -- -- -- -- -- -- -- -- -- 9,700
Deferred
compensation
arising from
options issued.. -- -- -- -- -- -- -- -- 49 --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
----------- -------- ---------- ------- ----------- -------- ---------- ------- -------- -------
Balances,
December 31,
1998............ 33,183,658 24,115 -- -- -- -- -- -- 49 --
Conversion of
notes payable to
Class A Ordinary
Shares.......... 2,973,917 7,133 -- -- -- -- -- -- -- --
Conversion of
Class A Ordinary
Shares to Class
B Ordinary
Shares.......... (36,157,575) (31,248) 36,157,575 31,248 -- -- -- -- -- --
Conversion of
related party
payable to Class
B Ordinary
Shares.......... -- -- 862,069 2,500 -- -- -- -- -- --
Issuance of
Class B Ordinary
Shares.......... -- -- 1,214,179 3,521 -- -- -- -- -- --
Deferred
compensation
arising from
options issued.. -- -- -- -- -- -- -- -- 22,473 --
Capital
contribution
from shareholder
(Note 10)....... -- -- -- -- -- -- -- -- 7,640 --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- --
Issuance of
convertible
preference
shares.......... -- -- -- -- 23,648,646 26,261 4,504,504 5,000 -- --
Conversion of
preference
shares to
Class A Ordinary
Shares.......... 5,630,628 31,261 -- -- (23,648,646) (26,261) (4,504,504) (5,000) -- --
Beneficial
conversion
feature on the
sale of
convertible
preference
shares.......... -- -- -- -- -- -- -- -- 31,250 --
Issuance of
warrants in
conjunction with
the sale of
convertible
preference
shares.......... -- -- -- -- -- -- -- -- 63,851 --
Initial public
offering of
Class A Ordinary
Shares.......... 8,625,000 157,019 -- -- -- -- -- -- -- --
Issuance of
performance
warrants to
non-employee.... -- -- -- -- -- -- -- -- 37,531 --
Amortization of
performance
Warrants
deferred
compensation.... -- -- -- -- -- -- -- -- -- --
Share options
exercised....... 268,231 282 -- -- -- -- -- -- -- --
Initial
capitalization
of OpenTV Corp.
(see Note 1).... -- -- -- 1 -- -- -- -- -- (1)
Transfer to
minority
interest upon
reorganization
(see Note 1).... -- -- (7,602,077) (1,317) -- -- -- -- -- --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
----------- -------- ---------- ------- ----------- -------- ---------- ------- -------- -------
Balances,
December 31,
1999............ 14,523,859 $188,562 30,631,746 $35,953 -- $ -- -- $ -- $162,794 $ (1)
=========== ======== ========== ======= =========== ======== ========== ======= ======== =======
<CAPTION>
Accumulated
Other
Comprehen-
Deferred sive Income Accumulated
Compensation (Loss) Deficit Total
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balances,
December 31,
1996............ $ -- $ 20 $ (3,958) $ 4,677
Issuance of
ordinary
shares.......... -- -- -- 5,800
Foreign currency
translation
adjustment...... -- 54 -- 54
Net loss........ -- -- (10,689) (10,689)
------------ ----------- ----------- ---------
Balances,
December 31,
1997............ -- 74 (14,647) (158)
Cash receipt
from
shareholder..... -- -- -- 9,700
Deferred
compensation
arising from
options issued.. (49) -- -- --
Amortization of
deferred
compensation.... 13 -- -- 13
Foreign currency
translation
adjustment...... -- (136) -- (136)
Net loss........ -- -- (14,202) (14,202)
------------ ----------- ----------- ---------
Balances,
December 31,
1998............ (36) (62) (28,849) (4,783)
Conversion of
notes payable to
Class A Ordinary
Shares.......... -- -- -- 7,133
Conversion of
Class A Ordinary
Shares to Class
B Ordinary
Shares.......... -- -- -- --
Conversion of
related party
payable to Class
B Ordinary
Shares.......... -- -- -- 2,500
Issuance of
Class B Ordinary
Shares.......... -- -- -- 3,521
Deferred
compensation
arising from
options issued.. (22,473) -- -- --
Capital
contribution
from shareholder
(Note 10)....... -- -- -- 7,640
Amortization of
deferred
compensation.... 13,098 -- -- 13,098
Issuance of
convertible
preference
shares.......... -- -- -- 31,261
Conversion of
preference
shares to
Class A Ordinary
Shares.......... -- -- -- --
Beneficial
conversion
feature on the
sale of
convertible
preference
shares.......... -- -- (31,250) --
Issuance of
warrants in
conjunction with
the sale of
convertible
preference
shares.......... -- -- -- 63,851
Initial public
offering of
Class A Ordinary
Shares.......... -- -- -- 157,019
Issuance of
performance
warrants to
non-employee.... (37,531) -- -- --
Amortization of
performance
Warrants
deferred
compensation.... 4,718 -- -- 4,718
Share options
exercised....... -- -- -- 282
Initial
capitalization
of OpenTV Corp.
(see Note 1).... -- -- -- --
Transfer to
minority
interest upon
reorganization
(see Note 1).... -- -- -- (1,317)
Foreign currency
translation
adjustment...... -- 95 -- 95
Net loss........ -- -- (90,457) (90,457)
------------ ----------- ----------- ---------
Balances,
December 31,
1999............ $(42,224) $ 33 $(150,556) $194,561
============ =========== =========== =========
</TABLE>
F-5
<PAGE>
OPENTV CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands of US dollars, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(10,689) $(14,202) $(90,457)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 415 830 932
Amortization of intangible assets............ -- -- 1,210
Amortization of deferred compensation........ -- 13 13,098
Provision of doubtful accounts............... 330 85 119
Loss on write-off of equipment............... -- 96 61
Interest on note payable converted to
ordinary shares............................. -- -- 133
Non-cash warrant expense..................... -- -- 68,569
Minority interest............................ -- -- (2,153)
Changes in operating assets and liabilities:
Accounts receivable........................ (1,812) (41) (4,134)
Prepaid expenses and other current assets.. (114) (494) (995)
Accounts payable........................... 607 1,035 (1,180)
Accrued liabilities........................ 1,084 373 5,747
Related parties payable.................... 133 (732) 269
Deferred revenue........................... 607 1,992 346
-------- -------- --------
Net cash used in operating activities...... (9,439) (11,045) (8,435)
-------- -------- --------
Cash flows used in investing activities:
Purchase of property and equipment............. (1,445) (2,227) (2,576)
Increase in other assets....................... (34) (378) (208)
Purchase of intangible assets.................. -- -- (248)
-------- -------- --------
Net cash used in investing activities...... (1,479) (2,605) (3,032)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of ordinary shares...... 5,800 -- 160,540
Proceeds from issuance of preference shares.... -- -- 31,261
Proceeds from issuance of redeemable common
shares........................................ -- 117 --
Proceeds from issuance of ordinary shares...... -- -- 282
Proceeds from notes payable to shareholders.... -- 7,000 2,500
Payment on receivable from shareholder......... -- 9,700 --
-------- -------- --------
Net cash provided by financing activities.. 5,800 16,817 194,583
-------- -------- --------
Effect of exchange rate changes on cash.......... 54 (136) 95
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (5,064) 3,031 183,211
Cash and cash equivalents, beginning of period... 5,357 293 3,324
-------- -------- --------
Cash and cash equivalents, end of period......... $ 293 $ 3,324 $186,535
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest......................... $ 26 $ 60 $ --
======== ======== ========
Noncash investing and financing activities:
Deferred compensation arising from issuances of
options....................................... $ 49 $ 22,473
======== ========
Conversion of notes payable, including accrued
interest to ordinary shares................... $ 7,133
========
Intangible assets contributed by shareholder... $ 7,640
========
Conversion of related party payable to ordinary
shares........................................ $ 2,500
========
Preferred stock deemed dividend................ $ 31,250
========
Issuance of performance warrants............... $ 37,531
========
Conversion of preference shares to Class A
Ordinary Shares............................... $ 31,261
========
</TABLE>
F-6
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of US dollars, except share and per share amounts)
Note 1. Formation and Business of OpenTV:
OpenTV Corp. ("OpenTV"), a British Virgin Islands international business
company, was formed on September 30, 1999 as a holding company to own shares
of OpenTV, Inc, its only asset. Pursuant to a reorganization that occurred in
October 1999, MIH Limited, the majority shareholder of OpenTV, Inc. exchanged
its shares of common stock in OpenTV, Inc. for ordinary shares in OpenTV. The
reorganization was accounted for on the historical cost basis since there was
no change in ownership. As of December 31, 1999, OpenTV owns approximately 83%
of the common stock of OpenTV, Inc.
OpenTV 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 majority
owned subsidiaries. All significant intercompany balances and transactions
have been eliminated.
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.
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 primarily invested in a diverse portfolio of
money market securities and a money market fund in accordance with OpenTV's
investment policy. With respect to accounts receivable, OpenTV's customer base
is dispersed across many geographic areas and OpenTV generally does not
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 life of the lease, or the estimated useful life
of the asset, whichever is shorter.
F-7
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
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.
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.
F-8
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
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 years ended
December 31, 1997, 1998 and 1999 was $172, $757 and $820, 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.
OpenTV accounts 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.
Share-based compensation
OpenTV accounts for share-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.
F-9
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
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 ordinary shares outstanding net of ordinary shares subject
to repurchase. Options totaling 3,012,700, 3,507,495 and 5,471,618 were not
included in the computation of diluted net loss per share for the years ended
December 31, 1997, 1998 and 1999, respectively, because the effect would be
antidilutive. In addition, a total of 5,429,728 warrants to purchase Class A
Ordinary Shares were not included in the computation of diluted net loss per
share for the year ended December 31, 1999, because the effect would be
antidilutive.
Share Split
OpenTV completed a one-for-five reverse share split on November 15, 1999.
All share information has been adjusted to reflect this share split.
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 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 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,
F-10
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS
No. 133, as amended, 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.
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 December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 or SAB 101, "Revenue Recognition in
Financial Statements," which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
Management believes that the impact of SAB 101 will not have a material effect
on the financial position or results of operations of OpenTV.
F-11
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
Note 3. Balance Sheet Components:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Accounts receivable:
Trade accounts receivable................................. $ 2,044 $ 6,120
Amounts billed under long term contracts.................. 474 533
------- -------
2,518 6,653
Less allowance for doubtful accounts...................... (300) (419)
------- -------
$ 2,218 $ 6,234
======= =======
Prepaid expenses and other current assets:
Prepaid expenses and other current assets................. $ 657 $ 1,383
Withholding tax receivable................................ 46 315
------- -------
$ 703 $ 1,698
======= =======
Property and equipment:
Computer equipment and software........................... $ 3,610 $ 5,866
Furniture and fixtures.................................... 198 356
Leasehold improvements.................................... 631 793
------- -------
4,439 7,015
Less accumulated depreciation and amortization............ (1,058) (1,990)
------- -------
$ 3,381 $ 5,025
======= =======
Intangible assets:
Patents and copyrights.................................... $ -- $ 7,888
Less accumulated amortization............................. -- (1,210)
------- -------
$ -- $ 6,678
======= =======
Accrued liabilities:
Accrued payroll and related liabilities................... $ 1,107 $ 3,806
Accrued legal liabilities................................. -- 1,940
Other accrued liabilities................................. 1,064 1,515
------- -------
$ 2,171 $ 7,261
======= =======
</TABLE>
Note 4. Commitments and Contingencies:
OpenTV has agreed to issue shares of OpenTV Corp. in exchange for shares of
OpenTV, Inc. held by minority shareholders on a one for one basis pursuant to
an exchange agreement and a plan of exchange. The exchange of shares will
represent the acquisition of a minority interest and will be accounted for
under the purchase method of accounting.
OpenTV subleases its facilities from third parties under operating lease
agreements in the US, France, Korea, China and the United Kingdom. These
leases expire between January 2000 and November 2008, respectively. Total rent
expense for the years ended December 31, 1997, 1998 and 1999 was $687, $1,819
and $1,743, respectively.
F-12
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
Future minimum payments under noncancelable operating leases as of December
31, 1999 are as follows:
<TABLE>
<S> <C>
2000..................................... $ 3,153
2001..................................... 1,695
2002..................................... 1,379
2003..................................... 1,155
2004..................................... 801
Thereafter............................... 2,816
-------
$10,999
=======
</TABLE>
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 $281 in 2000.
As of December 31, 1999, OpenTV has a standby letter of credit with a bank
of approximately $1,000.
On October 12, 1999, one of OpenTV's former employees filed a complaint
against OpenTV in California state court alleging wrongful termination and
other related claims, and seeking monetary damages. OpenTV believes that the
litigation is without merit and intends to defend itself vigorously. The
matter is in the early stages of discovery and accordingly the amount of
possible loss or range of loss, if any, can not be made.
Note 5. Strategic Investments:
In October 1999, OpenTV completed a private placement of 23,648,646 Series
C-1 Convertible Preference Shares (convertible into 4,729,728 Class A Ordinary
Shares) at $1.11 per share (or $5.55 per Class A Ordinary Share), 4,504,504
Series C-2 Convertible Preference Shares (convertible into 900,900 Class A
Ordinary Shares) at $1.11 per share (or $5.55 per Class A Ordinary Share), and
warrants to purchase 4,729,728 Class A Ordinary Shares (expiring in October
2001) at $5.55 per share to America Online, Inc., General Instrument
Corporation, Liberty Digital, Inc., News Corporation, Time Warner, Inc. and
Sun Microsystems, Inc. for net proceeds of $31,261. The Series C-1 Convertible
Preference Shares and Series C-2 Convertible Preference shares converted into
5,630,628 Class A Ordinary Shares at the time of OpenTV's public offering. The
convertible preference shares have an embedded beneficial conversion feature
which under EITF 98-5 resulted in a preferred stock dividend of $31,250 in the
quarter ended December 31, 1999. The fair value attributable to the warrants
to purchase OpenTV's Class A Ordinary Shares of $63,851 was recorded in
operating expenses as a non-cash warrant expense in the quarter ended December
31, 1999. The warrants were valued using the Black Scholes option pricing
model. In connection with the investments, OpenTV entered into strategic
agreements with America Online Inc., General Instrument Corporation, News
Corporation and Time Warner, Inc.
Note 6. Performance Warrant:
In November 1999, OpenTV issued warrants to purchase 700,000 Class A
Ordinary Shares (expiring in May 2001) at $5.55 per share to General
Instrument Corporation (GIC). The warrants are exercisable based on GIC
meeting certain performance milestones. The fair value attributable to the
performance warrants to purchase OpenTV's Class A Ordinary Shares of $37,531
was recorded in the quarter ended December 31, 1999. The fair value of the
warrants is calculated at each reporting date using the Black Scholes option
pricing model. As a result, the warrant expense will fluctuate as the fair
market value of OpenTV's ordinary shares fluctuate. A total of $4,718 was
amortized as non-cash warrant expense. The remaining amount will be amortized
to expense as the related research and development and sales and marketing
work is performed.
F-13
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
Note 7. Employee Option Plans and Share Purchase Plan:
Option Plans
In July 1996, OpenTV, Inc. adopted the Employee Incentive Plan (the "1996
Plan") under which 3,600,000 shares of OpenTV, Inc. common stock were reserved
for issuance.
In January 1998, OpenTV, Inc. 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 of OpenTV, Inc. were reserved for issuance to
directors, officers, employees and consultants of OpenTV, Inc. Options can be
granted at a price not less than 85% of the fair value of a share as
determined by OpenTV, Inc'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 OpenTV, Inc. on the date of grant. Options
granted to employees generally vest 25% after 12 months of continuous service
with OpenTV, Inc. and 1/48th over each of 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, Inc. at the exercise price. The repurchase
right generally lapses 25% after 12 months of continuous service with OpenTV,
Inc. and 1/48th over the next 36 months. A total of 360,366 shares of Class A
Common Stock of OpenTV, Inc. were subject to repurchase at December 31, 1999.
There were no shares of common stock subject to repurchase at December 31,
1998.
In February 1999, OpenTV, Inc. 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, Inc'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.
In October 1999, OpenTV adopted the 1999 Share Option/Share Issuance Plan
(the "1999 Plan") under which 7,200,000 shares were reserved for issuance.
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
were assigned to and assumed by OpenTV and the Assumed Options now represent
the right to purchase an identical number of Class A Ordinary Shares of
OpenTV. 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.
F-14
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
Activity under the Plans is as follows:
<TABLE>
<CAPTION>
Outstanding Options
Shares ----------------------------------------------------
Available Number of Exercise Aggregate Weighted Average
for Grant Shares Price Price Exercise Price
---------- ---------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
---------- ---------- --------
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
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 under 1998
Plan................... 960,000 -- --
Options cancelled under
1998 Plan.............. (28,479) (5,141,114) $1.05-$6.00 (12,863) $2.14
Options reserved at
inception of 1999
Plan................... 7,200,000 -- --
Options assumed under
1999 Plan.............. (5,141,114) 5,141,114 $1.05-$6.00 12,863 $2.14
Options granted......... (3,960,200) 3,960,200 $1.05-$88.00 22,141 $5.59
Options exercised....... -- (1,622,655) $1.05 (1,704) $1.05
Options cancelled....... 373,422 (373,422) $1.05-$19.00 (805) $2.16
---------- ---------- --------
Balances, December 31,
1999................... 1,584,554 5,471,618 $23,315
========== ========== ========
</TABLE>
The following table summarizes information with respect to options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
--------------------------------------------- ----------------------------
Weighted Average
Number Remaining Weighted Average Number Weighted Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
-------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.05 2,960,418 8.56 $ 1.05 2,933,418 $ 1.05
$ 2.10 713,200 9.39 $ 1.05 73,125 $ 2.10
$ 2.90 219,000 9.51 $ 2.90 -- $ 2.90
$ 6.00 1,082,000 9.67 $ 6.00 216,666 $ 6.00
$19.00 466,000 9.88 $19.00 -- $19.00
$88.00 31,000 9.92 $88.00 -- $88.00
--------- ---------
5,471,618 3,223,209
========= =========
</TABLE>
At December 31, 1997, 1998, and 1999 vested options to purchase 427,133,
3,507,495 and 1,190,693 ordinary shares respectively, were unexercised.
F-15
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
Fair value disclosures
Had compensation cost for OpenTV's share-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>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported............................... $(10,689) $(14,202) $(90,457)
Pro forma................................. $(11,386) $(14,474) $(93,449)
Net loss per share, basic and diluted:
As reported............................... $ (0.43) $ (0.43) $ (4.19)
Pro forma................................. $ (0.46) $ (0.44) $ (4.29)
</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
1997, 1998 and 1999: dividend yield at 0% for all periods; volatility at 0%
for 1997 and 1998, and 184% for 1999; weighted average expected option term of
six years for 1997 and 1998, and five years for 1999; risk free interest rate
of 5.77% to 6.76%, 4.95% to 5.70%, and 4.75 % to 6.00%, respectively. The
weighted average fair value of options granted during 1997, 1998 and 1999 was
$0.50, $0.15 and $8.78, 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.
Share-based compensation
OpenTV recorded non-cash deferred share compensation of $49 and $22,500 for
the years ended December 31, 1998 and 1999, respectively, representing the
difference between the exercise price and deemed fair market value for options
to purchase shares granted to employees and the fair value attributable to
options granted to non-employees. These amounts are being amortized in
accordance with FASB Interpretation No. 28 over the vesting period of the
option life, which is generally four years. Share-based compensation of $53,
$662, $556, and $11,827 was amortized to cost of services and other revenues,
research and development, sales and marketing, and general and administrative
expenses, respectively, for the year ended December 31, 1999. A total of $13
was amortized to general and administrative expenses for the year ended
December 31, 1998. As of December 31, 1999 OpenTV had unamortized deferred
share compensation of $9,400 which amounts are expected to be fully amortized
over the next 15 quarters.
Share Purchase Plan
In November 1999, the shareholders of OpenTV approved the OpenTV Inc. 1999
Employee Share Purchase Plan. OpenTV has reserved 620,000 Class A Ordinary
Shares for issuance pursuant to the purchase rights granted under the purchase
plan, subject to annual increases. The first offering under the purchase plan
began on November 23, 1999 and will terminate on June 30, 2000.
Note 8. 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
F-16
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
("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 $70, $115 and $125 for the
years ended December 31, 1997, 1998 and 1999, respectively.
Note 9. Income Taxes:
OpenTV did not provide any current or deferred income tax provision or
benefit for any of the periods presented since it has incurred operating
losses since inception.
The components of the net deferred tax asset as of December 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Current assets:
Deferred revenue...................................... $ 430 $ 720
Accrued revenue....................................... 357 330
Valuation allowance................................... (787) (1,050)
------- --------
$ -- $ --
======= ========
Non-current assets:
Equity compensation................................... $ -- $ 2,794
Depreciation and amortization......................... -- 242
Net operating loss carryforwards...................... 4,053 8,446
Credit carryforwards.................................. 135 720
Valuation allowance................................... (4,188) (12,202)
------- --------
$ -- $ --
======= ========
</TABLE>
OpenTV has provided a full valuation allowance on deferred tax assets
because of the limited operating history of OpenTV and uncertainty regarding
realizability of the deferred tax assets.
At December 31, 1999 OpenTV had approximately $22,500 and $9,600,
respectively, of federal and state net operating losses to reduce future
taxable income. These carryforwards expire between 2018 and 2019 for federal
tax purposes and 2003 and 2004 for state 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 event of certain changes in ownership as defined by federal
and state tax law.
F-17
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
Note 10. Related Party Transactions:
Related party transactions are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
Related Party Nature of Transaction 1997 1998 1999
------------- --------------------- ---- ---- ----
<C> <S> <C> <C> <C>
Sun Microsystems........ Consulting expense $398 $15 $--
Facilities rent expense 123 -- --
Software technology license and
equipment purchases -- 477 723
Interest expense on notes payable -- 7 8
Thomson Consumer
Electronics, Inc........ General and administrative expense
reimbursement 398 -- --
Royalties, license fees and service
revenue 334 205 465
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,
-----------
1998 1999
------ ----
<S> <C> <C>
Related parties receivable
MIH Limited................................................... $ -- $396
Related parties payable
Thomson Consumer Electronics, Inc............................. $ 26 $--
Sun Microsystems.............................................. 7 --
MIH Limited................................................... 304 606
------ ----
$ 337 $606
====== ====
Convertible notes payable to stockholders
MIH Limited................................................... $3,114 $--
Thomson Consumer Electronics, Inc............................. 3,114 --
Sun Microsystems.............................................. 772 --
------ ----
$7,000 $--
====== ====
</TABLE>
The convertible notes bore interest at 5% per annum. In March 1999, the
notes and accrued interest were converted into 2,973,917 Class A Ordinary
Shares at $2.40 per share.
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
F-18
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
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 11. Segment Information:
OpenTV currently has only one segment because there is only one measurement
of profitability for its operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenue by country:
France.......................................... $ 2,907 $ 2,915 $ 2,853
Italy........................................... 213 483 1,473
South Africa.................................... 188 660 1,321
Spain........................................... 43 66 1,994
Taiwan.......................................... 221 606 1,920
United Kingdom.................................. 1,361 2,333 10,476
United States................................... 246 1,039 1,714
Other foreign countries......................... 1,780 1,366 4,200
------- ------- -------
$ 6,959 $ 9,468 $25,951
======= ======= =======
</TABLE>
Revenues are attributed to countries based on the location of customers.
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Property and equipment, net:
United States............................................... $3,131 $4,548
Other foreign countries..................................... 250 477
------ ------
$3,381 $5,025
====== ======
</TABLE>
Major customers by period are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
Customer 1997 1998 1999
-------- ---- ---- ----
<S> <C> <C> <C>
A 35% 16% --
B -- 14% --
C -- -- 12%
</TABLE>
As of December 31, 1998 and 1999, one customer accounted for 16% of
accounts receivable and two customers accounted for 20% of accounts
receivable, respectively.
Note 12. Subsequent Events:
Echostar Joint Venture
On February 22, 2000, OpenTV entered into an agreement with EchoStar
Communications Corporation ("ECC"), EchoStar Satellite Corporation and
EchoStar Technologies Corporation (collectively "EchoStar") to develop a low-
cost, hard-drive set-top box for the mass TV-viewing market in the United
States. EchoStar
F-19
<PAGE>
OPENTV CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands of US dollars, except share and per share amounts)
contributed to a newly formed subsidiary of ECC ("OpenStar") a non-exclusive,
perpetual, royalty-free worldwide license to all of EchoStar's existing
intellectual property which enables hard drive functionality in a satellite
receiver. Immediately following the formation of OpenStar, OpenTV purchased
50% of the OpenStar shares from ECC, in exchange for 2,252,252 shares of
OpenTV Class A Ordinary Shares and contribution of a non-exclusive perpetual
royalty free worldwide license to certain OpenTV intellectual property to
OpenStar. The shares have been placed in an escrow account until certain
milestones relating to the deployment of OpenTV-enabled set-top boxes have
been met by EchoStar. These shares will revert back to OpenTV if these
milestones have not been met by Echostar within three years of the date of the
agreement.
Spyglass Acquisition
On March 26, 2000, OpenTV and Spyglass, Inc. ("Spyglass") signed a
definitive merger agreement. Under the merger agreement, OpenTV will acquire
all of Spyglass' outstanding stock in a stock-for-stock transaction. Spyglass
stockholders will receive 0.7236 of an OpenTV Class A Ordinary Share in
exchange for each share of Spyglass common stock. The merger agreement, which
has been unanimously approved by the Boards of Directors of both companies, is
subject to certain customary closing conditions, including regulatory
approvals and the approval by the stockholders of both companies.
Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). This
Interpretation clarifies the definition of employee for purposes of applying
Accounting Practice Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25'), the criteria for determining whether a plan qualifies as
a noncompensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for
an exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. Management believes that FIN 44 will not have a
material effect on the financial position or results of operations of the
Company.
F-20
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION
BY AND AMONG
OPENTV CORP.,
SONNET ACQUISITION CORP.
AND
SPYGLASS, INC.
Dated as of March 26, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I THE MERGER...................................................... A-2
1.1 The Merger....................................................... A-2
1.2 Effective Time; Closing.......................................... A-2
1.3 Effect of the Merger............................................. A-2
1.4 Certificate of Incorporation; Bylaws............................. A-2
1.5 Directors and Officers........................................... A-2
1.6 Effect on Capital Stock.......................................... A-2
1.7 Surrender of Certificates........................................ A-3
1.8 No Further Ownership Rights in Company Common Stock.............. A-5
1.9 Lost, Stolen or Destroyed Certificates........................... A-5
1.10 Tax Consequences................................................. A-5
1.11 Taking of Necessary Action; Further Action....................... A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY...................... A-6
2.1 Organization and Qualification; Subsidiaries..................... A-6
2.2 Certificate of Incorporation and Bylaws.......................... A-6
2.3 Capitalization................................................... A-6
2.4 Authority Relative to this Agreement............................. A-8
2.5 No Conflict; Required Filings and Consents....................... A-8
2.6 Compliance; Permits.............................................. A-8
2.7 SEC Filings; Financial Statements................................ A-9
2.8 No Undisclosed Liabilities....................................... A-9
2.9 Absence of Certain Changes or Events............................. A-9
2.10 Absence of Litigation............................................ A-10
2.11 Employee Benefit Plans........................................... A-10
2.12 Labor Matters.................................................... A-12
2.13 Registration Statement/Joint Proxy Statement/Prospectus.......... A-12
2.14 Restrictions on Business Activities.............................. A-13
2.15 Title to Property................................................ A-13
2.16 Taxes............................................................ A-13
2.17 Environmental Matters............................................ A-14
2.18 Brokers.......................................................... A-15
2.19 Intellectual Property............................................ A-15
2.20 Agreements, Contracts and Commitments............................ A-18
2.21 Insurance........................................................ A-19
2.22 Opinion of Financial Advisor..................................... A-19
2.23 Board Approval................................................... A-19
2.24 Vote Required.................................................... A-19
2.25 State Takeover Statutes.......................................... A-19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....... A-20
3.1 Organization and Qualification; Subsidiaries..................... A-20
3.2 Certificate of Incorporation and Bylaws.......................... A-20
3.3 Capitalization................................................... A-20
3.4 Authority Relative to this Agreement............................. A-21
3.5 No Conflict; Required Filings and Consents....................... A-21
3.6 SEC Filings; Financial Statements................................ A-21
3.7 No Undisclosed Liabilities....................................... A-22
3.8 Absence of Certain Changes or Events............................. A-22
3.9 Absence of Litigation............................................ A-22
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
3.10 Tax Matters.................................................... A-22
3.11 Registration Statement; Joint Proxy Statement/Prospectus....... A-23
3.12 Brokers........................................................ A-23
3.13 Opinion of Financial Advisor................................... A-23
3.14 Board Approval................................................. A-23
3.15 Vote Required.................................................. A-23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................... A-23
4.1 Conduct of Business by Company................................. A-23
4.2 Conduct of Business by Parent.................................. A-26
ARTICLE V ADDITIONAL AGREEMENTS......................................... A-26
5.1 Joint Proxy Statement/Prospectus; Registration Statement....... A-26
5.2 Stockholder Meetings........................................... A-27
5.3 Confidentiality; Access to Information......................... A-27
5.4 No Solicitation................................................ A-28
5.5 Public Disclosure.............................................. A-29
5.6 Reasonable Efforts; Notification............................... A-29
5.7 Third Party Consents........................................... A-30
5.8 Stock Options and Warrants; 401(k) Plan........................ A-30
5.9 Form S-8....................................................... A-31
5.10 Indemnification................................................ A-31
5.11 Nasdaq Listing................................................. A-31
5.12 Affiliates..................................................... A-31
5.13 Regulatory Filings; Reasonable Efforts......................... A-31
5.14 Employee Benefits.............................................. A-32
5.15 Tax Filings.................................................... A-32
ARTICLE VI CONDITIONS TO THE MERGER..................................... A-32
6.1 Conditions to Obligations of Each Party to Effect the Merger... A-32
6.2 Additional Conditions to Obligations of Company................ A-33
Additional Conditions to the Obligations of Parent and Merger
6.3 Sub............................................................ A-33
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................... A-34
7.1 Termination.................................................... A-34
7.2 Notice of Termination; Effect of Termination................... A-35
7.3 Fees and Expenses.............................................. A-35
7.4 Amendment...................................................... A-36
7.5 Extension; Waiver.............................................. A-36
ARTICLE VIII GENERAL PROVISIONS......................................... A-36
8.1 Survival of Representations and Warranties..................... A-36
8.2 Notices........................................................ A-36
8.3 Interpretation; Definitions.................................... A-37
8.4 Counterparts................................................... A-38
8.5 Entire Agreement; Third Party Beneficiaries.................... A-38
8.6 Severability................................................... A-38
8.7 Other Remedies; Specific Performance........................... A-38
8.8 Governing Law.................................................. A-38
8.9 Rules of Construction.......................................... A-38
8.10 Assignment..................................................... A-39
</TABLE>
A-ii
<PAGE>
TABLE OF CONTENTS--(Continued)
INDEX OF EXHIBITS
<TABLE>
<C> <S>
Exhibit A-1 Form of Company Stockholder Agreement
Exhibit A-2 Form of Parent Stockholder Agreement
Exhibit B Form of Stockholder Lock-Up Agreement
Exhibit C Form of Affiliate Agreement
Exhibit D Form of Company Tax Representation Letter
Exhibit E Form of Parent Tax Representation Letter
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of March 26, 2000, among OpenTV Corp., a British Virgin Islands
corporation ("Parent"), Sonnet Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Spyglass, Inc., a
Delaware corporation ("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("Delaware Law"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of,
Company and its stockholders, (ii) has approved and declared advisable this
Agreement, and has approved the Merger (as defined in Section 1.1) and the
other transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Company adopt and approve this Agreement
and approve the Merger.
C. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of
Parent and is fair to, and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Parent approve the issuance of shares of
Parent Common Stock (as defined below) pursuant to the Merger (the "Share
Issuance").
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, Douglas
P. Colbeth, Daryl J. Dahlberg, Martin J. Leamy, Randall T. Littleson, John S.
Pigott, Gary L. Vilchick, Charles T. Brumback, Brian J. Jackman, Gerald J.
Popek and John Shackleton, constituting all directors and executive officers
of the Company (the "Key Stockholders"), are entering into stockholder
agreements in the form attached hereto as Exhibit A-1 (the "Company
Stockholder Agreements"); and as a condition and inducement to Company's
willingness to enter into this Agreement, Myriad International Holdings BV is
entering into a stockholder agreement in the form attached hereto as
Exhibit A-2 (the "Parent Stockholder Agreement").
E. Concurrently with the execution of this Agreement and as a condition and
inducement to Parent's willingness to enter into this Agreement, the Key
Stockholders have entered into stock lock-up agreements in the form attached
hereto as Exhibit B (the "Lock-Up Agreements").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
employees are entering into employment agreements (the "Employment
Agreements").
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
H. NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and
into Company (the "Merger"), the separate corporate existence of Merger Sub
shall cease and Company shall continue as the surviving corporation. Company
as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "Certificate of
Merger") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger)
being the "Effective Time") as soon as practicable on the Closing Date (as
herein defined). Unless the context otherwise requires, the term "Agreement"
as used herein refers collectively to this Agreement and Plan of Merger and
Reorganization and the Certificate of Merger. The closing of the Merger (the
"Closing") shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, 650 Page Mill Road, California, at a time
and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set
forth in Article VI, or at such other time, date and location as the parties
hereto agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers
and franchises of Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation of the Surviving
Corporation; provided, however, that at the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended so that the name
of the Surviving Corporation shall be "Spyglass, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or
appointed and qualified. The initial officers of the Surviving Corporation
shall be the officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the
following securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock, $0.01
par value per share, of Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b), will be
canceled and extinguished and automatically converted (subject to Sections
1.6(e) and (f)) into the right to receive that number of Class A Ordinary
Shares, $0.01 par value per share, of Parent (the "Parent Common Stock") equal
to 0.7236 (the "Exchange Ratio"). Certificates evidencing such shares of
Parent Common Stock shall be issued
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upon surrender of the certificate representing such share of Company Common
Stock in the manner provided in Section 1.7 (or in the case of a lost, stolen
or destroyed certificate, upon delivery of an affidavit (and bond, if
required) in the manner provided in Section 1.9). If any shares of Company
Common Stock outstanding immediately prior to the Effective Time are unvested
or are subject to a repurchase option, risk of forfeiture or other condition
under any applicable restricted stock purchase agreement or other agreement
with the Company, then the shares of Parent Common Stock issued in exchange
for such shares of Company Common Stock will also be unvested and subject to
the same repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of Parent Common Stock may accordingly
be marked with appropriate legends. The Company shall take all action that may
be necessary to ensure that, from and after the Effective Time, Parent is
entitled to exercise any such repurchase option or other right set forth in
any such restricted stock purchase agreement or other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common Stock
held by Company or owned by Merger Sub, Parent or any direct or indirect
wholly-owned subsidiary of Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plan. At the Effective Time, all
options to purchase Company Common Stock and stock appreciation rights then
outstanding under Company's 1995 Stock Incentive Plan, as amended (the
"Incentive Plan"), Company's 1991 Stock Option Plan (the "Option Plan"),
Company's 1995 Director Stock Option Plan (the "Director Plan" and, together
with the Option Plan and the Incentive Plan, the "Company Option Plans"), all
outstanding warrants and each of the Company Option Plans shall be assumed by
Parent in accordance with Section 5.8 hereof. Rights outstanding under the
Company's 1995 Employee Stock Purchase Plan (the "ESPP") shall terminate in
accordance with the terms of such Plan prior to Closing.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $0.01 par
value per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, $0.01
par value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of
such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect appropriately the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to Parent
Common Stock or Company Common Stock occurring on or after the date hereof and
prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of shares
of Company Common Stock who would otherwise be entitled to a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) shall,
upon surrender of such holder's Certificates(s) (as defined in Section 1.7(c))
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by
(ii) the average closing price of Parent Common Stock for the five trading
days immediately preceding the last full trading day prior to the Effective
Time, as reported on the Nasdaq National Market System ("Nasdaq").
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company reasonably
acceptable to Company to act as the exchange agent (the "Exchange Agent") in
the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time (and
in any event within ten business days), Parent shall make available to the
Exchange Agent for exchange in accordance with this Article I,
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the shares of Parent Common Stock issuable pursuant to Section 1.6 in exchange
for outstanding shares of Company Common Stock and cash in an amount
sufficient for payment in lieu of fractional shares pursuant to Section 1.6(f)
and any dividends or distributions to which holders of shares of Company
Common Stock may be entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "Certificates"),
which immediately prior to the Effective Time represented outstanding shares
of Company Common Stock whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.6, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.7(d), (i) a letter of transmittal in
customary form (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall contain such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d). Upon surrender of Certificates for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holders of such Certificates shall be
entitled to receive in exchange therefor certificates representing the number
of whole shares of Parent Common Stock into which their shares of Company
Common Stock were converted at the Effective Time, payment in lieu of
fractional shares which such holders have the right to receive pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to
the payment of dividends, to evidence only the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect
to Parent Common Stock with a record date after the Effective Time will be
paid to the holders of any unsurrendered Certificates with respect to the
shares of Parent Common Stock represented thereby until the holders of record
of such Certificates shall surrender such Certificates. Subject to applicable
law, following surrender of any such Certificates, the Exchange Agent shall
deliver to the record holders thereof, without interest, certificates
representing whole shares of Parent Common Stock issued in exchange therefor
along with payment in lieu of fractional shares pursuant to Section 1.6(f)
hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates surrendered,
or established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to
any holder or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law or under any other applicable
legal requirement. To the extent such amounts are so deducted or withheld,
such amounts
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shall be treated for all purposes under this Agreement as having been paid to
the person to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (together with
any cash paid in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of
Company Common Stock represented by such Certificates were converted pursuant
to Section 1.6, cash for fractional shares, if any, as may be required
pursuant to Section 1.6(f) and any dividends or distributions payable pursuant
to Section 1.7(d); provided, however, that Parent may, in its discretion and
as a condition precedent to the issuance of such certificates representing
shares of Parent Common Stock, cash and other distributions, require the owner
of such lost, stolen or destroyed Certificates to deliver a bond in such sum
as it may reasonably direct as indemnity against any claim that may be made
against Parent, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of the
Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company and Merger Sub, the current officers and
directors of Company and Merger Sub will, to the extent reasonable, take all
such lawful and necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof, Company represents and warrants to Parent and Merger
Sub as follows, subject to such exceptions as are specifically disclosed in
writing in the disclosure schedule supplied by Company to Parent dated as of
the date hereof (the "Company Schedule"). The Company Schedule shall be
arranged in sections corresponding to the numbered and lettered paragraphs
contained in this Article II and the disclosure in any section of the Company
Schedule shall qualify other paragraphs in this Article II only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraph.
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. Each of Company and its subsidiaries is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders ("Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure
to have such Approvals would not, individually or in the aggregate, be
material to the Company. Each of Company and its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, be material to the Company.
(b) Company has no subsidiaries except for the corporations identified in
Section 2.1(b) of the Company Schedule. Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor be bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or as may hereafter be in effect (a "Contract") under which it
may become obligated to make, any future investment in or capital contribution
to any other entity. Neither Company nor any of its subsidiaries directly or
indirectly owns any equity or similar interest in or any interest convertible,
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business, association or
entity.
2.2 Certificate of Incorporation and Bylaws. Company has previously
furnished to Parent a complete and correct copy of its certificate of
incorporation and bylaws as amended to date (together, the "Company Charter
Documents"). Such Company Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Company is
not in violation of any of the provisions of the Company Charter Documents,
and no subsidiary of Company is in violation of its equivalent organizational
documents.
2.3 Capitalization.
(a) The authorized capital stock of Company consists of 50,000,000 shares
of Company Common Stock and 2,000,000 shares of Preferred Stock ("Company
Preferred Stock"), each having par value $0.01 per share. At the close of
business on March 22, 2000 (i) 17,210,761 shares of Company Common Stock were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable; (ii) 9,714 shares of Company Common Stock were held in treasury
by Company or by subsidiaries of Company; (iii) 2,390,702 shares of Company
Common Stock were reserved for issuance upon the exercise of outstanding
options to purchase Company Common Stock under the Incentive Plan; (iv)
130,000 shares of Company Common Stock were reserved for issuance upon the
exercise of outstanding options to purchase Company Common Stock under the
Option Plan; (v) 120,000 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding
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options to purchase Company Common Stock under the Director Plan; (vi) 27,929
shares of Company Common Stock were reserved for issuance upon the exercise of
other outstanding options to purchase Company Common Stock; (vii) 1,110,929
shares of Company Common Stock were available for future grant under the
Incentive Plan; (viii) no shares of Company Common Stock were available for
future grant under the Option Plan (ix) 35,500 shares of Company Common Stock
were available for future grant under the Director Plan; and (x) 700,000
shares of Company Common Stock were reserved for future issuance upon
conversion of warrants of the Company. As of the date hereof, no shares of
Company Preferred Stock were issued or outstanding. Section 2.3(a) of the
Company Schedule sets forth the following information with respect to each
Company Stock Option (as defined in Section 5.8) outstanding as of the date of
this Agreement: (i) the name of the optionee; (ii) the particular plan
pursuant to which such Company Stock Option was granted; (iii) the number of
shares of Company Common Stock subject to such Company Stock Option; (iv) the
exercise price of such Company Stock Option; (v) the date on which such
Company Stock Option was granted; (vi) the applicable vesting schedule; and
(vii) the date on which such Company Stock Option expires. Company has made
available to Parent accurate and complete copies of all stock option plans
pursuant to which the Company has granted such Company Stock Options that are
currently outstanding and the form of all stock option agreements evidencing
such Company Stock Options. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instrument pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. There are no commitments or
agreements of any character to which the Company is bound obligating the
Company to accelerate the vesting of any Company Stock Option as a result of
the Merger. All outstanding shares of Company Common Stock, all outstanding
Company Stock Options, and all outstanding shares of capital stock of each
subsidiary of the Company have been issued and granted in compliance with (i)
all applicable securities laws and other applicable Legal Requirements (as
defined below) and (ii) all requirements set forth in applicable Contracts.
For the purposes of this Agreement, "Legal Requirements" means any federal,
state, local, municipal, foreign or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issues, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Entity (as defined below) and (ii) all requirements set forth in
applicable contracts, agreements, and instruments.
(b) Except for securities Company owns free and clear of all liens,
pledges, hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restriction of any nature
(including any restriction on the voting of any security, any restriction on
the transfer of any security or other asset, any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset) directly or indirectly through one or more subsidiaries, and except for
shares of capital stock or other similar ownership interests of subsidiaries
of the Company that are owned by certain nominee equity holders as required by
the applicable law of the jurisdiction of organization of such subsidiaries
(which shares or other interests do not materially affect the Company's
control of such subsidiaries), as of the date of this Agreement, there are no
equity securities, partnership interests or similar ownership interests of any
class of equity security of any subsidiary of the Company, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except as set forth in Section 2.3(a), there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Company or any of its
subsidiaries is a party or by which it is bound obligating Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership
interests or similar ownership interests of the Company or any of its
subsidiaries or obligating the Company or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement. As of the date
of this Agreement, except as contemplated by this Agreement, there are no
registration rights and there is, except for the Company Stockholder
Agreements, no voting trust, proxy or rights plan to which the Company or any
of its subsidiaries is a party or by which they are bound with respect to any
equity security of any class of the Company or with respect to any equity
security,
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partnership interest or similar ownership interest of any class of any of its
subsidiaries. Stockholders of the Company will not be entitled to dissenters'
rights under applicable state law in connection with the Merger.
2.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of
the stockholders of Company of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company
and the consummation by Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of Company and no other corporate proceedings on the part of Company are
necessary to authorize this Agreement, or to consummate the transactions so
contemplated (other than, with respect to the Merger, the approval and
adoption of this Agreement by holders of a majority of the outstanding shares
of Company Common Stock in accordance with Delaware Law and the Company
Charter Documents). This Agreement has been duly and validly executed and
delivered by Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, constitutes legal and binding obligations
of Company, enforceable against Company in accordance with its terms.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company shall not, (i) conflict with or
violate the Company Charter Documents or the equivalent organizational
documents of any of Company's subsidiaries, (ii) subject to obtaining the
approval of Company's stockholders of the Merger and compliance with the
requirements set forth in Section 2.5(b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Company or any
of its subsidiaries or by which its or any of their respective properties is
bound or affected, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or impair Company's or any of its subsidiaries' rights or alter the
rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Company or any of its subsidiaries is
a party or by which Company or any of its subsidiaries or its or any of their
respective properties are bound or affected, except to the extent such
conflict, violation, breach, default, impairment or other effect could not in
the case of clauses (ii) or (iii), individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company.
(b) The execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "Governmental Entity"), except (A) for
applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities laws ("Blue Sky Laws"), the pre-merger
notification requirements (the "HSR Approval") of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the rules and
regulations of Nasdaq, and the filing and recordation of the Certificate of
Merger as required by Delaware Law and (B) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have a material adverse effect on the parties'
ability to consummate the Merger or perform their obligations under this
Agreement.
2.6 Compliance; Permits.
(a) Neither Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree (each, a "Law") applicable to Company or any of its subsidiaries or by
which its or any of their respective properties is bound or affected, or (ii)
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Company
or any of its subsidiaries is a party or by which Company or any of its
subsidiaries or its or any of
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their respective properties is bound or affected, except for any conflicts,
defaults or violations that (individually or in the aggregate) would not cause
the Company to lose any material benefit or incur any material liability. No
investigation or review by any governmental or regulatory body or authority is
pending or, to the knowledge of Company, threatened against Company or its
subsidiaries, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, other than, in each such case,
those the outcome of which could not, individually or in the aggregate,
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Company or any of its subsidiaries, any
acquisition of material property by the Company or any of its subsidiaries or
the conduct of business by the Company or any of its subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of Company and its subsidiaries taken as
a whole (collectively, the "Company Permits"). Company and its subsidiaries
are in compliance in all material respects with the terms of the Company
Permits.
2.7 SEC Filings; Financial Statements.
(a) Company has made available to Parent a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Company with the Securities and Exchange Commission ("SEC") after
January 1, 1997 (the "Company SEC Reports"), which are all the forms, reports
and documents required to be filed by Company with the SEC after January 1,
1997. The Company SEC Reports (A) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and filed on a timely basis and (B) did not at the time they were filed (and
if amended or superseded by a filing prior to the date of this Agreement then
on the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of Company's subsidiaries is
required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared
in accordance with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited statements, for
the absence of footnotes as permitted by Form 10-Q of the Exchange Act) and
each fairly presents the consolidated financial position of Company and its
subsidiaries at the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal
adjustments which were not or are not expected to be material in amount.
(c) Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant
to the Securities Act or the Exchange Act.
2.8 No Undisclosed Liabilities. Neither Company nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Company and its subsidiaries taken as a
whole, except (i) liabilities provided for in Company's balance sheet as of
December 31, 1999, (ii) liabilities incurred since December 31, 1999 in the
ordinary course of business, and in amounts consistent with past practice, and
(iii) contractual and other liabilities incurred in the ordinary course of
business which are not required by GAAP to be reflected on a balance sheet.
2.9 Absence of Certain Changes or Events. Since December 31, 1999, there
has not been: (i) any Material Adverse Effect on Company, (ii) any
declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of
Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by Company of any of Company's capital stock
or any other securities of Company or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares
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or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or
purchase agreements, (iii) any split, combination or reclassification of any
of Company's or any of its subsidiaries' capital stock, (iv) any granting by
Company or any of its subsidiaries of any increase in compensation or fringe
benefits, except for normal increases of cash compensation to non-officer
employees in the ordinary course of business consistent with past practice, or
any payment by Company or any of its subsidiaries of any bonus, except for
bonuses made to non-officer employees in the ordinary course of business
consistent with past practice, or any granting by Company or any of its
subsidiaries of any increase in severance or termination pay or any entry by
Company or any of its subsidiaries into any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent or the terms of which are materially altered
upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
licensing or other agreement with regard to the acquisition or disposition of
any Intellectual Property (as defined in Section 2.19) other than licenses in
the ordinary course of business consistent with past practice or any amendment
or consent with respect to any licensing agreement filed or required to be
filed by Company with the SEC, (vi) any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any revaluation by Company of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable or any sale of assets of the
Company other than in the ordinary course of business.
2.10 Absence of Litigation. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Company, threatened (or, to the
knowledge of Company, any governmental or regulatory investigation pending or
threatened) against Company or any of its subsidiaries or any properties or
rights of Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, except for any claims, actions, suits or proceedings which seek
damages of less than $250,000, do not seek injunctive relief, and do not
challenge or seek to prevent or delay the transactions contemplated by this
Agreement.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set
forth in a written document and including, without limitation, all "employee
benefit plans" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) covering any active, former
employee, director or consultant of Company, any subsidiary of Company or any
trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (an "Affiliate"), or with respect to which
Company has or may in the future have liability, and a list of all visas and
work permits for Company employees, including the expiration dates thereof,
are listed in Section 2.11(a) of the Company Schedule (the "Plans"). Company
has provided or made available to Parent: (i) correct and complete copies of
all documents embodying each Plan, International Plan (as defined below) and
management, employment, severance, consulting, relocation, repatriation,
expatriation or other agreement, contract or material understanding between
Company and any Employee ("Employment Agreement"), including (without
limitation) all amendments thereto, all related trust documents, and all
material written agreements and contracts relating to each such Plan; (ii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the
Code in connection with each Plan; (iii) the most recent summary plan
description together with the summary(ies) of material modifications thereto,
if any, required under ERISA with respect to each Plan; (iv) all IRS or DOL
determination, opinion, notification and advisory letters; (v) all material
correspondence to or from any governmental agency relating to any Plan;
(vi) all COBRA forms and related notices; (vii) all discrimination tests for
each Plan for the most recent three (3) plan years; (viii) the most recent
annual actuarial valuations, if any, prepared for each Plan; (ix) if the Plan
is funded, the most recent annual and periodic accounting of Plan assets; (x)
all material written agreements and contracts relating to each Plan,
including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (xi) all material
communications to employees or former employees regarding in
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each case, relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability under any Plan or
proposed Plan; (xii) all policies pertaining to fiduciary liability insurance
covering the fiduciaries for each Plan; and (xiii) all registration
statements, annual reports (Form 11-K and all attachments thereto) and
prospectuses prepared in connection with any Plan.
(b) Company has performed in all material respects all obligations required
to be performed by it under, is not in default or violation of, and has no
knowledge of any material default or violation by any other party to, each
Plan, and each Plan has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations (foreign or domestic),
including but not limited to ERISA and the Code, which are applicable to such
Plans. No suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought, or to
the knowledge of Company is threatened, against or with respect to any such
Plan. There are no audits, inquiries or proceedings pending or, to the
knowledge of Company, threatened by the Internal Revenue Service (the "IRS")
or Department of Labor (the "DOL") with respect to any Plans. All
contributions, reserves or premium payments required to be made or accrued as
of the date hereof to the Plans have been timely made or accrued. Any Plan
intended to be qualified under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code (i) has either obtained a
favorable determination, notification, advisory and/or opinion letter, as
applicable, as to its qualified status from the IRS or still has a remaining
period of time under applicable Treasury Regulations or IRS pronouncements in
which to apply for such letter and to make any amendments necessary to obtain
a favorable determination, and (ii) incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation. Company does not have any plan or commitment to
establish any new Plan, to modify any Plan (except to the extent required by
law or to conform any such Plan to the requirements of any applicable law, in
each case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any new Plan. Each Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to Parent, Company or any of its Affiliates
(other than ordinary administration expenses and liabilities for benefits
accrued but not yet paid).
(c) Neither Company, any of its subsidiaries, nor any of their Affiliates
has at any time ever maintained, established, sponsored, participated in, or
contributed to any plan subject to Title IV of ERISA or Section 412 of the
Code and at no time has Company or any of its subsidiaries contributed to or
been requested to contribute to any "multiemployer plan," as such term is
defined in ERISA or to any plan described in Section 413(c) of the Code.
Neither Company, any of its subsidiaries, nor any officer or director of
Company or any of its subsidiaries is subject to any liability or penalty
under Section 4975 through 4980B of the Code or Title I of ERISA. There are no
audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the IRS or DOL with respect to any Plan. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406
and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Plan.
(d) Neither Company, any of its subsidiaries, nor any of their Affiliates
has, prior to the Effective Time and in any material respect, violated any of
the health continuation requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), the requirements of the
Family Medical Leave Act of 1993, as amended, the requirements of the Women's
Health and Cancer Rights Act, as amended, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, as amended, or any similar
provisions of state law applicable to employees of the Company or any of its
subsidiaries. None of the Plans promises or provides retiree medical or other
retiree welfare benefits to any person except as required by applicable law,
and neither Company nor any of its subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits
to any employee, former employee, director, consultant or other person, except
to the extent required by statute.
(e) Neither Company nor any of its Affiliates is bound by or subject to
(and none of its respective assets or properties is bound by or subject to)
any arrangement with any labor union. No employee of Company or any of
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its Affiliates is represented by any labor union or covered by any collective
bargaining agreement, and to the knowledge of Company, no campaign to
establish such representation is in progress. There is no pending or, to the
knowledge of Company, threatened labor dispute involving Company or any of its
Affiliates and any group of its employees nor has Company or any of its
Affiliates experienced any labor interruptions over the past three (3) years,
and Company and its Affiliates consider their relationships with their
employees to be good. The Company and its Affiliates are in compliance in all
material respects with all applicable material foreign, federal, state and
local laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours.
(f) Except as disclosed in Schedule 2.11(f) of the Company Schedule,
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby will (either alone or upon the occurrence
of any additional or subsequent events) (i) constitute an event under any
Company Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee; or (ii) result in
any payment or benefit which will or may be made by the Company or its
Affiliates with respect to any employee will be characterized as a "parachute
payment", within the meaning of Section 280G(b)(2) of the Code.
(g) Each International Employee Plan (as defined below) has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory
or regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities that, as
of the Effective Time, will not be offset by insurance or fully accrued.
Except as required by law, no condition exists that would prevent the Company
or Parent from terminating or amending any International Employee Plan at any
time for any reason without liability to the Company, Parent or any of their
respective Affiliates. For purposes of this Section "International Employee
Plan" shall mean each Plan that has been adopted or maintained by the Company
or any of its Affiliates, whether informally or formally, or with respect to
which the Company or any Affiliate will or may have any liability, for the
benefit of employees outside the United States.
2.12 Labor Matters. (i) There are no material controversies pending or, to
the knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees; (ii) as of the date of this Agreement, neither Company nor any of
its subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by Company or its
subsidiaries nor does Company or its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees; and (iii) as of
the date of this Agreement, neither Company nor any of its subsidiaries has
any knowledge of any strikes, slowdowns, work stoppages or lockouts, or
threats thereof, by or with respect to any employees of Company or any of its
subsidiaries. The Company and its subsidiaries are in compliance in all
material respects with all applicable material foreign, federal, state and
local laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours.
2.13 Registration Statement/Joint Proxy Statement/Prospectus. None of the
information supplied or to be supplied by Company for inclusion or
incorporation by reference in (i) the registration statement on Form F-4 to be
filed with the SEC by Parent in connection with the issuance of the Parent
Common Stock in or as a result of the Merger (the "F-4") will, at the time the
F-4 becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the joint
proxy statement/prospectus to be filed with the SEC by Company pursuant to
Section 5.1 hereof (the "Joint Proxy Statement/Prospectus") will, at the dates
mailed to the stockholders of Company, at the times of the stockholders
meeting of Company (the "Company Stockholders' Meeting") in connection with
the transactions contemplated hereby, at the dates mailed to the stockholders
of Parent, at the times of the stockholders' meeting of Parent (the "Parent
Stockholders' Meeting") in connection with the Share Issuance and as of the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in any of the
foregoing documents.
2.14 Restrictions on Business Activities There is no agreement, commitment,
judgment, injunction, order or decree binding upon Company or its subsidiaries
or to which the Company or any of its subsidiaries is a party which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Company or any of its subsidiaries, any
acquisition of property by Company or any of its subsidiaries or the conduct
of business by Company or any of its subsidiaries as currently conducted.
2.15 Title to Property. Neither Company nor any of its subsidiaries owns
any material real property. Company and each of its subsidiaries have good and
defensible title to all of their material properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby; and all leases pursuant to which Company or any
of its subsidiaries lease from others material real or personal property are
in good standing, valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material
default or event of default (or any event which with notice or lapse of time,
or both, would constitute a material default and in respect of which Company
or subsidiary has not taken adequate steps to prevent such default from
occurring). All the plants, structures and equipment of Company and its
subsidiaries, except such as may be under construction, are in good operating
condition and repair, in all material respects.
2.16 Taxes
(a) For the purposes of this Agreement, "Tax" or "Taxes" refers to any and
all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts and any obligations under any agreements or arrangements with any
other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) (i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements
and reports ("Returns") relating to Taxes required to be filed by the Company
and each of its subsidiaries with any Tax authority, except such Returns which
are not material to the Company. The Company and each of its subsidiaries have
paid all Taxes shown to be due on such Returns.
(ii) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes
pursuant to the Federal Unemployment Tax Act and other Taxes required to be
withheld, except such Taxes which are not material to the Company.
(iii) Neither the Company nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) To the knowledge of Company, no audit or other examination of any
Return of the Company or any of its subsidiaries by any Tax authority is
presently in progress. Neither the Company nor any of its subsidiaries has
been notified of any request for such an audit or other examination.
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(v) No adjustment relating to any Returns filed by the Company or any of
its subsidiaries has been proposed in writing formally or informally by any
Tax authority to the Company or any of its subsidiaries or any representative
thereof.
(vi) Neither the Company nor any of its subsidiaries has any liability for
any material unpaid Taxes which has not been accrued for or reserved on the
Company balance sheet dated September 30, 1999 in accordance with GAAP,
whether asserted or unasserted, contingent or otherwise, which is material to
the Company, other than any liability for unpaid Taxes that may have accrued
since September 30, 1999 in connection with the operation of the business of
the Company and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which the
Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be expected
to give rise to the payment of any amount that would not be deductible
pursuant to Sections 280G, 404 or 162(m) of the Code. There is no contract,
agreement, plan or arrangement to which the Company or any of its subsidiaries
is a party or by which it is bound to compensate any individual for excise
taxes paid pursuant to Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
subsidiaries.
(ix) Neither Company nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement or
arrangement.
(x) None of Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xi) Company has not distributed the stock of any corporation in a
transaction satisfying the requirements of Section 355 of the Code. No Company
stock has been distributed in a transaction satisfying the requirements of
Section 355 of the Code.
(c) To Company's knowledge, Parent satisfies the substantiality test
contained in Treasury Regulation Section 1.367(a)-3(c)(3).
2.17 Environmental Matters. Company (i) has obtained all applicable
permits, licenses and other authorizations that are required under
Environmental Laws the absence of which would have a Material Adverse Effect
on Company; (ii) is in compliance in all material respects with all material
terms and conditions of such required permits, licenses and authorizations,
and also is in compliance in all material respects with all other material
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in
any regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder; and (iii) as of the date
hereof, has no knowledge of and has not received notice of any event,
condition, circumstance, activity, practice, incident, action or plan that is
reasonably likely to interfere with or prevent continued compliance or that
would give rise to any common law or statutory liability, or otherwise form
the basis of any Environmental Claim with respect to Company or any person or
entity whose liability for any Environmental Claim Company has retained or
assumed either contractually or by operation of law, except to the extent such
non-compliance, liability or Environmental Claim could not reasonably be
expected to have a Material Adverse Effect on Company. No Hazardous Materials
are present in, on or under any properties owned, leased or used at any time
(including both land and improvements thereon) by Company, so as to give rise
to any liability or corrective or remedial obligation under any Environmental
Laws. For the purposes of this Section 2.17, "Environmental Claim" means any
notice, claim, act, cause of action or investigation by any person alleging
potential liability (including potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages,
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property damages, personal injuries or penalties) arising out of, based on or
resulting from (i) the presence, or release into the environment, of any
Hazardous Materials or (ii) any violation, or alleged violation, of any
Environmental Laws. "Environmental Laws" means all Federal, state, local and
foreign laws and regulations relating to pollution of the environment
(including ambient air, surface water, ground water, land surface or
subsurface strata) or the protection of human health and worker safety,
including, without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
"Hazardous Materials" means chemicals, pollutants, contaminants, wastes, toxic
substances, radioactive and biological materials, asbestos-containing
materials, hazardous substances, petroleum and petroleum products or any
fraction thereof, excluding, however, Hazardous Materials contained in
products typically used for office and janitorial purposes properly and safely
maintained in accordance with Environmental Laws.
2.18 Brokers. Except for fees payable to FleetBoston Robertson Stephens
pursuant to an engagement letter dated March 6, 2000, a copy of which has been
provided to Parent (the "Engagement Letter"), Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby
2.19 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States
and foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof ("Patents"); (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all copyrights,
copyright registrations and applications therefor and all other rights
corresponding thereto throughout the world; (iv) all semiconductor and
semiconductor circuit designs; (v) all rights to all mask works and
reticles, mask work registrations and applications therefor; (vi) all
industrial designs and any registrations and applications therefor
throughout the world; (vii) all trade names, logos, common law trademarks
and service marks; trademark and service mark registrations and
applications therefor and all goodwill associated therewith throughout the
world; (viii) all databases and data collections and all rights therein
throughout the world; (ix) all computer software including all source code,
object code, firmware, development tools, files, records and data, all
media on which any of the foregoing is recorded, all Web addresses, sites
and domain names; (x) any similar, corresponding or equivalent rights to
any of the foregoing; and (xi) all documentation related to any of the
foregoing.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by or exclusively licensed to the Company or any of its
subsidiaries. Without in any way limiting the generality of the foregoing,
Company Intellectual Property includes all Intellectual Property owned or
exclusively licensed to the Company related to the Company's products,
including without limitation all rights in any design code, documentation,
and tooling for packaging of semiconductors in connection with all current
products and products in design and development.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work registrations
and applications to register mask works; and (v) any other Company
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded
by, any state, government or other public legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any
of its subsidiaries.
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(a) Section 2.19(a) of the Company Schedule is a complete and accurate list
of all Company Registered Intellectual Property and specifies, where
applicable, the jurisdictions in which each such item of Company Registered
Intellectual Property has been issued or registered and lists any proceedings
or actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property.
(b) Section 2.19(b) of the Company Schedule is a complete and accurate list
(by name and version number) of all software products offerings of the Company
or any of its current subsidiaries ("Company Products") that have been
distributed or provided in the three (3)-year period preceding the date hereof
or which the Company or any of its subsidiaries intends to distribute or
provide in the future, including any products or service offerings under
development.
(c) No Company Intellectual Property or Company Product is subject to any
proceeding or outstanding decree, order, judgment, contract, license,
agreement, or stipulation restricting in any manner the use (in accordance
with Company's current practices), transfer, or licensing thereof by Company
or any of its subsidiaries, or which may adversely affect the validity, use
(in accordance with Company's current practices) or enforceability of such
Company Intellectual Property or Company Product.
(d) Each material item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes
of maintaining such Company Registered Intellectual Property.
(e) Company owns and has good and exclusive title to, or exclusively
licenses, each material item of Company Intellectual Property free and clear
of any lien or encumbrance (excluding non-exclusive licenses and related
restrictions granted in the ordinary course). Without limiting the foregoing:
(i) Company is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of Company and its
subsidiaries, including the sale, distribution or provision of any Company
Products by Company or its subsidiaries; (ii) Company owns exclusively, and
has good title to, all copyrighted works that are Company Products or which
Company or any of its subsidiaries otherwise purports to own; and (iii) to the
extent that any Patents would be infringed by any Company Products, Company is
the exclusive owner of such Patents.
(f) To the extent that any material technology, software or Intellectual
Property has been developed or created independently or jointly by a third
party for Company or any of its subsidiaries or is incorporated into any of
the Company Products, Company has a written agreement with such third party
with respect thereto and Company thereby either (i) has obtained ownership of,
and is the exclusive owner of, or (ii) has obtained a perpetual, non-
terminable (except for breach) license (sufficient for the conduct of its
business as currently conducted and as proposed to be conducted) to all such
third party's Intellectual Property in such work, material or invention by
operation of law or by valid assignment.
(g) Neither Company nor any of its subsidiaries has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material Company Intellectual Property, to any third
party, or permitted Company's rights in such material Company Intellectual
Property to lapse or enter the public domain.
(h) Section 2.19(h) of the Company Schedule lists all material contracts,
licenses and agreements to which Company or any of its subsidiaries is a
party: (i) with respect to Company Intellectual Property licensed or
transferred to any third party (other than end-user licenses in the ordinary
course); or (ii) pursuant to which a third party has licensed or transferred
any material Intellectual Property to Company.
(i) All contracts, licenses and agreements relating to either (i) Company
Intellectual Property (other than end-user licenses in the ordinary course) or
(ii) Intellectual Property of a third party licensed to Company or any
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of its subsidiaries, are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result in
the breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements. Each of Company and its subsidiaries is in
material compliance with, and has not materially breached any term of any such
contracts, licenses and agreements and, to the knowledge of Company, all other
parties to such contracts, licenses and agreements are in compliance with, and
have not materially breached any term of, such contracts, licenses and
agreements. Following the Closing Date, the Surviving Corporation will be
permitted to exercise all of Company's rights under such contracts, licenses
and agreements to the same extent Company and its subsidiaries would have been
able to had the transactions contemplated by this Agreement not occurred and
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which Company would otherwise be required
to pay. Neither this Agreement nor the transactions contemplated by this
Agreement will (as a result of agreements or commitments to which Company or a
subsidiary is a party) result in (i) either Parent's or the Merger Sub's
granting to any third party any right to or with respect to any material
Intellectual Property right owned by, or licensed to, either of them, (ii)
either the Parent's or the Merger Sub's being bound by, or subject to, any
non-compete or other material restriction on the operation or scope of their
respective businesses, or (iii) either the Parent's or the Merger Sub's being
obligated to pay any royalties or other material amounts to any third party in
excess of those payable by Parent or Merger Sub, respectively, prior to the
Closing.
(j) The operation of the business of the Company and its subsidiaries as
such business currently is conducted, including (i) Company's and its
subsidiaries' design, development, manufacture, distribution, reproduction,
marketing or sale of the products or services of Company and its subsidiaries
(including Company Products) and (ii) the Company's use of any product, device
or process, has not, does not infringe or misappropriate the Intellectual
Property of any third party or constitute unfair competition or trade
practices under the laws of any jurisdiction.
(k) Neither Company nor any of its subsidiaries has received notice from
any third party that the operation of the business of Company or any of its
subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the
laws of any jurisdiction.
(l) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(m) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade secrets
or confidential information of third parties provided to Company or any of its
subsidiaries, and, without limiting the foregoing, each of Company and its
subsidiaries has and enforces a policy requiring each employee and contractor
to execute a proprietary information/confidentiality agreement substantially
in the form provided to Parent and all current and former employees and
contractors of Company and any of its subsidiaries have executed such an
agreement, except where the failure to do so is not reasonably expected to be
material to Company.
(n) All of the Company Products (i) will record, store, process, calculate
and present calendar dates falling on and after (and if applicable, spans of
time including) January 1, 2000, and will calculate any information dependent
on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999,
or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant") and (ii) will lose no functionality with
respect to the introduction of records containing dates falling on or after
January 1, 2000. All of the Company's or its subsidiaries' Information
Technology (as defined below) is Year 2000 Compliant in all material respects,
and will not cause an interruption in the ongoing operations of the Company's
or any of its subsidiaries' business on or after January 1, 2000. For purposes
of the foregoing, the term "Information Technology" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or
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services (other than general utility services including gas, electric,
telephone and postal) that are owned or used by the Company or any of its
subsidiaries in the conduct of their business, or purchased by the Company or
any of its subsidiaries from third-party suppliers.
2.20 Agreements, Contracts and Commitments. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with any
officer or director or higher level employee or member of Company's Board of
Directors, other than those that are terminable by Company or any of its
subsidiaries on no more than thirty (30) days' notice without liability or
financial obligation to the Company;
(b) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will
be accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or
license of software products or services in the ordinary course of business;
(d) any agreement, contract or commitment containing any covenant limiting
in any respect the right of Company or any of its subsidiaries to engage in
any line of business or to compete with any person or granting any exclusive
distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Company or any of its subsidiaries after the
date of this Agreement of a material amount of assets not in the ordinary
course of business or pursuant to which Company or any of its subsidiaries has
any material ownership interest in any corporation, partnership, joint venture
or other business enterprise other than Company's subsidiaries;
(f) any dealer, distributor, joint marketing or development agreement
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety
(90) days or less, or any material agreement pursuant to which Company or any
of its subsidiaries have continuing material obligations to jointly develop
any intellectual property that will not be owned, in whole or in part, by
Company or any of its subsidiaries and which may not be canceled without
penalty upon notice of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is material
to Company and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to license any
third party to manufacture or reproduce any Company product, service or
technology or any agreement, contract or commitment currently in force to sell
or distribute any Company products, service or technology except agreements
with distributors or sales representative in the normal course of business
cancelable without penalty upon notice of ninety (90) days or less and
substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(j) any material settlement agreement entered into within five (5) years
prior to the date of this Agreement; or
(k) any other agreement, contract or commitment under which Company or a
subsidiary is contractually obligated to make or entitled to receive payments
of $250,000 or more individually.
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Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation
or default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or
commitments to which Company or any of its subsidiaries is a party or by which
it is bound that are required to be disclosed in the Company Schedule (any
such agreement, contract or commitment, a "Company Contract") in such a manner
as would permit any other party to cancel or terminate any such Company
Contract, or would permit any other party to seek material damages or other
remedies (for any or all of such breaches, violations or defaults, in the
aggregate).
2.21 Insurance. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"Insurance Policies") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.22 Opinion of Financial Advisor. Company has been advised in writing by
its financial advisor, FleetBoston Robertson Stephens, that in its opinion, as
of the date of this Agreement, the Exchange Ratio is fair to the stockholders
of Company from a financial point of view.
2.23 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement, unanimously (i) approved and declared advisable this
Agreement and has approved the Merger and the other transactions contemplated
hereby, (ii) determined that the Merger is consistent with and in furtherance
of the long-term business strategy of Company and fair to, and in the best
interests of, Company and its stockholders and (iii) determined to recommended
that the stockholders of Company adopt and approve this Agreement and approve
the Merger.
2.24 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote with respect
to the Merger is the only vote of the holders of any class or series of
Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.25 State Takeover Statutes. The Board of Directors of the Company has
approved the Merger, the Merger Agreement, the Company Stockholder Agreement,
and the transactions contemplated hereby and thereby, and such approval is
sufficient to render inapplicable to the Merger, the Merger Agreement, the
Company Stockholder Agreements and the transactions contemplated hereby and
thereby the provisions of Section 203 of the Delaware Law to the extent, if
any, such section is applicable to the Merger, the Merger Agreement, the
Company Stockholder Agreements and the transactions contemplated hereby and
thereby. No other state takeover statute or similar statute or regulation
applies to or purports to apply to the Merger, the Merger Agreement, the
Company Stockholder Agreements or the transactions contemplated hereby and
thereby.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing
in the disclosure schedule supplied by Parent to Company dated as of the date
hereof (the "Parent Schedule") as follows. The Parent Schedule shall be
arranged in sections corresponding to the numbered and lettered paragraphs
contained in this Article III and the disclosure in any section of the Parent
Schedule shall qualify other paragraphs in this Article III only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraph.
3.1 Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted. Each
of Parent and its subsidiaries is in possession of all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being conducted, except where the
failure to have such Approvals would not, individually or in the aggregate, be
material to Parent. Each of Parent and its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect on Parent.
3.2 Certificate of Incorporation and Bylaws. Parent has previously made
available to Company complete and correct copies of its Memorandum and
Articles of Association as amended to date (together, the "Parent Charter
Documents"). Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent
organizational documents.
3.3 Capitalization. The authorized capital stock of Parent consists of (i)
500,000,000 shares of Parent Common Stock, (ii) 200,000,000 Parent Class B
Ordinary Shares, $0.01 par value per share ("Parent Series B Common Stock"),
and (iii) 500,000,000 Class C Preference Shares, $0.01 par value per share
("Parent Preferred Stock"). At the close of business on March 20, 2000, (i)
16,913,866 shares of Parent Common Stock were issued and outstanding, (ii)
30,631,746 shares of Parent Series B Common Stock were issued and outstanding,
(iii) no shares of Parent Common Stock or Parent Series B Common Stock were
held in treasury by Parent or by subsidiaries of Parent, (iv) 620,000 shares
of Parent Common Stock were reserved for future issuance pursuant to Parent's
1999 Employee Share Purchase Plan, (v) 6,794,014 shares of Parent Common Stock
were reserved for issuance upon the exercise of outstanding options ("Parent
Options") to purchase Parent Common Stock and (vi) 5,429,728 shares of Parent
Common Stock were reserved for future issue upon the exercise of outstanding
warrants to purchase Parent Common Stock. As of the date hereof, no shares of
Parent Preferred Stock were issued or outstanding. The authorized capital
stock of Merger Sub consists of 1,000 shares of common stock, par value $0.01
per share, all of which, as of the date hereof, are issued and outstanding.
All of the outstanding shares of Parent's and Merger Sub's respective capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable. All shares of Parent Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall, and the shares of
Parent Common Stock to be issued pursuant to the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. All of the
outstanding shares of capital stock (other than directors' qualifying shares)
of each of Parent's subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and all such shares (other than directors' qualifying
shares) are owned by Parent or another subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in
Parent's voting rights, charges or other encumbrances of any nature
whatsoever. Except as set forth in this Section 3.3, as of the date hereof,
there are no options, warrants or other rights (including preemptive rights)
obligating Parent or any of its subsidiaries to issue or sell any shares of
capital stock or equity interests of Parent or any of its subsidiaries.
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As of the date hereof, Myriad International Holdings BV is the owner of shares
representing approximately 95% of the votes represented by the outstanding
voting stock of Parent.
3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement, or to consummate the transactions so contemplated,
subject only to the approval of the Share Issuance by Parent's stockholders.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitutes legal and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub shall
not, (i) conflict with or violate the Certificate of Incorporation, Bylaws or
equivalent organizational documents of Parent or any of its subsidiaries, (ii)
subject to compliance with the requirements set forth in Section 3.5(b) below,
conflict with or violate any Law applicable to Parent or any of its
subsidiaries or by which it or their respective properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair Parent's or any such subsidiary's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their
respective properties are bound or affected, except to the extent such
conflict, violation, breach, default, impairment or other effect could not in
the case of clauses (ii) or (iii), individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub shall
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the pre-merger notification requirements of the HSR Act, the rules and
regulations of Nasdaq, and the filing and recordation of the Certificate of
Merger as required by Delaware Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not have a material adverse effect on the parties'
ability to consummate the Merger or perform their obligations under this
Agreement.
3.6 SEC Filings; Financial Statements.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC after November 23, 1999 (the "Parent SEC
Reports"), which are all the forms, reports and documents required to be filed
by Parent with the SEC on or after November 23, 1999. The Parent SEC Reports
(A) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and filed on a timely basis and (B) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. None of
Parent's subsidiaries is required to file any reports or other documents with
the SEC.
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(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, for the absence of footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof and
the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal adjustments which were not or are not expected to be
material in amount.
(c) Parent has previously furnished to Company a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
3.7 No Undisclosed Liabilities. Neither Parent nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except (i) liabilities provided for in Parent's balance sheet as of
September 30, 1999, (ii) liabilities incurred since September 30, 1999 in the
ordinary course of business and in amounts consistent with past practice, and
(iii) contractual and other liabilities incurred in the ordinary course of
business which are not required by GAAP to be reflected on a balance sheet.
3.8 Absence of Certain Changes or Events. Since September 30, 1999, there
has not been: (i) any Material Adverse Effect on Parent, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Parent's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition
by Parent of any of Parent's capital stock or any other securities of Parent
or its subsidiaries or any options, warrants, calls or rights to acquire any
such shares or other securities except for repurchases from employees
following their termination pursuant to the terms of their pre-existing stock
option or purchase agreements, (iii) any split, combination or
reclassification of any of Parent's or any of its subsidiaries' capital stock,
(iv) any material change by Parent in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (v) any
revaluation by Parent of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or
accounts receivable or any sale of assets of the Parent other than in the
ordinary course of business. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no
other business activities and has conducted its operations only as
contemplated by this Agreement.
3.9 Absence of Litigation. There are no claims, actions, suits or
proceedings pending or, to the knowledge of Parent, threatened (or, to the
knowledge of Parent, any governmental or regulatory investigation pending or
threatened) against Parent or any of its subsidiaries or any properties or
rights of Parent or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, except for any claims, actions, suits or proceedings which seek
damages of less than $250,000, do not seek injunctive relief, and do not
challenge or seek to prevent or delay the transactions contemplated by this
Agreement.
3.10 Tax Matters.
(a) Parent will have been engaged in an active trade or business outside of
the United States, within the meaning of Treasury Regulation Section 1.367(a)-
2T(b)(2) and (3), for the entire 36-month period immediately before the
Effective Time. Parent does not have any intention, and will not have an
intention at the Effective Time, to substantially dispose of or discontinue
such trade or business. Parent satisfies the substantiality test contained in
Treasury Regulation Section 1.367(a)-3(c)(3).
(b) Parent is not a passive investment company within the meaning of
Section 1296(a) of the Code.
(c) Parent is not a controlled foreign corporation within the meaning of
Section 957 of the Code.
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3.11 Registration Statement; Joint Proxy Statement/Prospectus. None of the
information supplied or to be supplied by Parent for inclusion or
incorporation by reference in (i) the F-4 will, at the time the F-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Joint
Proxy Statement/Prospectus will, at the dates mailed to the stockholders of
Company and of Parent, at the time of the Company Stockholders' Meeting, the
time of the Parent Stockholders' Meeting and as of the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The F-4 will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated by
the SEC thereunder. Notwithstanding the foregoing, Parent makes no
representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.
3.12 Brokers. Except for fees payable to Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Parent has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.13 Opinion of Financial Advisor. Parent's Board of Directors has received
an opinion from Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated as
of the date hereof, to the effect that as of the date hereof, the Exchange
Ratio is fair to Parent from a financial point of view.
3.14 Board Approval. The Board of Directors of Parent has, as of the date
of this Agreement, unanimously (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of
Parent and is fair to, and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Parent approve the Share Issuance.
3.15 Vote Required. The affirmative vote of a majority of the shares of
Parent Common Stock and Parent Class B Common Stock, voting together as a
single class, that cast votes regarding the Share Issuance in person or by
proxy at the Parent Stockholders' Meeting is the only vote of the holders of
any class or series of Parent's capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent
in writing, carry on its business, in the usual, regular and ordinary course,
in substantially the same manner as heretofore conducted and in compliance
with all applicable laws and regulations, pay its debts and taxes when due
subject to good faith disputes over such debts or taxes, pay or perform other
material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present
officers and employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others with which it has
business dealings.
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In addition, except as expressly permitted by the terms of this Agreement,
without the prior written consent of Parent, during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do
any of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify any rights to the Company Intellectual Property, or enter into
grants to transfer or license to any person future patent rights other than in
the ordinary course of business consistent with past practices, provided that
in no event shall Company license on an exclusive basis or sell any Company
Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to, any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance delivery and/or
sale of (i) shares of Company Common Stock pursuant to the exercise of stock
options or warrants outstanding as of the date of this Agreement or granted
pursuant to clause (y) hereof, and (ii) shares of Company Common Stock
issuable to participants in the ESPP consistent with the terms thereof and (y)
the granting of stock options to new hires in the ordinary course of business
and consistent with past practice, after consulting with Parent, in an amount
not to exceed options to purchase 200,000 shares in the aggregate (none of
which options (other than those granted to new hires employed by the Company
on the data hereof) shall provide for acceleration based upon the transactions
contemplated hereby);
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets (other than non-material acquisitions in the ordinary
course of business) or enter into any joint ventures, strategic partnerships
or alliances, except as disclosed in Section 4.1 of the Company Schedule;
(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets except sales of inventory and the grant of end-user licenses in the
ordinary course of business consistent with past practice, except for the
sale, lease or disposition (other than through licensing) of property or
assets which are not material, individually or in the aggregate, to the
business of Company and its subsidiaries;
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(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect
of any of the foregoing other than in connection with the financing of
ordinary course trade payables consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or arrangement, any
employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer
letters and letter agreements entered into in the ordinary course of business
consistent with past practice with employees who are terminable "at will"),
pay any special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates (except for increases in the ordinary
course of business for non-officer employees) or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees
or consultants; provided that the Company shall terminate the ESPP in
accordance with its terms;
(l) (i) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of this
Agreement) other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, or liabilities recognized or disclosed in the most recent
consolidated financial statements (or the notes thereto) of Company included
in the Company SEC Reports or incurred since the date of such financial
statements, or (ii) waive the benefits of, agree to modify in any manner,
terminate, release any person from or fail to enforce any confidentiality or
similar agreement to which Company or any of its subsidiaries is a party or of
which Company or any of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside of the
ordinary course of business (including payments to financial, legal,
accounting or other professional service advisors) in excess of $250,000,
except as disclosed in Section 4.1 of the Company Schedule;
(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
(o) Enter into or materially modify any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by third
parties of Company's products or products licensed by Company;
(p) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment outside of
the ordinary course of business requiring payments to or by Company or a
subsidiary in excess of $250,000 individually;
(r) Engage in any action that could cause the Merger to fail to qualify as
a "reorganization" under Section 368(a) of the Code whether or not otherwise
permitted by the provisions of this Article IV;
(s) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
(t) Make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Company or any of its subsidiaries or settle or
compromise any material income tax liability; or
(u) Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (t) above.
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4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Parent and each of its
subsidiaries shall, except to the extent that Company shall otherwise consent
in writing, use its commercially reasonable efforts consistent with past
practices and policies to (i) preserve intact its present business
organization and (ii) keep available the services of its present officers and
employees.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Parent shall not do any of the following and shall not permit
its subsidiaries to do any of the following:
(a) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock, other than dividends or
distributions by any of Parent's subsidiaries to Parent or any of Parent's
subsidiaries;
(b) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(c) Cause, permit or propose any amendments to the Parent Charter Documents
(or similar governing instruments of any of its subsidiaries);
(d) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(e) Engage in any action that could cause the Merger to fail to qualify as
a "reorganization" under Section 368(a) of the Code, whether or not otherwise
permitted by the provisions of this Article IV;
(f) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement; or
(g) Agree in writing or otherwise to take any of the actions described in
Section 4.2 (a) through (f) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
Parent and Company shall jointly prepare and Parent shall file with the SEC
the F-4, which shall include a document or documents that will constitute (i)
the prospectus forming part of the registration statement on the F-4 and (ii)
the Joint Proxy Statement/Prospectus. Each of the parties hereto shall use all
reasonable efforts to cause the F-4 to become effective as promptly as
practicable after the date hereof, and, prior to the effective date of the F-
4, the parties hereto shall take all action required under any applicable Laws
in connection with the issuance of shares of Parent Common Stock pursuant to
the Merger. Parent or Company, as the case may be, shall furnish all
information concerning Parent or Company as the other party may reasonably
request in connection with such actions and the preparation of the F-4 and the
Joint Proxy Statement/Prospectus. As promptly as practicable after the
effective date of the F-4, the Joint Proxy Statement/Prospectus shall be
mailed to the stockholders of Company and of Parent. Each of the parties
hereto shall cause the Joint Proxy Statement/Prospectus to comply as to form
and substance with respect to such party in all material respects with the
applicable requirements of (i) the Exchange Act, (ii) the Securities Act,
(iii) the rules and regulations of the Nasdaq.
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(b) The Joint Proxy Statement/Prospectus shall (i) solicit the approval of
this Agreement and the Merger and include the recommendation of the Board of
Directors of Company to Company's stockholders that they vote in favor of
approval of this Agreement and the Merger, subject to the right of the Board
of Directors of the Company to withdraw its recommendation and recommend a
Superior Proposal determined to be such in compliance with Section 5.4 of this
Agreement, and (ii) include the opinion of FleetBoston Robertson Stephens
referred to in Section 2.23; provided, however, that the Board of Directors of
Company shall submit this Agreement to Company's stockholders whether or not
at any time subsequent to the date hereof such board determines that it can no
longer make such recommendation. The Joint Proxy Statement/Prospectus shall
(A) solicit the approval of the Share Issuance and include the recommendation
of the Board of Directors of Parent to Parent's stockholders that they vote in
favor of approval of the Share Issuance, and (B) include the opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated referred to in Section
3.12. If Company has not breached Section 5.4, then nothing contained in this
Agreement shall prevent the Board of Directors of Company from complying with
Rule 14d-9 and Rule 14e-2 under the Exchange Act.
(c) Each of Parent and Company shall promptly amend or supplement the Joint
Proxy Statement/Prospectus to the extent required by law to do so. No
amendment or supplement to the Joint Proxy Statement/Prospectus or the F-4
shall be made without the approval of Parent and Company, which approval shall
not be unreasonably withheld or delayed. Each of the parties hereto shall
advise the other parties hereto, promptly after it receives notice thereof, of
the time when the F-4 has become effective or any supplement or amendment has
been filed, of the issuance of any stop order, of the suspension of the
qualification of the Parent Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or of any request by the SEC
for amendment of the Joint Proxy Statement/Prospectus or the F-4 or comments
thereon and responses thereto or requests by the SEC for additional
information.
5.2 Stockholder Meetings. Company shall call and hold the Company
Stockholders' Meeting and Parent shall call and hold the Parent Stockholders'
Meeting as promptly as practicable after the date hereof for the purpose of
voting upon the approval of this Agreement and the Merger or the Share
Issuance, as the case may be, pursuant to the Joint Proxy
Statement/Prospectus, and Company and Parent shall use all reasonable efforts
to hold the Parent Stockholders' Meeting and the Company Stockholders' Meeting
on the same day and as soon as practicable after the date on which the F-4
becomes effective. Nothing herein shall prevent Company or Parent from
adjourning or postponing the Company Stockholders' Meeting or the Parent
Stockholders' Meeting, as the case may be, if there are insufficient shares of
Company Common Stock or Parent Common Stock, as the case may be, necessary to
conduct business at their respective meetings of the stockholders. Unless
Company's Board of Directors has withdrawn its recommendation of this
Agreement and the Merger in compliance with Section 5.4, Company shall use all
reasonable efforts to solicit from its stockholders proxies in favor of the
approval of this Agreement and the Merger pursuant to the Joint Proxy
Statement/Prospectus and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required by Delaware Law or
applicable stock exchange requirements to obtain such approval. Parent shall
use all reasonable efforts to solicit from its stockholders proxies in favor
of the Share Issuance pursuant to the Joint Proxy Statement/Prospectus and
shall take all other action necessary or advisable to secure the vote or
consent of stockholders required by the International Business Companies Act
of the British Virgin Islands or applicable stock exchange requirements to
obtain such approval. Each of the parties hereto shall take all other action
reasonably necessary or advisable to promptly and expeditiously secure any
vote or consent of stockholders required by applicable Law and such party's
certificate of incorporation and bylaws to effect the Merger. Company shall
call and hold the Company Stockholders' Meeting for the purpose of voting upon
the approval of this Agreement and the Merger whether or not Company's Board
of Directors at any time subsequent to the date hereof determines that this
Agreement is no longer advisable or recommends that Company's stockholders
reject it.
5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that Company and Parent have previously
executed a Confidentiality Agreement, dated as of March 6, 2000 (the
"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
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(b) Each of the Company and Parent will afford the other and the other's
accountants, counsel and other representatives reasonable access to its
properties, books, records and personnel during the period prior to the
Effective Time to obtain all information concerning its business as such other
party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as defined
below), (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition
Proposal, (iii) engage in discussions with any person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction (as defined below); provided, however, that nothing
contained in this Section 5.4 shall prohibit the Board of Directors of Company
in response to an unsolicited, bona fide written Acquisition Proposal that
Company's Board of Directors reasonably concludes constitutes a Superior Offer
(as defined below), engaging in discussions with and furnishing information to
the party making such Acquisition Proposal to the extent (A) the Board of
Directors of the Company determines in good faith, after considering the
advice of its outside legal counsel that its fiduciary obligations under
applicable law require it to do so, (B) (x) at least two business days prior
to furnishing any such nonpublic information to, or entering into discussions
or negotiations with, such party, Company gives Parent written notice of
Company's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such party and (y) Company receives from
such party an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such party by or on behalf of Company,
(C) contemporaneously with furnishing any such nonpublic information to such
party, Company furnishes such nonpublic information to Parent (to the extent
such nonpublic information has not been previously furnished by the Company to
Parent) and (D) Company has otherwise acted in full compliance with Section
5.4. Company and its subsidiaries will immediately cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal. Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in this Section
5.4 by any officer, director or employee of Company or any of its subsidiaries
or any investment banker, attorney or other advisor or representative of
Company or any of its subsidiaries shall be deemed to be a breach of this
Section 5.4 by Company.
For purposes of this Agreement, (A) "Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement; (B) "Acquisition
Transaction" shall mean any transaction or series of related transactions
other than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 5% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately
preceding such transaction hold less than 95% of the equity interests in the
surviving or resulting entity of such transaction; (B) any sale, lease (other
than in the ordinary course of business), exchange, transfer, license (other
than in the ordinary course of business), acquisition or disposition of
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more than 5% of the assets of the Company; or (C) any liquidation,
dissolution, recapitalization or other significant corporate reorganization of
the Company; and (C) "Superior Offer" shall mean an Acquisition Proposal
proposing the acquisition of all of the outstanding voting securities of the
Company (x) that if any cash consideration is involved, is not subject to any
financing contingency, (y) with respect to which Company's Board of Directors
shall have determined (after considering the advice of Company's independent
financial advisors) that the acquiring party is capable of consummating the
proposed Acquisition Transaction on the terms proposed, and (z) that Company's
Board of Directors shall have determined provides greater value to the
stockholders of Company than the Merger (after considering the advice of
Company's independent financial advisors that such Acquisition Transaction is
superior to the Merger from a financial point of view).
(b) In addition to the obligations of Company set forth in paragraph (a) of
this Section 5.4, Company as promptly as practicable, and in any event within
24 hours, shall advise Parent orally and in writing of any request for
information which Company reasonably believes would lead to an Acquisition
Proposal or of any Acquisition Proposal, or any inquiry with respect to or
which Company reasonably should believe would lead to any Acquisition
Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person or group making any such
request, Acquisition Proposal or inquiry. Company will keep Parent informed in
all material respects of the status and details (including material amendments
or proposed amendments) of any such request, Acquisition Proposal or inquiry.
In addition to the foregoing, Company shall (i) provide Parent with at least
48 hours prior notice (or such lesser prior notice as provided to the members
of Company's Board of Directors but in no event less than eight hours) of any
meeting of Company's Board of Directors at which Company's Board of Directors
is reasonably expected to consider a Superior Offer and (ii) provide Parent
with at least two business days prior notice (or such lesser prior notice as
provided to the members of Company's Board of Directors, but in no event less
than eight hours) of a meeting of Company's Board of Directors at which
Company's Board of Directors is reasonably expected to recommend a Superior
Offer to its stockholders and together with such notice a copy of the
definitive documentation relating to such Superior Offer.
5.5 Public Disclosure. Parent and Company will consult with each other and
agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement or an Acquisition
Proposal and will not issue any such press release or make any such public
statement prior to such agreement, except as may be required by law or any
listing agreement with a national securities exchange, in which case
reasonable efforts to consult with the other party will be made prior to any
such release or public statement. The parties have agreed to the text of the
joint press release announcing the signing of this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings
with Governmental Entities, if any) and the taking of all reasonable steps as
may be necessary to avoid any suit, claim, action, investigation or proceeding
by any Governmental Entity, (iii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iv) the defending of any suits,
claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, Company and its Board of Directors shall, if
any state takeover statute or similar statute or regulation is or becomes
applicable
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to the Merger, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this
Agreement and the transactions contemplated hereby. Notwithstanding anything
herein to the contrary, nothing in this Agreement shall be deemed to require
Parent or Company or any subsidiary or affiliate thereof to agree to any
divestiture by itself or any of its affiliates of shares of capital stock or
of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their business or to own
or exercise control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of Company to comply with or satisfy in any respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, in each case, such that the conditions set forth in Section
6.3(a) or 6.3(b) could reasonably be expected to not be satisfied; provided,
however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming untrue
or inaccurate, or any failure of Parent or Merger Sub to comply with or
satisfy in any respect any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement, in each case, such that the
conditions set forth in Section 6.2(a) or 6.2(b) could reasonably be expected
to not be satisfied; provided, however, that no such notification shall affect
the representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use its commercially reasonable efforts to obtain
any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
5.8 Stock Options and Warrants; 401(k) Plan. (a) At the Effective Time,
each outstanding option to purchase shares of Company Common Stock (each, a
"Company Stock Option"), whether or not vested, and each outstanding warrant
to purchase shares of Company Common Stock (each, a "Warrant") shall by virtue
of the Merger be assumed by Parent. Each Company Stock Option and Warrant so
assumed by Parent under this Agreement will continue to have, and be subject
to, the same terms and conditions of such options and warrants immediately
prior to the Effective Time (including, without limitation, any repurchase
rights or vesting provisions), except that (i) each Company Stock Option and
Warrant will be exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of Parent Common Stock equal to the
product (rounded down to the nearest whole number of shares of Parent Common
Stock) of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Stock Option or Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Stock Option or Warrant will be equal to the quotient
(rounded up to the nearest whole cent) determined by dividing the exercise
price per share of Company Common Stock at which such Company Stock Option or
Warrant was exercisable immediately prior to the Effective Time by the
Exchange Ratio. Parent shall reserve a sufficient number of shares of Parent
Common Stock for issuance upon exercise of the assumed Company Stock Options
and Warrants.
(b) Company agrees to terminate its 401(k) plan immediately prior to
Closing, unless the Parent, in its sole and absolute discretion, agrees to
sponsor and maintain such plan by providing Company with written notice of
such election at least three (3) days before the Effective Time. Unless the
Parent provides such notice to the Company, the Parent shall receive from
Company evidence that Company's 401(k) plan has been terminated pursuant to
resolutions of Company's Board of Directors, effective as of the day
immediately preceding the Closing Date.
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5.9 Form S-8. Parent agrees to file, if available for use by Parent, a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is
reasonably practicable after the Effective Time and agrees to use commercially
reasonable efforts to keep such registration statement effective for so long
as any such options remain outstanding
5.10 Indemnification
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements between Company and its directors
and officers in effect immediately prior to the Effective Time and any
indemnification provisions under the Company Charter Documents as in effect on
the date hereof. The Certificate of Incorporation and Bylaws of the Surviving
Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the indemnified parties
thereunder (the "Indemnified Parties") as those contained in the Company
Charter Documents as in effect on the date hereof, which provisions will not
be amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of the Indemnified Parties, unless such modification is required by law.
(b) For a period of six years after the Effective Time, Parent will cause
the Surviving Corporation to use its commercially reasonable efforts to
maintain in effect, if available, directors' and officers' liability insurance
covering those persons who are currently covered by the Company's directors'
and officers' liability insurance policy on terms comparable to those
applicable to the current directors and officers of the Company; provided,
however, that in no event will Parent or the Surviving Corporation be required
to expend an annual premium for such coverage in excess of 150% of the annual
premium currently paid by the Company.
5.11 Nasdaq Listing. Parent agrees to use reasonable efforts to cause and
maintain the authorization for listing on Nasdaq the shares of Parent Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, upon official notice of issuance.
5.12 Affiliates. Set forth in Section 5.12 of the Company Schedule is a
list of those persons who may be deemed to be, in Company's reasonable
judgment, affiliates of Company within the meaning of Rule 145 promulgated
under the Securities Act (each, a "Company Affiliate"). Company will provide
Parent with such information and documents as Parent reasonably requests for
purposes of reviewing such list. Company will use its commercially reasonable
efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each Company Affiliate an
executed affiliate agreement in substantially the form attached hereto as
Exhibit C (the "Affiliate Agreement"), each of which will be in full force and
effect as of the Effective Time. Parent will be entitled to place appropriate
legends on the certificates evidencing any Parent Common Stock to be received
by a Company Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Stock, consistent with the terms of the Affiliate Agreement.
5.13 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification
or control laws and regulations of any applicable jurisdiction, as agreed to
by the parties. Company and Parent each shall promptly (a) supply the other
with any information which may be required in order to effectuate such filings
and (b) supply any additional information which reasonably may be required by
the FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; provided,
however, that Parent shall not be required to agree to any divestiture by
Parent or the Company or any of Parent's subsidiaries or affiliates of shares
of capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
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5.14 Employee Benefits. Each employee of Company or its subsidiaries who
continues to be employed by Company or its subsidiaries immediately following
the Effective Time and who becomes a participant in or subject to employee
benefit plans or policies of Parent or its affiliates following the Effective
Time shall, to the extent permitted by Law, the terms of such plans or
policies and applicable tax qualification requirements, and subject to any
applicable break in service or similar rules, receive credit for purposes of
eligibility to participate and vesting under such plans and policies for the
length of time such employees were employed by Company or its subsidiaries.
5.15 Tax Filings. From and after the Effective Time, Parent will cause
Company to comply with all applicable reporting requirements set forth in
Treasury Regulations under Section 367 of the Code, including, without
limitation, Regulation Section 1.367(a)-3(c)(6).
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. This Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law, by the stockholders of Company. The Share Issuance shall
have been approved by the requisite vote under applicable Nasdaq rules by the
stockholders of Parent.
(b) Registration Statement Effective. The SEC shall have declared the F-4
effective. No stop order suspending the effectiveness of the F-4 or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Joint Proxy Statement/Prospectus, shall
have been initiated or threatened in writing by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger. All waiting
periods, if any, under the HSR Act relating to the transactions contemplated
hereby shall have expired or terminated early and all foreign antitrust
approvals required to be obtained prior to the Merger in connection with the
transactions contemplated hereby shall have been obtained.
(d) Tax Opinions. Parent and Company shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Hale and Dorr LLP, respectively), in form and
substance reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code
and such opinions shall not have been withdrawn; provided, however, that if
the counsel to either Parent or Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to such
party if counsel to the other party renders such opinion to such party. Each
of Company and Parent agrees to make the representations substantially in the
form set forth in the forms attached hereto as Exhibit D and Exhibit E,
respectively, for the purpose of such counsel rendering such opinions.
(e) Nasdaq Listing. The shares of Parent Common Stock issuable to the
stockholders of Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on Nasdaq upon official notice of issuance.
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6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement and (ii)
shall be true and correct on and as of the Closing Date with the same force
and effect as if made on the Closing Date except for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct in all material respects as
of such particular date) and except, in all such cases, where the failure to
be so true and correct (without regard to any materiality standards contained
therein), individually or in the aggregate, have not had, and are not
reasonably likely to have, a Material Adverse Effect on Parent (it being
understood that for purposes of determining the accuracy of such
representations and warranties, any update of or modification to the Parent
Schedule made or purported to have been made after the date of this Agreement
shall be disregarded). Company shall have received a certificate with respect
to the foregoing signed on behalf of Parent by the Chief Executive Officer and
Chief Financial Officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Company shall have received a certificate to such effect
signed on behalf of Parent by the Chief Executive Officer and Chief Financial
Officer of Parent.
(c) Legal Opinion. Company shall have received a legal opinion from British
Virgin Islands counsel to Parent, in form and substance reasonably
satisfactory to Company, as to the due incorporation and good standing of
Parent and the due authorization of the transactions contemplated by this
Agreement by all necessary corporate action on the part of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty of
Company contained in this Agreement (i) shall have been true and correct in
all material respects as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as if
made on and as of the Closing Date except for those representations and
warranties which address matters only as of a particular date (which
representations shall have been true and correct in all material respects as
of such particular date) and except, in all such cases, where the failure to
be so true and correct (without regard to any materiality standards contained
therein), individually or in the aggregate, have not had, and are not
reasonably likely to have, a Material Adverse Effect on Company (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, any update of or modification to the Company
Schedule made or purported to have been made after the date of this Agreement
shall be disregarded). Parent shall have received a certificate with respect
to the foregoing signed on behalf of Company by the Chief Executive Officer
and the Chief Financial Officer of the Company.
(b) Agreements and Covenants. Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
(c) Employment Agreements. The Employment Agreements shall remain in full
force and effect.
(d) Consents. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Schedule 6.3(d).
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
stockholders of Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by December 31, 2000 (the "Outside Date") for any reason;
provided, however, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes a
breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall have issued
an order, decree or ruling or taken any other action, in any case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and
nonappealable;
(d) by either Company or Parent if (i) the required approval of the
stockholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Company stockholders duly convened therefor or at any adjournment therefor or
(ii) the required approval by the stockholders of Parent of the Share Issuance
required under applicable Nasdaq rules shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of Parent stockholders
duly convened therefor or at any adjournment thereof; provided, however, that
the right to terminate this Agreement under this Section 7.1(d) shall not be
available to any party whose action or failure to act has been a principal
cause or resulted in the failure to obtain such stockholder approval and such
action or failure to act constitutes a breach of this Agreement;
(e) by Company, upon a breach of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent, then Company may not terminate this Agreement under this
Section 7.1(e) for thirty (30) days after delivery of written notice from
Company to Parent of such breach, provided Parent continues to exercise best
efforts to cure such breach (it being understood that Company may not
terminate this Agreement pursuant to this paragraph (e) if such breach by
Parent is cured during such thirty (30)-day period);
(f) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b) would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Company's representations and warranties or breach by Company is
curable by Company, then Parent may not terminate this Agreement under this
Section 7.1(f) for thirty (30) days after delivery of written notice from
Parent to Company of such breach, provided Company continues to exercise best
efforts to cure such breach (it being understood that Parent may not terminate
this Agreement pursuant to this paragraph (f) such breach by Company is cured
during such thirty (30)-day period); or
(g) by Parent, if (i) the Board of Directors of Company withdraws, modifies
or changes its recommendation of this Agreement or the Merger in a manner
adverse to Parent or its stockholders, (ii) the Board of Directors of Company
shall have recommended to the stockholders of Company an Acquisition Proposal,
(iii) the Company fails to comply with Section 5.4, (iv) an Acquisition
Proposal shall have been announced or otherwise become publicly known and the
Board of Directors of Company shall have (A) failed to recommend against
acceptance
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of such by Company's stockholders (including by taking no position, or
indicating its inability to take a position, with respect to the acceptance by
its stockholders of an Acquisition Proposal involving a tender offer or
exchange offer) or (B) failed to reconfirm its approval and recommendation of
this Agreement and the transactions contemplated hereby within five business
days after a written request by Parent to do so, (v) for any reason Company
fails to call and hold the Company Stockholders' Meeting by the date which is
one business day prior to the Outside Date or (vi) the Board of Directors of
Company resolves to take any of the actions described above.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties
hereto (or such later time as may be required by Section 7.1). In the event of
the termination of this Agreement as provided in Section 7.1, this Agreement
shall be of no further force or effect, and the parties hereto shall have no
further liability hereunder, except (i) as set forth in this Section 7.2,
Section 5.3(a), Section 7.3 and Article VIII, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for fraud in connection with, or any willful breach of, this
Agreement.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and Company shall share
equally all fees and expenses, other than attorneys' and accountants fees and
expenses, incurred (i) in relation to the printing and filing of the Joint
Proxy Statement/Prospectus (including any preliminary materials related
thereto) and the F-4 (including financial statements and exhibits) and any
amendments or supplements thereto or (ii) for the premerger notification and
report forms under the HSR Act.
(b) Termination Fee.
(i) In the event that (A) Parent shall terminate this Agreement pursuant
to Section 7.1(g), or (B) this Agreement shall be terminated (x) pursuant
to Section 7.1(b) or (y) pursuant to Section 7.1(d)(i) and, in the case of
clause (x), (1) at or prior to such termination, there shall exist or have
been proposed an Acquisition Proposal, (2) Parent shall have terminated, or
been entitled to terminate, this Agreement pursuant to Section 7.1(b), (3)
Company shall not have delivered an unconditional notice of breach pursuant
to Section 7.1(e) and been entitled to terminate this Agreement pursuant to
Section 7.1(e) but for the failure of the 30-day cure period set forth
therein to expire prior to the Outside Date and (4) within 12 months after
such termination, Company shall enter into a definitive agreement with
respect to any Company Acquisition or any Company Acquisition shall be
consummated, or, in the case of clause (y), Company shall not have
delivered an unconditional notice of breach pursuant to Section 7.1(e) and
been entitled to terminate this Agreement pursuant to Section 7.1(e) but
for the failure of the 30-day cure period set forth therein to expire prior
to the stockholder vote on this Agreement by the stockholders of Company,
then, in the case of (A) and (B)(y), promptly after such termination, or in
the case of (B)(x), immediately prior to the execution of a definitive
agreement with respect to, or the consummation of, as applicable, such
Company Acquisition, Company shall pay to Parent an amount in cash equal to
$74 million (the "Termination Fee").
(ii) In the event that Parent shall terminate this Agreement pursuant to
Section 7.1(f), then Company shall promptly reimburse Parent for Parent's
costs and expenses in connection with this Agreement and the transactions
contemplated hereby ("Parent's Expenses"), and if, within twelve months of
such termination of this Agreement, Company shall enter into a definitive
agreement with respect to any Company Acquisition or any Company
Acquisition involving Company shall be consummated, then immediately prior
to the execution of a definitive agreement with respect to, or the
consummation of, as applicable, such Company Acquisition, then Company
shall pay to Parent an amount in cash equal to the amount by which the
Termination Fee exceeds the amount of Parent's Expenses previously
reimbursed by Company pursuant hereto.
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(iii) The Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter
into this Agreement; accordingly, if the Company fails to pay in a timely
manner the amounts due pursuant to this Section 7.3(b) and, in order to
obtain such payment, Parent makes a claim that results in a judgment
against the Company for the amounts set forth in this Section 7.3(b), the
Company shall pay to Parent its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with interest on
the amounts set forth in this Section 7.3(b) at the prime rate of Citibank,
N.A. in effect on the date such payment was required to be made. Payment of
the fees described in this Section 7.3(b) shall not be in lieu of damages
incurred in the event of fraud or willful breach of this Agreement. For the
purposes of this Agreement, "Company Acquisition" shall mean any of the
following transactions (other than the transactions contemplated by this
Agreement): (i) a merger, consolidation, business combination,
recapitalization or similar transaction involving the Company pursuant to
which the stockholders of the Company immediately preceding such
transaction hold less than 70% of the aggregate equity interests in the
surviving, resulting or acquiring entity of such transaction, (ii) a sale
or other disposition by the Company of assets representing in excess of 50%
of the aggregate fair market value of the Company's business immediately
prior to such sale or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by the
Company), directly or indirectly, of beneficial ownership or a right to
acquire beneficial ownership of shares representing in excess of 50% of the
voting power of the then outstanding shares of capital stock of the
Company.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent, Merger Sub and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Delay in exercising any
right under this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
OpenTV Corp.
401 East Middlefield Road
Mountain View, California 94043-4005
Attention: General Counsel
Telecopy No.: (650) 230-1206
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with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Telecopy No.: (650) 493-6811
and to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Telecopy No.: (415) 947-2099
(b) if to Company, to:
Spyglass, Inc.
1240 E. Diehl Road
Naperville, Illinois 60563
Attention: General Counsel
Telecopy No.: (630) 245-6651
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Patrick J. Rondeau, Esq.
Telecopy No.: (617) 526-5000
8.3 Interpretation; Definitions.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "the business of" an entity, such reference shall
be deemed to include the business of all direct and indirect subsidiaries of
such entity. Reference to the subsidiaries of an entity shall be deemed to
include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "knowledge" means with respect to a party hereto, with
respect to any matter in question, knowledge of the executive officers of
such party after reasonable inquiry;
(ii) the term "Material Adverse Effect" when used in connection with an
entity means any change, event, violation, inaccuracy, circumstance or
effect that is materially adverse to the business, assets, liabilities,
financial condition, prospects or results of operations of such entity and
its subsidiaries taken as a whole; provided, however, that in no event
shall (A) a decrease in such entity's stock price in and of itself
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constitute a Material Adverse Effect or (B) any change, event, violation,
inaccuracy, circumstance or effect that results from (x) the public
announcement or pendency of the transactions contemplated hereby,
(y) changes affecting the interactive television or internet industry
generally (which changes do not disproportionately affect such entity) or
(z) changes affecting the United States economy generally, constitute a
Material Adverse Effect;
(iii) the term "person" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization, entity or Governmental
Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure
Schedule and the Parent Disclosure Schedule (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being
understood that the Confidentiality Agreement shall continue in full force and
effect until the Closing and shall survive any termination of this Agreement;
and (b) are not intended to confer upon any other person any rights or
remedies hereunder, except that the provisions of Section 5.10 are intended
for the benefit of the persons referred to therein and may be enforced by such
persons.
8.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law
thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
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8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
OPENTV CORP.
By: /s/ Jan Steenkamp ____________
Name: Jan Steenkamp ______________
Title: Chief Executive Officer ___
SONNET ACQUISITION CORP.
By: /s/ Jan steenkamp ____________
Name: Jan Steenkamp _____________
Title: Chief Executive Officer ____
SPYGLASS, INC.
By: /s/ Douglas P. Colbeth ________
Name: Douglas P. Colbeth __________
Title: Chief Executive Officer ____
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EXHIBIT A-1
FORM OF COMPANY STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "Agreement") is made and entered into as
of March 26, 2000, among OpenTV Corp., a British Virgin Islands corporation
("Parent"), and the undersigned stockholder (the "Stockholder") of Spyglass,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Company and Parent have entered into an Agreement and Plan of Merger
and Reorganization (the "Reorganization Agreement"), which provides for the
merger (the "Merger") of a subsidiary of Parent with and into the Company.
Pursuant to the Merger, all outstanding capital stock of the Company shall be
converted into the right to receive Parent Common Stock, as set forth in the
Reorganization Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock of the Company and shares
subject to outstanding options and warrants as is indicated on the signature
page of this Agreement; and
C. In consideration of the execution of the Reorganization Agreement by
Parent, Stockholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such shares of capital stock of the Company over
which Stockholder has voting power so as to facilitate consummation of the
Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
meanings ascribed to them in the Reorganization Agreement. For purposes of
this Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Reorganization Agreement shall have been terminated pursuant to
Article VII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Reorganization
Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "Shares" shall mean: (i) all securities of the Company (including all
shares of Company Common Stock and all options, warrants and other rights to
acquire shares of Company Common Stock) owned by Stockholder as of the date of
this Agreement; and (ii) all additional securities of the Company (including
all additional shares of Company Common Stock and all additional options,
warrants and other rights to acquire shares of Company Common Stock) of which
Stockholder acquires ownership during the period from the date of this
Agreement through the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer" of a
security if such person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or
any interest in such security; or (ii) enters into an agreement or commitment
providing for the sale of, pledge of, encumbrance of, grant of an option with
respect to, transfer of or disposition of such security or any interest
therein, other than any such actions pursuant to which such Person maintains
all voting rights with respect to such security.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Stockholder agrees
that, during the period from the date of this Agreement through the Expiration
Date, Stockholder shall not cause or permit any Transfer of any of the Shares
to be effected unless each Person to which any of such Shares, or any interest
in any of such
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Shares, is or may be transferred shall have: (a) executed a counterpart of
this Agreement and a proxy in the form attached hereto as Exhibit A (with such
modifications as Parent may reasonably request); and (b) agreed in writing to
hold such Shares (or interest in such Shares) subject to all of the terms and
provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
not deposit (or permit the deposit of) any Shares in a voting trust or grant
any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Stockholder under this Agreement with
respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of the Company, Stockholder
(in his or her capacity as such) shall cause the Shares to be voted (a) in
favor of the Merger and the Reorganization Agreement (the "Company Approval
Matters") and (b) against any Acquisition Proposal.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
the beneficial owner of the shares of Company Common Stock indicated on the
final page of this Agreement, free and clear of any liens, claims, options,
rights of first refusal, co-sale rights, charges or other encumbrances; (ii)
does not beneficially own any securities of the Company other than the shares
of Company Common Stock and options and warrants to purchase shares of Common
Stock of the Company indicated on the final page of this Agreement; and
(iii) has full power and authority to make, enter into and carry out the terms
of this Agreement and the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Parent, to carry out the
intent of this Agreement.
7. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
8. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Parent shall be irreparably harmed and that there shall be no adequate
remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at
law or in equity.
A-41
<PAGE>
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following address (or at such other address for a party as
shall be specified by like notice):
If to Parent:
OpenTV Corp.
401 East Middlefield Road
Mountain View, California 94043-4005
Attention: General Counsel
Telecopy No.: (650) 230-1206
With copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telecopy No: (650) 493-6811
Attention: Jeffrey D. Saper, Esq.
and to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Telecopy No: (415) 947-2099
Attention: Steve L. Camahort, Esq.
If to Stockholder:
To the address for notice set forth on the signature page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without reference to rules of conflicts of law.
(g) Entire Agreement. his Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. he section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. his Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
[The remainder of this page has been intentionally left blank]
A-42
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written. The undersigned is executing
this Agreement only in its capacity as a stockholder. Such signature in no way
affects its obligations as an officer or director of the Company.
<TABLE>
<S> <C>
OPENTV CORP. STOCKHOLDER
By: _______________________________________ By: _______________________________________
Signature of Authorized Signatory Signature
Name: _____________________________________ Name: _____________________________________
Title: ____________________________________ Title: ____________________________________
___________________________________________
___________________________________________
Print Address
___________________________________________
Telephone
___________________________________________
Facsimile No.
Share beneficially owned:
____________ shares of Company Common Stock
____________ shares of Company Common Stock
issuable upon exercise of outstanding
options or warrants
</TABLE>
[Signature Page to Voting Agreement]
A-43
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Spyglass, Inc., a Delaware corporation (the
"Company"), hereby irrevocably (to the fullest extent permitted by law)
appoints Jan Steenkamp and Randall S. Livingston and each of them, as the sole
and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on
or after the date hereof (collectively, the "Shares") in accordance with the
terms of this Proxy. The Shares beneficially owned by the undersigned
stockholder of the Company as of the date of this Proxy are listed on the
final page of this Proxy. Upon the undersigned's execution of this Proxy, any
and all prior proxies given by the undersigned with respect to any Shares are
hereby revoked and the undersigned agrees not to grant any subsequent proxies
with respect to the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among OpenTV Corp., a British Virgin
Islands corporation ("Parent"), and the undersigned stockholder (the "Voting
Agreement"), and is granted in consideration of Parent entering into that
certain Agreement and Plan of Merger and Reorganization (the "Reorganization
Agreement"), by and between Parent, a subsidiary of Parent ("Merger Sub") and
the Company. The Reorganization Agreement provides for the merger of Merger
Sub with and into the Company in accordance with its terms (the "Merger"). As
used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Reorganization Agreement shall have been validly
terminated pursuant to Article VII thereof or (ii) such date and time as the
Merger shall become effective in accordance with the terms and provisions of
the Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting, consent and similar rights of the
undersigned with respect to the Shares (including, without limitation, the
power to execute and deliver written consents) at every annual, special or
adjourned meeting of stockholders of the Company and in every written consent
in lieu of such meeting (a) in favor of the Company Approval Matters and (b)
against any Acquisition Proposal.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote
the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned is executing this
Proxy only in its capacity as a stockholder. Such signature in no way affects
its obligations as an officer or director of the Company.
A-44
<PAGE>
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date.
Dated: March 26, 2000
Signature of Stockholder: ___________
Print Name of Stockholder: __________
Shares beneficially owned:
__ shares of the Company Common Stock
__ shares of the Company Common Stock
issuable upon exercise of
outstanding options or warrants
[Signature Page to Irrevocable Proxy]
A-45
<PAGE>
EXHIBIT A-2
FORM OF PARENT VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
March 26, 2000, among Spyglass, Inc., a Delaware corporation (the "Company"),
and the undersigned stockholder (the "Stockholder") of OpenTV Corp., a British
Virgin Islands corporation ("Parent").
RECITALS
A. Parent, a subsidiary of Parent ("Merger Sub") and the Company have
entered into an Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement"), which provides for the merger (the "Merger") of
Merger Sub with and into the Company. Pursuant to the Merger, all outstanding
capital stock of the Company shall be converted into the right to receive
Parent Common Stock, as set forth in the Reorganization Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock of Parent and shares subject
to outstanding options and warrants as is indicated on the signature page of
this Agreement; and
C. In consideration of the execution of the Reorganization Agreement by the
Company, Stockholder (in his or her capacity as such) agrees to vote the
Shares (as defined below) and other such shares of capital stock of Parent
over which Stockholder has voting power so as to facilitate consummation of
the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
meanings ascribed to them in the Reorganization Agreement. For purposes of
this Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Reorganization Agreement shall have been terminated pursuant to
Article VII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Reorganization
Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "Shares" shall mean: (i) all securities of Parent (including all shares
of Parent Common Stock and all options, warrants and other rights to acquire
shares of Parent Common Stock) owned by Stockholder as of the date of this
Agreement; and (ii) all additional securities of Parent (including all
additional shares of Parent Common Stock and all additional options, warrants
and other rights to acquire shares of Parent Common Stock) of which
Stockholder acquires ownership during the period from the date of this
Agreement through the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer" of a
security if such person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or
any interest in such security; or (ii) enters into an agreement or commitment
providing for the sale of, pledge of, encumbrance of, grant of an option with
respect to, transfer of or disposition of such security or any interest
therein, other than any such actions pursuant to which such Person maintains
all voting rights with respect to such security.
A-46
<PAGE>
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Stockholder agrees
that, during the period from the date of this Agreement through the Expiration
Date, Stockholder shall not cause or permit any Transfer of any of the Shares
to be effected unless each Person to which any of such Shares, or any interest
in any of such Shares, is or may be transferred shall have: (a) executed a
counterpart of this Agreement and a proxy in the form attached hereto as
Exhibit A (with such modifications as the Company may reasonably request); and
(b) agreed in writing to hold such Shares (or interest in such Shares) subject
to all of the terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
not deposit (or permit the deposit of) any Shares in a voting trust or grant
any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Stockholder under this Agreement with
respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of Parent
called, and at every adjournment thereof, and on every action or approval by
written consent of the stockholders of Parent, Stockholder (in his or her
capacity as such) shall cause the Shares to be voted in favor of approval of
the Share Issuance.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to the Company a proxy in the form attached
hereto as Exhibit A (the "Proxy"), which shall be irrevocable to the fullest
extent permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
the beneficial owner of the shares of Parent Common Stock indicated on the
final page of this Agreement, free and clear of any liens, claims, options,
rights of first refusal, co-sale rights, charges or other encumbrances; (ii)
does not beneficially own any securities of the Parent other than the shares
of Parent Common Stock and options and warrants to purchase shares of Common
Stock of Parent indicated on the final page of this Agreement; and (iii) has
full power and authority to make, enter into and carry out the terms of this
Agreement and the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of the Company, to carry out
the intent of this Agreement.
7. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
8. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
A-47
<PAGE>
(d) Specific Performance; Injunctive Relief. The parties hereto acknowledge
that the Company shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to the Company upon any such
violation, the Company shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to the Company at law or in equity.
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the following address (or at such other address for a party as
shall be specified by like notice):
If to the Company:
Spyglass, Inc.
1240 E. Diehl Road
Naperville, Illinois 60563
Telecopy No.: (630) 245-6651
Attention: General Counsel
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telecopy No.: (617) 526-5000
Attention: Patrick J. Rondeau, Esq.
If to Stockholder: To the address for notice set forth on the signature
page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of [the
British Virgin Islands], without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
[The remainder of this page has been intentionally left blank]
A-48
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written. The undersigned is executing
this Agreement only in its capacity as a stockholder. Such signature in no way
affects its obligations as an officer or director of Parent.
SPYGLASS, INC. OTV HOLDINGS LIMITED
By: _________________________________ By: _________________________________
Signature of Authorized Signatory Name:
Name: Title:
Title:
_____________________________________
_____________________________________
Print Address
_____________________________________
Telephone
_____________________________________
Facsimile No.
Share beneficially owned:
Parent Series B Ordinary Shares
Parent Series B Ordinary Shares
issuable upon exercise of
outstanding options or warrants
[Signature Page to Voting Agreement]
A-49
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of OpenTV Corp., a British Virgin Islands
corporation ("Parent"), hereby irrevocably (to the fullest extent permitted by
law) appoints Douglas P. Colbeth and Gary L. Vilchick and each of them, as the
sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and
related rights (to the full extent that the undersigned is entitled to do so)
with respect to all of the shares of capital stock of Parent that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Parent issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the
terms of this Proxy. The Shares beneficially owned by the undersigned
stockholder of the Company as of the date of this Proxy are listed on the
final page of this Proxy. Upon the undersigned's execution of this Proxy, any
and all prior proxies given by the undersigned with respect to any Shares are
hereby revoked and the undersigned agrees not to grant any subsequent proxies
with respect to the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Spyglass, Inc., a Delaware
corporation ("Company"), and the undersigned stockholder (the "Voting
Agreement"), and is granted in consideration of the Company entering into that
certain Agreement and Plan of Merger and Reorganization (the "Reorganization
Agreement"), by and between Parent, a subsidiary of Parent ("Merger Sub") and
the Company. The Reorganization Agreement provides for the merger of Merger
Sub with and into the Company in accordance with its terms (the "Merger"). As
used herein, the term "Expiration Date" shall mean the earlier to occur of (i)
such date and time as the Reorganization Agreement shall have been validly
terminated pursuant to Article VII thereof or (ii) such date and time as the
Merger shall become effective in accordance with the terms and provisions of
the Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting, consent and similar rights of the
undersigned with respect to the Shares (including, without limitation, the
power to execute and deliver written consents) at every annual, special or
adjourned meeting of stockholders of Parent and in every written consent in
lieu of such meeting in favor of approval of the Share Issuance.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote
the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned is executing this
Proxy only in its capacity as a stockholder. Such signature in no way affects
its obligations as an officer or director of Parent.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date.
A-50
<PAGE>
Dated: March 26, 2000
OTV HOLDINGS LIMITED
By:__________________________________
Name:
Title:
Shares beneficially owned:
Parent Series B Ordinary Shares
Parent Series B Ordinary Shares
issuable upon exercise of
outstanding options or warrants
[Signature Page to Irrevocable Proxy]
A-51
<PAGE>
EXHIBIT B
FORM OF STOCKHOLDER LOCK-UP AGREEMENT
OpenTV Corp.
401 East Middlefield Road
Mountain View, California 94043-4005
Attention: General Counsel
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and Reorganization
dated as of March 26, 2000 (the "Merger Agreement") between OpenTV Corp., a
British Virgin Islands corporation ("Parent"), a subsidiary of Parent and
Spyglass, Inc., a Delaware corporation (the "Company"), the undersigned will
receive Class A Ordinary Shares, $.01 par value per share, of Parent (the
"Shares"), in exchange for shares of common stock of the Company owned by the
undersigned.
In order to induce Acquiror to enter into the Merger Agreement, the
undersigned hereby agrees as follows:
1. Until the expiration on May 21, 2000 of the "lock-up" to which directors
and executive officers of Parent are subject in connection with Parent's
initial public offering, the undersigned will not sell, offer to sell,
contract to sell, sell any option or contract for the sale or purchase of,
lend, enter into any swap or other arrangement that transfers to another any
of the economic consequences of ownership of, or otherwise dispose of any of
the Shares. In the event that the shares of capital stock of Parent owned by
any director or executive officer of Parent are released from such lock-up
agreement prior to May 21, 2000, then a proportionate number of the Shares
held by the undersigned shall be deemed released early from the restrictions
set forth in this Agreement.
2. The undersigned acknowledges that Parent may impose stock transfer
restrictions on the Shares to enforce the provisions of this Agreement.
3. This Agreement shall terminate and be of no further force or effect upon
the expiration of the "lock-up" period with respect to all shares subject to
this Agreement.
Very truly yours,
_______________________________________
Name of Stockholder
By: ___________________________________
Signature
Date: _________________________________
AGREED TO:
OPENTV CORP.
By: ________________________________
Name:
Title:
A-52
<PAGE>
EXHIBIT C
FORM OF AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
, 2000, by and between OpenTV Corp., a British Virgin Islands
corporation ("Parent"), and the undersigned stockholder who may be deemed an
affiliate ("Affiliate") of Spyglass, Inc., a Delaware corporation ("Company").
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Reorganization Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Merger and Reorganization (the "Reorganization
Agreement") which provides for the merger (the "Merger") of a wholly-owned
subsidiary of Parent ("Merger Sub") with and into the Company. Pursuant to the
Merger, all outstanding capital stock of the Company (the "Company Capital
Stock") shall be converted into the right to receive Class A Ordinary Shares
of Parent;
B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC"); and
C. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth
herein shall be relied upon by Parent, the Company and their respective
affiliates and counsel, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Reorganization Agreement and has discussed the requirements of this Agreement
with Affiliate's professional advisors, who are qualified to advise Affiliate
with regard to such matters.
2. Beneficial Ownership of Company Capital Stock. The Affiliate is the sole
record and beneficial owner of the number of shares of Company Capital Stock
set forth next to its name on the signature page hereto (the "Shares"). Except
as set forth in the Company Disclosure Schedule, the Shares are not subject to
any claim, lien, pledge, charge, security interest or other encumbrance or to
any rights of first refusal of any kind. There are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Affiliate is party or by which it is bound obligating the Affiliate
to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any Shares or obligating the
Affiliate to grant or enter into any such option, warrant, call, right,
commitment or agreement. The Affiliate has the sole right to transfer such
Shares. The Shares constitute all shares of Company Capital Stock owned,
beneficially or of record, by the Affiliate. The Shares are not subject to
preemptive rights created by any agreement to which the Affiliate is party.
The Affiliate has not engaged in any sale or other transfer of the Shares in
contemplation of the Merger. All shares of Company Capital Stock and common
stock of Parent ("Parent Common Stock") acquired by Affiliate subsequent to
the date hereof (including shares of Parent Common Stock acquired in the
Merger) shall be subject to the provisions of this Agreement as if held by
Affiliate as of the date hereof.
3. Compliance with Rule 145 and the Securities Act.
(a) Affiliate has been advised that (i) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected pursuant
to a registration statement on Form F-4 promulgated under the
A-53
<PAGE>
Securities Act of 1933, as amended (the "Securities Act"), and the resale of
such shares shall be subject to restrictions set forth in Rule 145 under the
Securities Act, and (ii) Affiliate may be deemed to be an affiliate of the
Company as defined by paragraphs (c) and (d) of Rule 145 under the Securities
Act. Affiliate accordingly agrees not to sell, transfer or otherwise dispose
of any Parent Common Stock issued to Affiliate in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the
requirements of Rule 145(d) promulgated under the Securities Act, or (ii) such
sale, transfer or other disposition is made pursuant to an effective
registration statement under the Securities Act or an appropriate exemption
from registration, or (iii) Affiliate delivers to Parent a written opinion of
counsel, reasonably acceptable to Parent in form and substance, that such
sale, transfer or other disposition is otherwise exempt from registration
under the Securities Act.
(b) Parent shall give stop transfer instructions to its transfer agent with
respect to any Parent Common Stock received by Affiliate pursuant to the
Merger and there shall be placed on the certificates representing such Parent
Common Stock, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 UNDER THE SECURITIES ACT APPLIES AND MAY ONLY BE
TRANSFERRED IN CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IN
ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE
ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) written evidence satisfactory to
Parent that the shares have been sold in compliance with Rule 145 (in which
case, the substitute certificate shall be issued in the name of the
transferee), or (ii) an opinion of counsel, in form and substance reasonably
satisfactory to Parent, to the effect that public sale of the shares by the
holder thereof is no longer subject to Rule 145.
(c) Affiliate understands that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the following legend on the
certificates issued to his transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
4. No Obligation to Register. Affiliate understands that Parent is under no
obligation to register the sale, transfer or other disposition of the Parent
Common Stock by or on Affiliate's behalf under the Act or, to take any other
action necessary in order to make compliance with an exemption from such
registration available.
5. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event of the termination of the Reorganization
Agreement pursuant to Article VII of the Reorganization Agreement.
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6. Miscellaneous.
(a) Waiver; Severability. No waiver by any party hereto of any condition or
of any breach of any provision of this Agreement shall be effective unless in
writing and signed by each party hereto. In the event that any provision of
this Agreement, or the application of any such provision to any person, entity
or set of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue
to be valid and enforceable to the fullest extent permitted by law.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by
either of the parties without prior written consent of the other party hereto.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and to
preserve for Parent the benefits of the Merger; (ii) such covenants relate to
matters which are of a special, unique, and extraordinary character that gives
each of such covenants a special, unique, and extraordinary value; and (iii) a
breach of any such covenants or any other provision of this Agreement shall
result in irreparable harm and damages to Parent and the Company which cannot
be adequately compensated by a monetary award. Accordingly, it is expressly
agreed that in addition to all other remedies available at law or in equity,
Parent and the Company shall be entitled to the immediate remedy of a
temporary restraining order, preliminary injunction, or such other form of
injunctive or equitable relief as may be used by any court of competent
jurisdiction to restrain or enjoin any of the parties hereto from breaching
any such covenant or provision or to specifically enforce the provisions
hereof.
(e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
(f) Entire Agreement. This Agreement, the Reorganization Agreement and any
other agreements referred to in the Reorganization Agreement set forth the
entire understanding of Affiliate and Parent relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings
between Affiliate and Parent relating to the subject matter hereof and
thereof.
(g) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
(h) Third Party Reliance. Counsel to and independent auditors for Parent
and the Company shall be entitled to rely upon this Affiliate Agreement.
(i) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.
(j) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return
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receipt requested), postage prepaid, to the parties at the following address
(or at such other address for a party as shall be specified by like notice):
If to Parent:
OpenTV Corp.
401 East Middlefield Road
Mountain View, California 94043-4005
Attention: General Counsel
Facsimile: (650) 230-1206
With copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile: (650) 493-6811
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market, Spear Street Tower
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile: (415) 947-2099
If to Affiliate:
To the address for notice set forth on the signature page hereof.
(k) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.
OPENTV CORP. AFFILIATE
By: _________________________________ By: _________________________________
Name: Affiliate's Address for Notice:
Title:
_____________________________________
_____________________________________
_____________________________________
Shares beneficially owned:
shares of Company Common Stock
shares of Company Common Stock
issuable upon exercise of
outstanding options and warrants
shares of Parent Common Stock
[Signature Page to Affiliate Agreement]
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EXHIBIT D
[Spyglass letterhead]
, 2000
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
Spear Street Tower
One Market Street
San Francisco, California 94105
Re: Merger pursuant to Agreement and Plan of Merger and Reorganization
among OpenTV Corp., Sonnet Acquisition Corp., and Spyglass, Inc.
Ladies and Gentlemen:
This letter is furnished to you in connection with your rendering of
opinions regarding certain federal income tax consequences of the merger
pursuant to the Agreement and Plan of Merger and Reorganization dated as of
March 26, 2000 (the "Merger Agreement"), by and among OpenTV Corp., a British
Virgin Islands corporation ("Parent"), Sonnet Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Sub"), and Spyglass, Inc.
a Delaware corporation ("Target"). Pursuant to the Merger Agreement, Sub will
merge with and into Target (the "Merger"). Except as otherwise provided,
capitalized terms not defined herein have the meanings set forth in the Merger
Agreement and the exhibits thereto. All section references, unless otherwise
indicated, are to the United States Internal Revenue Code of 1986, as amended.
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will
continue to be true as of the Effective Time:
1. Pursuant to the Merger, Sub will merge with and into Target, and Target
will acquire substantially all of the assets and liabilities of Sub.
Specifically, the assets transferred to Target pursuant to the Merger will
represent at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the
gross assets held by Sub immediately prior to the Merger. In addition, at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held
by Target immediately prior to the Merger will continue to be held by Target
immediately after the Merger. For purposes of this representation, the
following assets will be treated as assets held by Target or Sub, as the case
may be, immediately prior but not subsequent to the Merger: (i) assets
disposed of by Target or Sub (other than assets transferred from Sub to Target
in the Merger) prior to or subsequent to the Merger and in contemplation
thereof (including without limitation any asset disposed of by Target, other
than in the ordinary course of business, pursuant to a plan or intent existing
during the period ending at the Effective Time and beginning with the
commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "Pre-Merger Period")); (ii) assets used by Target or
Sub to pay shareholders receiving cash in lieu of fractional shares of Parent
stock, or to pay other expenses or liabilities incurred in connection with the
Merger; and (iii) assets used to make distribution, redemption, or other
payments in respect of Target stock or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or related thereto.
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Wilson Sonsini Goodrich & Rosati,
Professional Corporation
, 2000
Page 2
2. Other than in the ordinary course of business or pursuant to its
obligations under the Merger Agreement, Target has made no transfer of any of
its assets (including any distribution of assets with respect to, or in
redemption of, stock) in contemplation of the Merger (or any other corporate
acquisition) or during the Pre-Merger Period.
3. The Merger will be undertaken by Target for valid business purposes and
not for the purpose of tax avoidance.
4. At the Effective Time, there will not be outstanding any equity
interests in Target other than those disclosed in Section 2.3 of the Merger
Agreement, or any warrants, options, convertible securities, or any other type
of right pursuant to which any person could acquire stock in Target or any
other equity interest in Target that, if exercised or converted, would affect
Parent's acquisition or retention of Control of Target. As used in this
letter, "Control" shall consist of direct ownership of stock possessing at
least eighty percent (80%) of the total combined voting power of all classes
of stock entitled to vote and at least eighty percent (80%) of the total
number of shares of each other class of stock of the corporation. For purposes
of determining Control, a person shall not be considered to own voting stock
if rights to vote such stock (or to restrict or otherwise control the voting
of such stock) are held by a third party (including a voting trust) other than
an agent of such person.
5. In the Merger, shares of Target stock representing Control of Target
will be exchanged solely for voting stock of Parent. For purposes of this
representation, shares of Target stock exchanged in the Merger for cash or
other property (including, without limitation, cash paid to Target
shareholders in lieu of fractional shares of Parent stock) will be treated as
Target stock outstanding at the Effective Time but not exchanged for voting
stock of Parent.
6. The total fair market value of all consideration other than Parent stock
received by Target shareholders in the Merger (including, without limitation,
cash paid to Target shareholders in lieu of fractional shares of Parent stock)
will be less than twenty percent (20%) of the aggregate fair market value of
the Target stock outstanding immediately prior to the Merger.
7. Target has no plan or intention to issue additional shares of its stock,
or to take any other action, that would result in Parent losing Control of
Target.
8. Target has no knowledge of any plan or intention of Parent to reacquire
any of its stock issued pursuant to the Merger.
9. Target has no plan or intention to sell, distribute, or otherwise
dispose of any of its assets or of any of the assets acquired from Sub in the
Merger, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation Controlled by Target, as described in
Section 368(a)(2)(C) and Treasury Regulation Section 1.368-2(k).
10. To the best of Target's knowledge and belief, during the past five (5)
years, and at present, none of the outstanding shares of Target stock,
including the right to acquire or vote any such shares have, directly or
indirectly, been owned by Parent or Parent's affiliates.
11. To the best of Target's knowledge and belief, in the Merger, Sub will
have no liabilities assumed by Target and will not transfer to Target any
assets subject to liabilities. Target has no knowledge or belief that, at the
Effective Time, Sub's liabilities will exceed the tax basis of its assets.
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, 2000
Page 3
12. To the best of Target's knowledge and belief, following the Merger,
Parent will cause Target to continue Target's historic business or use a
significant portion of Target's historic business assets in a business. For
this purpose, Parent shall be treated as conducting the business and holding
the assets of related entities, as described in Treasury Regulation Section
1.368-1(d)(4).
13. The liabilities of Target have been incurred by Target in the ordinary
course of its business.
14. At the Effective Time, the fair market value of the assets of Target
will exceed the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
15. Target is not an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv).
16. Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A).
17. To the best of Target's knowledge and belief, no Target shareholder is
acting as agent for Parent in connection with the Merger or approval thereof,
and Parent will not reimburse any Target shareholder for Target stock such
shareholder may have purchased or for other obligations such shareholder may
have incurred.
18. Neither Target nor any person related to Target within the meaning of
Treasury Regulation Section 1.368-1(e)(3) acquired any stock of Target
pursuant to Sales (as defined below) during the Pre-Merger Period. As used
herein, "Sales" means any sales, exchanges, transfers, pledges, dispositions,
or any other transactions that result in a direct or indirect transfer of the
risk of ownership.
19. Except with respect to payments of cash to Target shareholders in lieu
of fractional shares of Parent stock, one hundred percent (100%) of the Target
stock outstanding immediately prior to the Merger will be exchanged solely for
Parent stock. Thus, except as set forth in the preceding sentence, Target
intends that no consideration be paid or received (directly or indirectly,
actually or constructively) for Target stock other than Parent stock.
20. The fair market value of the Parent stock received by each Target
shareholder will be approximately equal to the fair market value of the Target
stock surrendered in exchange therefor, and the aggregate consideration
received by Target shareholders in exchange for their Target stock will be
approximately equal to the fair market value of all of the outstanding shares
of Target stock immediately prior to the Merger. "Fair market value" as used
in this representation is determined based upon arm's length negotiations and
the opinions of Merrill Lynch, Pierce, Fenner & Smith Incorporated and
FleetBoston Robertson Stephens, financial advisors to Parent and Target,
respectively.
21. Under Section 1.6(f) of the Merger Agreement, in lieu of any fractional
shares of Parent stock that would otherwise be issued, each Target shareholder
shall receive cash. The payment of cash in lieu of fractional shares of Parent
stock will be made solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and will not represent
separately bargained-for consideration. The total cash consideration that will
be paid in the Merger to the Target shareholders in lieu of issuing fractional
shares of Parent stock will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to the Target shareholders in
exchange for their shares of Target stock. The fractional-share interests of
each holder of Target stock will be aggregated, and no holder of Target stock
will receive cash in an amount equal to or greater than the value of one full
share of Parent stock.
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Professional Corporation
, 2000
Page 4
22. No shares of Sub have been or will be used as consideration or issued
to Target shareholders pursuant to the Merger.
23. Parent, Sub, Target, and the Target shareholders will each pay
separately its or their own expenses, if any, relating to the Merger.
24. There is no intercorporate indebtedness existing between Parent and
Target or between Sub and Target that was issued, acquired, or will be settled
at a discount, and Parent will assume no liabilities of Target or any Target
shareholder in connection with the Merger.
25. The terms of the Merger Agreement are the product of arm's-length
negotiations.
26. None of the compensation received by any shareholder-employees of
Target will be separate consideration for, or allocable to, any of their
shares of Target stock; none of the shares of Parent stock received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and
the compensation paid to any shareholder-employees of Target will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
27. Other than shares of Target stock or options to acquire Target stock
issued as compensation to present or former service providers (including,
without limitation, employees and directors) of Target in the ordinary course
of business, if any, no issuances of Target stock or rights to acquire Target
stock have occurred or will occur during the Pre-Merger Period other than
pursuant to options, warrants, or agreements outstanding prior to the Pre-
Merger Period.
28. To the best of Target's knowledge and belief, in the Merger, fifty
percent (50%) or less of both the total voting power and the total value of
the stock of Parent will be received by Target shareholders who are United
States persons within the meaning of Treasury Regulation Section 1.367(a)-
3(c)(5)(iv) ("United States Persons").
29. Immediately after the Merger, no more than fifty percent (50%) of each
of the total voting power and the total value of the stock of Parent will be
directly or indirectly owned, in the aggregate, by United States Persons who
are either officers, directors, or 5% shareholders of Target. For this
purpose, a 5% shareholder of Target is a person that directly or indirectly
owns at least five percent (5%) of either the total voting power or the total
value of the stock of Target immediately prior to the Merger.
30. To the best of the knowledge and belief of Target, (i) Parent will have
been engaged in an active trade or business outside of the United States,
within the meaning of Treasury Regulation Section 1.367(a)-2T(b)(2) and (3),
for the entire 36-month period immediately before the Effective Time; (ii)
Parent satisfies the substantially test contained in Treasury Regulation
Section 1.367(a)-3(c)(3); and (iii) the shareholders of Target do not have an
intention, and will not have an intention at the Effective Time, to
substantially dispose of or discontinue such trade or business.
31. Immediately after the Merger, no former Target shareholder will
directly or indirectly own 5% or more of either the total voting power or the
total value of the stock of Parent.
32. Target will comply with all applicable reporting requirements set forth
in Treasury Regulations under Section 367, including, without limitation,
Treasury Regulation Section 1.367(a)-3(c)(6).
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Wilson Sonsini Goodrich & Rosati,
Professional Corporation
, 2000
Page 5
33. To the best of the knowledge and belief of Target, Parent is an
organization properly characterized as a corporation under Section 7701(a)(3)
and Treasury Regulation Section 301.7701-2.
34. Target is not a United States real property holding corporation within
the meaning of Section 897(c)(2).
The individual executing this letter is authorized to make all of the
representations set forth herein on behalf of Target. Notwithstanding anything
herein to the contrary, the undersigned makes no representations regarding any
actions or conduct of Target pursuant to Parent's exercise of control over
Target after the Merger.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the Merger
Agreement and documents related thereto, and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations are not accurate in all material
respects at all relevant times. If, prior to the Effective Time, any of the
representations set forth herein cease to be accurate in any material respect,
the undersigned agrees to deliver to you immediately a written notice to that
effect. The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
Spyglass, Inc.,
a Delaware corporation
By:
Title:
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EXHIBIT E
[OpenTV Corp. letterhead]
, 2000
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
Spear Street Tower
One Market Street
San Francisco, California 94105
Re: Merger pursuant to Agreement and Plan of Merger and Reorganization
among OpenTV Corp., Sonnet Acquisition Corp., and Spyglass, Inc.
Ladies and Gentlemen:
This letter is furnished to you in connection with your rendering of
opinions regarding certain federal income tax consequences of the merger
pursuant to the Agreement and Plan of Merger and Reorganization dated as of
March 26, 2000 (the "Merger Agreement"), by and among OpenTV Corp., a British
Virgin Islands corporation ("Parent"), Sonnet Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Sub"), and Spyglass, Inc.,
a Delaware corporation ("Target"). Pursuant to the Merger Agreement, Sub will
merge with and into Target (the "Merger"). Except as otherwise provided,
capitalized terms not defined herein have the meanings set forth in the Merger
Agreement and the exhibits thereto. All section references, unless otherwise
indicated, are to the United States Internal Revenue Code of 1986, as amended.
After consulting with their counsel and auditors regarding the meaning of
and factual support for the following representations, the undersigned hereby
certify and represent that the following facts are now true and will continue
to be true as of the Effective Time:
1. Pursuant to the Merger, Sub will merge with and into Target, and Target
will acquire substantially all of the assets and liabilities of Sub.
Specifically, the assets transferred to Target pursuant to the Merger will
represent at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the
gross assets held by Sub immediately prior to the Merger. In addition, at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held
by Target immediately prior to the Merger will continue to be held by Target
immediately after the Merger. For purposes of this representation, the
following assets will be treated as assets held by Target or Sub, as the case
may be, immediately prior but not subsequent to the Merger: (i) assets
disposed of by Target or Sub (other than assets transferred from Sub to Target
in the Merger) prior to or subsequent to the Merger and in contemplation
thereof (including without limitation any asset disposed of by Target, other
than in the ordinary course of business, pursuant to a plan or intent existing
during the period ending at the Effective Time and beginning with the
commencement of negotiations (whether formal or informal) with Parent
regarding the Merger (the "Pre-Merger Period")); (ii) assets used by Target or
Sub to pay shareholders receiving cash in lieu of fractional shares of Parent
stock, or to pay other expenses or liabilities incurred in connection with the
Merger; and (iii) assets used to make distribution, redemption, or other
payments in respect of Target stock or rights to acquire such stock (including
payments treated as such for tax purposes) that are made in contemplation of
the Merger or related thereto.
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, 2000
Page 2
2. The Merger will be undertaken by Parent and Sub for valid business
purposes and not for the purpose of tax avoidance.
3. Prior to the Merger, Parent will be in "Control" of Sub. As used in this
letter, "Control" shall consist of direct ownership of stock possessing at
least eighty percent (80%) of the total combined voting power of all classes
of stock entitled to vote and at least eighty percent (80%) of the total
number of shares of each other class of stock of the corporation. For purposes
of determining Control, a person shall not be considered to own voting stock
if rights to vote such stock (or to restrict or otherwise control the voting
of such stock) are held by a third party (including a voting trust) other than
an agent of such person.
4. Sub is a wholly owned subsidiary of Buyer, formed solely for the
purposes of engaging in the Merger, and will carry on no business prior to the
Merger.
5. In the Merger, shares of Target stock representing Control of Target
will be exchanged solely for voting stock of Parent. For purposes of this
representation, shares of Target stock exchanged in the Merger for cash or
other property (including, without limitation, cash paid to Target
shareholders in lieu of fractional shares of Parent stock) will be treated as
Target stock outstanding at the Effective Time but not exchanged for voting
stock of Parent.
6. Parent has no plan or intention to cause Target to issue additional
shares of its stock, or to take any other action, that would result in Parent
losing Control of Target.
7. Parent has no plan or intention to reacquire any of its stock issued
pursuant to the Merger.
8. Parent has no plan or intention to liquidate Target; except for the
Merger to merge Target with or into another corporation, including Parent or
its affiliates; to sell, distribute, or otherwise dispose of the stock of
Target, except for transfers of stock to corporations Controlled by Parent, as
described in Section 368(a)(2)(C) and Treasury Regulation Section 1.368-2(k);
to cause Target to sell, distribute, or otherwise dispose of the stock of
Target; or to cause Target to sell or otherwise dispose of any of its assets
or of any of the assets acquired from Sub in the Merger, except for
dispositions made in the ordinary course of business, or transfers of assets
to a corporation Controlled by Target, as described in Section 368(a)(2)(C)
and Treasury Regulation Section 1.368-2(k).
9. In the Merger, Sub will have no liabilities assumed by Target and will
not transfer to Target any assets subject to liabilities. At the Effective
Time, Sub's liabilities will not exceed the tax basis of its assets.
10. Following the Merger, Parent will cause Target to continue Target's
historic business or use a significant portion of Target's historic business
assets in a business. For this purpose, Parent shall be treated as conducting
the business and holding the assets of related entities, as described in
Treasury Regulation Section 1.368-1(d)(4).
11. During the past five (5) years, and at present, none of the outstanding
shares of Target stock, including the right to acquire or vote any such shares
have, directly or indirectly, been owned by Parent or Parent's affiliates.
12. Neither Parent nor Sub is an investment company within the meaning of
Section 368(a)(2)(F)(iii) and (iv).
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, 2000
Page 3
13. No Target shareholder is acting as agent for Parent in connection with
the Merger or approval thereof. Parent will not reimburse any Target
shareholder for Target stock such shareholder may have purchased or for other
obligations such shareholder may have incurred.
14. Neither Parent nor Sub is under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A).
15. Neither Parent nor any person related to Parent within the meaning of
Treasury Regulation Section 1.368-1(e)(3) acquired any stock of Target
pursuant to Sales (as defined below) during the Pre-Merger Period or has any
plan or intention (a "Plan") to acquire pursuant to Sales (as defined below)
any Parent stock received in the Merger by any Target shareholder. As used
herein, "Sales" means any sales, exchanges, transfers, pledges, dispositions,
or any other transactions that result in a direct or indirect transfer of the
risk of ownership.
16. Except with respect to payments of cash to Target shareholders in lieu
of fractional shares of Parent stock, one hundred percent (100%) of the Target
stock outstanding immediately prior to the Merger will be exchanged solely for
Parent stock. Thus, except as set forth in the preceding sentence, Parent and
Sub intend that no consideration be paid or received (directly or indirectly,
actually or constructively) for Target stock other than Parent stock.
17. The total fair market value of all consideration other than Parent
stock received by Target shareholders in the Merger (including, without
limitation, cash paid to Target shareholders in lieu of fractional shares of
Parent stock) will be less than twenty percent (20%) of the aggregate fair
market value of the Target stock outstanding immediately prior to the Merger.
18. The fair market value of the Parent stock received by each Target
shareholder will be approximately equal to the fair market value of the Target
stock surrendered in exchange therefor, and the aggregate consideration
received by Target shareholders in exchange for their Target stock will be
approximately equal to the fair market value of all of the outstanding shares
of Target stock immediately prior to the Merger. "Fair market value" as used
in this representation is determined based upon arm's length negotiations and
the opinions of Merrill Lynch, Pierce, Fenner & Smith Incorporated and
FleetBoston Robertson Stephens, financial advisors to Parent and Target,
respectively.
19. Under Section 1.6(f) of the Merger Agreement, in lieu of any fractional
shares of Parent stock that would otherwise be issued, each Target shareholder
shall receive cash. The payment of cash in lieu of fractional shares of Parent
stock will be made solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and will not represent
separately bargained-for consideration. The total cash consideration that will
be paid in the Merger to the Target shareholders in lieu of issuing fractional
shares of Parent stock will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to the Target shareholders in
exchange for their shares of Target stock. The fractional share interests of
each holder of Target stock will be aggregated, and no holder of Target stock
will receive cash in an amount equal to or greater than the value of one full
share of Parent stock.
20. No shares of Sub have been or will be used as consideration or issued
to Target shareholders pursuant to the Merger.
21. Parent, Sub, Target, and the Target shareholders will each pay
separately its or their own expenses, if any, relating to the Merger.
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Hale and Dorr LLP
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
, 2000
Page 4
22. There is no intercorporate indebtedness existing between Parent and
Target or between Sub and Target that was issued, acquired, or will be settled
at a discount, and Parent will assume no liabilities of Target or any Target
shareholder in connection with the Merger.
23. The terms of the Merger Agreement are the product of arm's-length
negotiations.
24. None of the compensation received by any shareholder-employees of
Target will be separate consideration for, or allocable to, any of their
shares of Target stock; none of the shares of Parent stock received by any
shareholder-employees of Target will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and
the compensation paid to any shareholder-employees of Target will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
25. To the best of Parent's knowledge and belief, in the Merger, fifty
percent (50%) or less of both the total voting power and the total value of
the stock of Parent will be received by Target shareholders who are United
States persons within the meaning of Treasury Regulation Section 1.367(a)-
3(c)(5)(iv) ("United States Persons").
26. To the best of the knowledge and belief of Parent, immediately after
the Merger, no more than fifty percent (50%) of each of the total voting power
and the total value of the stock of Parent will be directly or indirectly
owned, in the aggregate, by United States Persons who are either officers,
directors, or 5% shareholders of Target. For this purpose, a 5% shareholder of
Target is a person that directly or indirectly owns at least five percent (5%)
of either the total voting power or the total value of the stock of Target
immediately prior to the Merger.
27. Parent will have been engaged in an active trade or business outside of
the United States, within the meaning of Treasury Regulation Section 1.367(a)-
2T(b)(2) and (3), for the entire 36-month period immediately before the
Effective Time. Parent satisfies the substantiality test contained in Treasury
Regulation Section 1.367(a)-3(c)(3). Parent does not have an intention, and
will not have an intention at the Effective Time, to substantially dispose of
or discontinue such trade or business.
28. To the best of the knowledge and belief of Parent, immediately after
the Merger, no former Target shareholder will directly or indirectly own 5% or
more of either the total voting power or the total value of the stock of
Parent.
29. Parent will comply with all applicable reporting requirements set forth
in Treasury Regulation Section 1.368-3, and Parent will cause Target to do the
same.
30. Parent will cause Target to comply with all applicable reporting
requirements set forth in Treasury Regulations under Section 367, including,
without limitation, Treasury Regulation Section 1.367(a)-3(c)(6).
31. Parent is an organization properly characterized as a corporation under
Section 7701(a)(3) and Treasury Regulation Section 301.7701-2.
32. The individual executing this letter is authorized to make all of the
representations set forth herein on behalf of Parent and Sub.
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<PAGE>
Hale and Dorr LLP
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
, 2000
Page 5
The undersigned recognize that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the Merger
Agreement and documents related thereto, and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations are not accurate in all material
respects at all relevant times. If, prior to the Effective Time, any of the
representations set forth herein cease to be accurate in any material respect,
the undersigned agree to deliver to you immediately a written notice to that
effect. The undersigned recognize that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
OpenTV Corp.,
a British Virgin Islands corporation
By:
Title:
Sonnet Acquisition Corp.,
a Delaware corporation
By:
Title:
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<PAGE>
ANNEX B
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
March 26, 2000
Board of Directors
OpenTV Corp.
401 East Middlefield Road
Mountain View, CA 94043-4005
Members of the Board of Directors:
OpenTV Corp. ("OpenTV"), Sonnet Acquisition Corp., a wholly owned
subsidiary of OpenTV ("Merger Sub"), and Spyglass, Inc. ("Spyglass") propose
to enter into an Agreement and Plan of Merger and Reorganization (the
"Agreement"), pursuant to which Merger Sub will be merged with and into
Spyglass (the "Merger") and each outstanding share of the common stock, par
value $0.01 per share, of Spyglass (the "Spyglass Common Stock") will be
converted into the right to receive 0.7236 (the "Exchange Ratio") of a Class A
Ordinary Share, par value $0.01 per share, of OpenTV (the "OpenTV Common
Stock").
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to OpenTV.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to Spyglass and OpenTV that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flows, assets, liabilities and
prospects of Spyglass and OpenTV furnished to or discussed with us by
Spyglass and OpenTV;
(3) Conducted discussions with members of senior management and
representatives of Spyglass and OpenTV concerning the matters described
in clauses 1 and 2 above, as well as their respective businesses and
prospects before and after giving effect to the Merger;
(4) Reviewed the market prices and valuation multiples for the Spyglass
Common Stock and the OpenTV Common Stock and compared them with those
of certain publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of Spyglass and OpenTV and compared
them with those of certain publicly traded companies that we deemed to
be relevant;
(6) Participated in certain discussions and negotiations among
representatives of Spyglass and OpenTV and their respective financial
and legal advisors;
(7) Reviewed the Agreement; and
(8) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an
B-1
<PAGE>
independent evaluation or appraisal of any of the assets or liabilities of
Spyglass or OpenTV or been furnished with any such evaluation or appraisal. In
addition, we have not assumed any obligation to conduct, nor have we
conducted, any physical inspection of the properties or facilities of Spyglass
or OpenTV. With respect to the financial forecast information furnished to or
discussed with us by Spyglass or OpenTV, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgments of the respective managements of Spyglass or OpenTV as to the
expected future financial performance of Spyglass or OpenTV, as the case may
be. We have further assumed that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes. We have also assumed that
the final form of the Agreement will be substantially similar to the last
draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof.
We are acting as financial advisor to OpenTV in connection with the Merger
and will receive a fee from OpenTV for our services payable upon the
consummation of the Merger. In addition, OpenTV has agreed to indemnify us for
certain liabilities arising out of our engagement. We have in the past and
currently are providing financial advisory and financing services to OpenTV
and certain of its affiliates unrelated to the Merger, and may in the future
continue to do so, for which services we have received and will receive
compensation. In addition, in the ordinary course of our business, we may
actively trade the securities of Spyglass and OpenTV for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of OpenTV
in its evaluation of the Merger and may not be used for any other purpose. Our
opinion does not address the merits of the underlying decision by OpenTV to
engage in the Merger and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed Merger or
any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
OpenTV Common Stock will trade following the announcement or consummation of
the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of
view to OpenTV.
Very truly yours,
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
B-2
<PAGE>
ANNEX C
Robertson Stephens
A FleetBoston Financial Company
March 26, 2000
Board of Directors
Spyglass, Inc.
1240 East Diehl Road
Naperville, IL 60563
Members of the Board:
We understand that Spyglass, Inc. (the "Company"), OpenTV Corp. ("OpenTV")
and Sonnet Acquisition Corp. (a wholly owned subsidiary of OpenTV, "Merger
Sub") are proposing to enter into an Agreement and Plan of Merger (the
"Agreement") which will provide, among other things, for the merger (the
"Merger") of Merger Sub with and into the Company. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of OpenTV. Under the
terms, and subject to the conditions, set forth in the Agreement dated March
26, 2000 (the "Agreement"), at the effective time of the Merger, the
outstanding shares of common stock of the Company, par value $.01 per share
("Company Common Stock") other than certain shares to be canceled pursuant to
the Merger, will be converted into the right to receive 0.7236 shares (the
"Exchange Ratio") of the Class A Ordinary Shares of OpenTV, no par value
("OpenTV Ordinary Shares"). The terms and conditions of the Merger are set out
more fully in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view and as of the date hereof to the "Holders of Company
Common Stock". The "Holders of Company Common Stock" shall be defined as all
holders of Company Common Stock other than OpenTV, Merger Sub, any affiliates
of OpenTV or Merger Sub or any holders of dissenting shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and OpenTV;
(ii) reviewed certain internal financial statements and other financial
and operating data, including certain financial forecasts and other forward
looking information, concerning the Company prepared by the management of
the Company;
(iii) reviewed certain publicly available estimates of research analysts
relating to the Company and OpenTV;
(iv) held discussions with the respective managements of the Company and
OpenTV concerning the businesses, past and current operations, financial
condition and future prospects of both the Company and OpenTV,
independently and combined, including discussions with the management of
OpenTV concerning cost savings and other synergies that are expected to
result from the Merger as well as their views regarding the strategic
rationale for the Merger;
(v) reviewed the financial terms and conditions set forth in the
Agreement;
(vi) reviewed the stock price and trading history of Company Common
Stock and OpenTV Ordinary Shares;
(vii) compared the financial performance of the Company and OpenTV and
the prices and trading activity of Company Common Stock and OpenTV Ordinary
Shares with that of certain other publicly traded companies which we deemed
comparable to the Company and OpenTV;
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<PAGE>
(viii) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions that we
deemed relevant;
(ix) reviewed the pro forma impact of the Merger on OpenTV's revenue per
share;
(x) participated in discussions and negotiations among representatives
of the Company and OpenTV and their financial and legal advisors; and
(xi) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided to us (including information furnished to us orally
or otherwise discussed with us by the managements of the Company and OpenTV)
or publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the managements of the Company and OpenTV that they are not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the
properties, assets or liabilities (contingent or otherwise) of the Company or
OpenTV, nor were we furnished with any such evaluation or appraisal. With
respect to the financial forecasts and projections (and the assumptions and
bases therefor) for each of the Company and OpenTV that we have reviewed, we
have assumed that such forecasts and projections have been reasonably prepared
in good faith on the basis of reasonable assumptions and reflect the best
currently available estimates and judgments as to the future financial
condition and performance of the Company and OpenTV, respectively, and we have
further assumed that such projections and forecasts will be realized in the
amounts and in the time periods currently estimated. We have assumed that the
Merger will be consummated upon the terms set forth in the Draft Agreement
without material alteration thereof, including, among other things, that the
Merger will be accounted for as a "purchase method" business combination in
accordance with U.S. generally accepted accounting principles ("GAAP") and
that the Merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986, as amended. In addition, we have assumed that
the historical financial statements of each of the Company and OpenTV reviewed
by us have been prepared and fairly presented in accordance with U.S. GAAP
consistently applied. We have relied as to all legal matters relevant to
rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect
the conclusion expressed in this opinion and that we disclaim any undertaking
or obligation to advise any person of any change in any matter affecting this
opinion which may come or be brought to our attention after the date of this
opinion. Our opinion is limited to the fairness, from a financial point of
view and as to the date hereof, to the Holders of Company Common Stock of the
Exchange Ratio. We do not express any opinion as to (i) the value of any
employee agreement or other arrangement entered into in connection with the
Merger, (ii) any tax or other consequences that might result from the Merger
or (iii) what the value of OpenTV Ordinary Shares will be when issued to the
Company's stockholders pursuant to the Merger or the price at which OpenTV
Ordinary Shares that are issued pursuant to the Merger may be traded in the
future. Our opinion does not address the relative merits of the Merger and the
other business strategies that the Company's Board of Directors has considered
or may be considering, nor does it address the decision of the Company's Board
of Directors to proceed with the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive (i) a fee contingent upon the delivery of this opinion
and (ii) an additional fee contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of our engagement. In the ordinary course of business, we may
trade in the Company's securities and OpenTV's securities for our own account
and the account of our customers and, accordingly, may at any time hold a long
or short position in the Company's securities or OpenTV's securities.
Our opinion expressed herein is provided for the information of the Board
of Directors of the Company in connection with its evaluation of the Merger.
Our opinion is not intended to be and does not constitute a
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recommendation to any stockholder of the Company or OpenTV as to how such
stockholder should vote, or take any other action, with respect to the Merger.
This opinion may not be summarized, described or referred to or furnished to
any party except with our express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to the Holders of
Company Common Stock from a financial point of view.
Very truly yours,
FLEETBOSTON ROBERTSON STEPHENS INC.
/s/ FleetBoston Robertson Stephens
Inc.
_____________________________________
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Spyglass, Inc.
SPECIAL MEETING OF STOCKHOLDERS
____________, 2000
The undersigned stockholder(s) of Spyglass, Inc., a Delaware corporation,
hereby acknowledge(s) receipt of the Notice of Special Meeting of Stockholders
and Joint Proxy Statement/Prospectus, each dated _________, 2000, and hereby
appoints Douglas P. Colbeth, Martin J. Leamy and Gary L. Vilchick, and each of
them acting singly, proxies and attorneys-in-fact, with full power of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Special Meeting of Stockholders of Spyglass, Inc. to be held
____________, 2000, at 10:00 A.M., Eastern time, at the offices of Hale and Dorr
LLP located on the 26th Floor of 60 State Street, Boston, MA 02109, and at any
adjournment or adjournments thereof, and to vote all shares of common stock of
Spyglass, Inc. which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side and, in their
discretion, upon any other matters which may properly come before the Special
Meeting or any adjournment thereof. Attendance of the undersigned at the
meeting or at any adjourned session thereof will not be deemed to revoke this
proxy unless the undersigned shall affirmatively indicate thereat the
intention of the undersigned to vote said shares in person.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE SIDE.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL LISTED BELOW
<TABLE>
<S> <C>
1. To approve the proposed merger of Spyglass with OpenTV Corp. ("OpenTV"), FOR AGAINST ABSTAIN
to be effectuated by a proposed merger of Sonnet Acquisition Corp., a ----------- ----------- -----------
wholly-owned subsidiary of OpenTV, with and into Spyglass, Inc. ("Spyglass") ----------- ----------- -----------
as contemplated by the Agreement and Plan of Merger and Reorganization
dated as of March 26, 2000, among OpenTV, Sonnet Acquisition Corp. and
Spyglass. In the merger, OpenTV will issue 0.7236 of an OpenTV Class A
Ordinary Share in exchange for each outstanding share of Spyglass common
stock.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE
ABOVE PROPOSAL. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING, THE
PERSONS NAMED IN THIS PROXY WILL VOTE THE SHARES REPRESENTED BY THIS PROXY IN
THEIR DISCRETION.
_______________________________________________________ _______________________________________________________
Signature(s) of Stockholder(s) Signature(s) of Stockholder(s)
Dated________________________________ Dated________________________________
Address Change:______________________
_____________________________________
_____________________________________
PLEASE SIGN exactly as your name appears hereon.
Joint owners should each sign. Executors,
administrators, trustees, etc., should so indicate when
signing. If signer is a corporation, please sign full
name by duly authorized officer.
</TABLE>
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